The CRE Industry could use some relief – and C-PACE might just be the answer
Nuveen Green Capital, a leading provider of sustainable commercial real estate financing solutions, aims to alleviate the pain of current market conditions.
Recent bleak headlines underline the unease felt by the commercial real estate and finance industries as they brace for continued challenges related to the recent bank failures, rising interest rates, and general market turbulence.
While the picture painted across news outlets is somewhat grim, as comparisons are drawn to 2008 and 2020, we have been ‘here’ before. It’s a different ‘here’ this time, but there’s a way forward – there always is.
As we know, lenders have been pulling back in the face of rising interest rates, deposit outflows, and increased regulatory scrutiny. Now, with the recent Silicon Valley and other bank shutdowns, the resulting turbulence is providing increased challenges for regional banks .
On the property owner/developer side, many have limited reserves – and are faced with maturing loans, only to be met with expensive debt options. This is impacting various segments of CRE: large pools of office new construction could face an uncertain future ; hotels are recovering, but unevenly , and many apartment and industrial projects were tightly underwritten, so the interest rate increases are impacting them, as well.
Nuveen Green Capital sees C-PACE as a reliable solution that can help owners and developers access one of the least expensive forms of capital for ongoing or recently completed new construction or retrofit projects. C-PACE (Commercial Property Assessed Clean Energy) financing is a unique, public-private financing mechanism, which allows CRE owners and developers to access fixed-rate, low-cost and long-term financing to support sustainability measures on their projects. C-PACE is growing in popularity across the country as a unique, public-private financing mechanism.
What is less well known and is a potential solution to current market challenges: recently completed or mid-flight new construction or retrofit projects that have employed sustainability measures can recapitalize their projects (up to three years in most states).
C-PACE proceeds may be used to fund construction cost overruns, replenish operating reserves, cover debt payments, and/or pay down, or restructure existing debt.
Benefits for Sponsors
For sponsors, the net proceeds from C-PACE financing are typically 35% of the property value, with a fixed interest rate of ~7%, which is prepayable at any time (subject to a declining fee) over the ~20–30-year term of the loan. In addition, a C-PACE loan is non-recourse, except for a completion guaranty, and there are no financial covenants post completion.
Benefits for Lenders
Lenders can recapitalize their projects mid-flight or post construction (up to three years in most states) to bridge them to stabilization. This enables them to reduce their loan exposure, as well as the cost of holding risk reserves. They may also increase their deposits by holding their reserves in escrow – which increases the project proceeds, thereby decreasing the weighted cost of capital. Lenders may also retain full control in the event of a default or workout.
With these considerable benefits, hundreds of sponsors and lenders have seen the opportunity to utilize C-PACE financing to help weather challenging economic times. A recent example is the Hotel Arlo in Miami– which is just one of many C-PACE success stories. In times of distress, new solutions and innovations can come to light. That’s how we view C-PACE. It’s part of the solution and positive path forward.
For more information on C-PACE financing for recapitalization, visit: https://www.nuveen.com/greencapital/project-types/c-pace-recapitalization
The Arlo Wynwood Hotel is an all-new, 217-room, nine-story, luxury boutique hotel
in Miami’s popular and eclectic Wynwood neighborhood.
Photo Courtesy – Quadram Global