Innovative Financing: How C-PACE is Reshaping Real Estate

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Episode Transcript:

Today we're exploring a fascinating financing option that's gaining traction in the real estate market.

In a landscape where traditional lenders are becoming increasingly cautious about funding new real estate projects, developers are turning to alternative financing sources to keep their projects afloat. One such option that's been making waves is known as Commercial Property Assessed Clean Energy, or C-PACE financing.

This innovative financing approach offers developers a lifeline by significantly reducing their upfront costs. It operates on the premise of a long-term fixed repayment plan, which can be a game-changer for those in need of capital. Let's dig deeper into this.

Enter PACE Loan Group, a national direct lender based in the great state of Minnesota. They specialize in helping developers and property owners secure C-PACE financing for a wide array of projects, whether it's new construction ventures or upgrades to existing buildings.

Rafi Golberstein, the CEO of PACE Loan Group, shared some valuable insights into their approach. He emphasized a two-step strategy they employ: educate and execute. It's all about enlightening their clients on how C-PACE financing can bolster their capital stack, including reducing burdensome mortgage debt, and then swiftly navigating them through the funding process.

You see, C-PACE financing is not exactly a household name yet, despite its growing popularity. Golberstein pointed out that there's still a knowledge gap regarding how to effectively harness its potential, especially when conventional funding methods might be scarce and costly.

One crucial piece of advice he offered is the importance of selecting the right C-PACE lender. Given that there are over 30 states allowing C-PACE, each with its unique regulations, borrowers must ensure their chosen lender has the relevant experience within that jurisdiction.

But why the rush towards C-PACE? Golberstein highlighted a significant market trend. Traditional bank pricing is on the rise, and banks are tightening their belts, reducing their leverage to safeguard capital. This squeeze isn't limited to banks; debt funds are following suit, hiking rates and cutting down on leverage.

So, where does C-PACE come in? It's hailed as a solution to bridge financing gaps. With a healthy dose of liquidity, PACE Loan Group can swiftly adapt to provide their clients with the maximum loan amount required, even in challenging market conditions. It's not about lending 60% to 65% of a project's cost; rather, it's about leveraging C-PACE to optimize capital utilization while beating mortgage rates.

To illustrate its practicality, Golberstein shared a success story. PACE Loan Group recently provided a substantial $22.5 million loan for the Hotel Blossom Houston near the Texas Medical Center, marking it as the largest PACE loan in Houston at the time. This project came into the spotlight as it sought refinancing amid rising interest rates. Through creative retroactive C-PACE financing, they were able to offer the property owner the most cost-effective funding option with long-term, fixed-rate debt.

Another impressive collaboration featured the development of the Four Seasons Hotel Minneapolis at RBC Gateway. PACE Loan Group stepped in with a long-term, fixed-rate $20 million loan to refinance critical elements of the property, including an energy-efficient building envelope, HVAC systems, and high-efficiency water and lighting systems.

This strategic partnership allowed them to approach sustainability while also creating more liquidity for the developer. It was a win-win situation that enabled the recapture of funds spent on cost overruns, particularly during the challenging times of the pandemic.

Golberstein wrapped up by emphasizing that C-PACE isn't confined to specific market conditions. Whether the market is booming or showing signs of illiquidity, C-PACE can serve as a versatile financing tool.

In conclusion, C-PACE financing is a dynamic force in real estate, and as Rafi Golberstein pointed out, it's only beginning to reveal its true potential. With larger institutional deals being inked and a steady increase in originations year after year, the journey of C-PACE continues to evolve, promising exciting opportunities for developers and property owners alike.

This is Tyler Cauble, Signing off