Over the past decade, green financing for commercial real estate has been growing steadily. There are now a variety of debt instruments that allow property owners and developers to access capital for the purpose of making properties eco-friendlier and more resilient. Tax credits for certain green investments are another financing tool.
And that got me wondering: With President Trump taking aim at what he has called “green new deal policies” at the Federal level and casting doubt on climate change generally, could the commercial real estate capital markets make a retreat from sustainability?
Time will tell, but two C-PACE lenders I spoke with last week are confident that their product will remain in demand despite the messages coming from Washington.
The Commercial Property Assessed Energy Program, otherwise known as C-PACE, was launched 15 years ago to provide property owners with low-cost, long-term financing for sustainability and efficiency improvements, with borrowers repaying their loans through a special tax assessment. The program is authorized by state legislation—not Federal government—and currently 40 states have C-PACE programs.
“C-PACE is private capital, not federal funds, so changes to budgets, incentives, and such have little to no impact on C-PACE operations,” said Jessica Baily, president & CEO of Nuveen Green Capital.
Under the first Trump administration, according to Bailey, cumulative C_PACE originations grew at a CAGR of roughly 160 percent, and the program expanded from five to 18 states. “C-PACE has consistently been a purple policy,” Bailey said.
Demand-drivers
A big driver of C-PACE activity has been the need for property owners to meet the wave of local and state building performance standards aimed at reducing GHG emissions from buildings. According to Pace Equity data, currently 40-50 cities have rolled out or are in the process of rolling out building performance standards.
“That to me is evidence that this is really a bottom-up, grassroots effort across the country,” said Beau Engman, president & founder of C-PACE Equity.
Engman also pointed to how building codes across the country are changing to align with the goals of the Paris Accord, which, incidentally, President Trump withdrew he U.S. from (once again) on his first day in office.
“Regardless of what happens there, there is a trajectory that’s very consistent on building codes improving at a steady rate,” Engman said.
But the real seal of approval, Engman said, comes from the lenders whose consent is needed to make C-PACE part of a project’s capital stack.
A reliable source of funding in an uncertain market, C-PACE has expanded despite the backlash against ESG from politicians and some corners of the investment world. Will that sentiment be emboldened by Trump’s disdain for “green New Deal” policies? Perhaps
Nevertheless, Bailey pointed to C-PACE benefits beyond lowering emissions that will help ensure its longevity. “While the focus may turn away from ESG,” she said, “we believe there will be an emphasis on economic development and resiliency. C-PACE has funded many resiliency projects, and this number is steadily increasing. In addition, to date, over 49,000 jobs have been created by NGC’s C-PACE financed projects.”
