The “Acronyms” Funding Commercial Building Improvements are Having a Big Impact
At the utterance of the acronym C-PACE, and almost certainly if you combine it with another, ABS, eyes are apt to glaze over, minds to wander. But these less widely known terms are behind a swell of new investments in U.S. real estate to fund commercial building improvements that are bringing tangible positive environmental and social change to people’s lives.
C-PACE (Commercial Property Assessed Clean Energy) loans are an innovative public-private financing structure that makes it possible for owners of U.S. commercial properties to obtain low-cost, long-term, fixed-rate financing to pay for energy efficiency, water conservation, renewable projects and more. They’re intended to encourage the widespread installation of green/energy-efficient systems and improvements by helping to relieve two common roadblocks to making these improvements: high upfront costs and a lack of available financing.
Asset-backed securities (“ABS”) are sophisticated financial products created by pooling together a group of loans that are structured to distribute and mitigate a loan pool’s risks. ABS are then sold to institutional investors, creating a liquid market for the securities, referencing the underlying loans. This added liquidity can have the effect of attracting more capital to a loan market - C-PACE loans included - often lowering the costs for these loans.
Add to this dynamic, the large incentives stemming from U.S. state and Federal environmental agendas that provide decarbonization tax credits and rebates to promote energy efficiency in commercial buildings, and you have the ingredients for a rapidly emerging C-PACE loan market and a wave of “green” commercial building improvements spreading across the country. As of last count, 38 states have enacted C-PACE legislation, with 30 states having active C-PACE programs. This rush in the adoption of C-PACE programs across the country has been a big factor in generating interest for these loans.
One recent financial transaction that exemplifies the growing popularity of C-PACE programs involved Nuveen Green Capital (“NGC”), a best-in-class provider of sustainable commercial real estate financing solutions, and Societe Generale, which has been at the forefront of the securitization space for decades.
“The investor base for C-PACE loans is expanding, given the assets’ low-risk profile, longer duration, and view that it is a pure play ESG ABS investment,” said Alex Slobodian, a Director on the ABS team at Societe Generale who originated the deal. “At the same time, C-PACE originations are seeing growth, in part because of a better understanding of C-PACE by industry participants such as commercial mortgage lenders.”
The Nuveen Green Capital transaction, a $200 million securitization facility that closed earlier this year, financed a revolving pool of C-PACE loans sourced by NGC.
The pool of loans will fund an array of improvements to commercial buildings across the country, including hotels, apartment buildings, office buildings, and senior-living facilities.
Qualifying C-PACE related building projects comprise a wide assortment of energy saving measures, from installing solar energy, to upgrading boilers and furnaces, to adding automated building control systems, to roof replacement. You’d be surprised what makes a difference. Insulation and glazing windows and other such improvements can save commercial buildings between 5% to 40% on energy costs and make building occupants more comfortable.
“This deal, and deals like it, will end up financing a lot of positive change and materially contribute to both SG’s and the U.S.’s sustainability goals,” said Marty Finan, who co-heads the ABS origination and financing team at Societe Generale Americas, and, who along with his team, executed the transaction.
The positive change goes beyond just energy efficiency and water conservation, there’s also a considerable positive societal knock-on effect.
According to Nuveen Green Capital, the economic and environmental impact from their C-PACE programs has supported the creation of over 25,000 clean energy jobs and saved over 2.6 million MWh of energy.
That’s a big contribution for two esoteric acronyms.
For more information, visit: https://www.nuveen.com/greencapital