PACE Financing is now available for New Construction

New York City recently released updated Commercial Property Assessed Clean Energy[1] (C-PACE) guidelines which are expected to open up opportunities for owners to obtain C-PACE financing for new construction and energy retrofit projects on properties throughout the city by lowering the bar on, and completely exempting some projects from, certain strenuous requirements that were previously implemented.

C-PACE financing is a form of low-cost and long-term financing available for commercial, industrial, and multifamily properties looking to improve their energy efficiency, renewable energy usage, seismic measures, storm-water measures, and other similar property enhancements. Repayment of C-PACE loans are structured in a manner that is similar to tax assessments which are repaid together with the real estate property tax bill over a period of 20 to 30 years on average. While the program’s rules initially did not apply to new construction or buildings with ground leases, New York State guidelines were put into place which allowed these projects, provided they met a strict Savings-to-Investment Ratio requirement (“SIR Requirement”). Although technically allowed, very few projects in New York City met the SIR Requirement due to New York City’s high construction costs for city projects.

The C-PACE guidelines were updated because the New York State and the New York City Accelerator Financing programs recently adopted the New York State Energy Research and Development Authority’s Guidance (“NYSERDA Guidance”),[2] which allows new construction, buildings undergoing major renovations, and new construction of properties on ground leases, any of which result in an all-electric building, to be eligible for C-PACE financing with reduced requirements. Retrofit projects are also now eligible for C-PACE financing, and any retrofit projects that result in an all-electric building are now designated as pre-qualified, exempting them from the SIR Requirement, possibly allowing even the non-electrification measures to be eligible for C-PACE financing. Additionally, the NYSERDA Guidance allows for an easier-to-meet incremental cost approach when calculating the SIR Requirement, paving the way for more retrofit projects to use C-PACE financing.

With these new guidelines lowering the bar to entry for C-PACE financing, developers and owners have never been better positioned to take advantage of the program. That said, it remains to be seen whether these new guidelines are sufficient to ensure that C-PACE financing becomes widely used, or if additional changes to the guidelines are needed and actually implemented in the future.

[1] NYC Accelerator PACE Financing.

[2] Commercial Property Assessed Clean Energy (PACE) Financing Resources - NYSERDA