Identifying the final dollars in a capital stack is a common challenge for hotel developers. Instead of high-interest rate mezzanine loans, savvy hotel developers are using C-PACE financing (Commercial Property Assessed Clean Energy) as a means to capture financing benefits and be rewarded for building efficient buildings.
A historic redevelopment along the Florida coastline recently financed 27 percent of its capital stack with C-PACE financing. A new downtown Las Vegas hotel completed its capital stack with $40 million in C-PACE financing, making it the largest Nevada C-PACE project in history. These hotel developments not only secured the low-cost, non-recourse, fixed-rate, long-term benefits of a C-PACE loan, they also reaped cost savings by leveraging the energy efficiency measures on their properties.
The Value in C-PACE Financing
C-PACE financing is a public/private partnership legislated at the state level. It offers private capital funding for items in a building’s construction budget that have a quantifiable water, utility, or renewable energy impact such as HVAC equipment and controls, water heating, indoor and outdoor lighting, elevators, plumbing, and of course electric vehicle car charging infrastructure or solar panel installation.
Modern building renovations and new construction projects, including hotel developments which are very energy intensive, include both efficient equipment and energy-saving measures. These projects can qualify for C-PACE financing without changing the building design.
When they secure a C-PACE loan, hotel developers can replace the significantly higher cost of mezzanine loans or their own equity capital, bringing down the total cost of capital for the project. C-PACE financing is also non-recourse, so personal risk is not an issue. Most C-PACE funding offers long-term, fixed-rate financing with 25 to 30-year terms.
C-PACE financing is available not only for new developments but also hotel renovations and redevelopments. In certain states, C-PACE refinancing is also available for completed projects, so funding is done by looking back up to three years after Certificate of Occupancy is received. From mid-construction to post-construction, refinancing allows developers to recapitalize a project—covering cost overruns, eliminating high-cost capital, managing liquidity, and securing long-term, low-cost capital so they can use their valuable equity for the next project.
Since 2014, Milwaukee-based PACE Equity has enabled over $2.7 billion in commercial development while funding projects that saved $512 million of energy costs and eliminated over 1.2 million metric tons of carbon emissions from over 150 projects.
Milestone Moment in Nevada
The developers of the dual-branded AC Hotel by Marriott and Westin Element, the first hotels in the Las Vegas’ Symphony Park, closed on the largest C-PACE funding in Nevada history. Dallas-based developer Jackson-Shaw designed the new 261,530-square-foot, 441-room hotels to exceed baseline carbon reduction requirements. They are expected to save an estimated 485,500 kWh of electricity, 796,000 gallons of water, and over $92,800 in annual utilities and operations costs. In addition, the hotel will reduce carbon emissions by 454.1 metric tons annually.
Historic Revitalization in Florida
Originally built in 1925, the Gulfstream Hotel underwent a tumultuous history of new owners before closing in 2005. The historic six-story hotel, located in downtown Lake Worth Beach on Florida’s east coast, lay dormant until Restoration St. Louis, a firm specializing in historic restorations, purchased the hotel.
With a vision to restore the 90-room hotel that was added to the National Register of Historic Places in 1983, Restoration St. Louis pursued C-PACE financing, which accounted for $12.7 million, or 27 percent of the capital stack. The Gulfstream Hotel will save over $50,000 annually in utility costs and will reduce carbon emissions by 7,200 metric tons, the equivalent of annual emissions from 1,700 cars.
Financing Savings Combined with Guest-Friendly Sustainability
From Las Vegas to the Atlantic coast of Florida, pursuing C-PACE financing allowed these hotel developers and others to capture financing and operational savings across a hotel’s lifecycle while adding value for sustainability-minded guests.
Both the AC Hotel by Marriott & Westin Element and the Gulfstream Hotel developments also pursued a CIRRUS Low Carbon verification, which is the only private capital source that offers lower rates for greener buildings and financing of up to 30 percent of a project capital stack.
These hotel developments have chosen to complete their capital stacks with a unique financing tool that offers lower interest rates while it leverages investments in building design that reduce operating costs and enhance branding to engage guests.
Tricia Baker is Senior Vice President of Strategy & Impact at PACE Equity.
