KANSAS CITY, MO.—Josh Smith, Senior Transaction Counsel for CleanFund Commercial PACE Capital in Sausalito, Calif., is seeing changes in how hotel developers finance their efficiency projects and that is good news for the environment and hoteliers alike. “Hospitality is where we are seeing our largest growth,” says Smith, whose company specializes in long-term financing for energy efficiency, water conservation, renewable energy and seismic improvements for commercial, multifamily and other nonresidential properties in the United States.
CleanFund provides private capital for Commercial Property Assessed Clean Energy (C-PACE), a financing structure adopted in 33 states and the District of Columbia that allows property owners to repay investments for building upgrades and new construction on their property tax bills. Up to 20 percent of a hotel project can be financed using C-PACE. CleanFund’s financing enables commercial property owners to install modern energy and water technology with no up-front cost, increasing property cash flows and value. CleanFund offers financing terms of up to 30 years, which will match the expected life of a solar PV system and deliver the best immediate and ongoing positive cash flows for solar improvements.
“We are seeing a tightening of traditional lending platforms,” Smith says. “For historical properties, they represent a long-term investment that might not have an immediate payback. We replace mezzanine financing with a more reasonable interest rate.”
Significantly Lower Interest Rate
Smith says with C-PACE financing one can pay interest rates in the high-5’s or low 6’s, instead of 12 percent to 14 percent. “It encourages you to develop a more efficient building,” he says. “It is a win for all involved in the transaction.” The interest rate does not change over time and it gets paid off as the tax bill is paid. The financing stays with the building when it is sold.
One project CleanFund worked with is the 118-room boutique Hotel Indigo Kansas City Downtown. The principals of Kothe Real Estate Partners, Great Lakes Management Group, and KP Property Development formed a partnership, Brookfield Hotel Operator LLC, to redevelop the historic Brookfield Building. Now open as a mixed-use hotel/apartment building (27 apartments), CleanFund provided $2.4 million in 20-year financing towards the redevelopment of the historic now 88-year-old structure in downtown Kansas City that had stood vacant since 2005. The use of C-PACE funds filled the gap in financing the property owners needed to make it a viable project. Historic tax credits also were part of the financing package.
The owners saw C-PACE as a perfect solution for financing high-efficiency new heating, ventilation and air-conditioning systems, new LED lighting, electrical, water heater and control system improvements. The $2,420,000 in C-PACE financing is the largest commercial C-PACE transaction in Kansas City to date and is expected to result in 33 percent in energy savings over time.
While 33 states and Washington, D.C. have some form of PACE legislation, “Sometimes we have seen legislation not drafted to succeed,” Smith says. In fact, only 15 states have active programs. “In some states you can use it for new construction,” Smith adds.
Glenn Hasek can be reached at email@example.com.