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Financing Green Property Improvements In Chicago Is About To Get Easier

Some landlords may consider energy-efficient infrastructure to be expensive, but a low-cost financing program for such improvements is available in more than 30 states, and Chicago’s program, which launched in April 2019, is about to expand.

Called Commercial Property Assessed Clean Energy, or C-PACE, it allows owners and developers to access long-term financing from private capital that pays for green systems, creating long-term savings on energy and water costs.

The renovated Main Post Office at 433 West Van Buren.

“Up to this point, it’s been a pilot program,” Loop Capital Managing Director Jana Wesley said last week during Bisnow’s Chicago Deep Dish: C-PACE webinar. The company, in a joint venture with Counterpointe Energy Solutions, administers the city’s C-PACE program on behalf of the Chicago Department of Planning and Development.

“On or about March 1, the program will expand its capital provider pool, we are working with the city now to get that documentation completed,” Wesley added. “We expect that is going to be a really wonderful addition to the program.”   

Eligible properties run the gamut from mixed-use developments, office buildings, hotels, retail, industrial, multifamily and others. Owners can use C-PACE to add energy-efficient lighting, water conservation projects, renewable energy sources, electric charging stations or replace aging lead pipes, among many other options.

Property owners can borrow up to 25% of the appraised value, Wesley said. The loan repayments, which appear as a line item on the property tax bill, are stretched out over the useful life of the improvements, usually 20 to 25 years, and offer borrowers certainty.

“The interest rate is fixed and negotiated with the capital provider,” she said.

Clockwise from top left: Stok's Jeremy Attema, Enhanced Capital's Peter Neumeier, Enhanced Capital's Ian McCulley, Loop Capital's Jana Wesley and D2 Capital Advisors' Jack Cortese

It’s easy to understand why property owners and developers want C-PACE financing in their capital stack, Enhanced Capital Director Ian McCulley said.

“We typically see people consider C-PACE, for both new development and extensive rehab, as a way to potentially replace mezzanine debt, which as everyone knows, is very expensive and can have fairly onerous terms,” he said. “Whereas C-PACE rates broadly are in the mid 5% to 7% range and, obviously, pretty long-term financing.”

“You don’t have to worry about a balloon payment being due in year five,” McCulley added.

The payments called for in C-PACE programs are typically offset by lower energy costs, according to Jeremy Attema, project manager for Stok, a firm that analyzes the financial impact of sustainable infrastructure.

“If done right, the pro forma should be cash-flow positive, if not the first year, then within the first five years,” he said.

It is still a relatively new financing tool, Wesley said, so some lenders are unfamiliar with how C-PACE operates and its potential benefits.

She encourages property owners and developers to reach out to their municipality’s program administrator, who can in turn reach out to lenders and explain how it all works. The word is already getting out, but it could be moving faster, she added.

“Don’t hesitate to ask for help if you’re running into a brick wall,” she said. “From a national standpoint, over 200 financial institutions have given consent, so it’s growing, and it’s growing every day.”