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With market conditions as unsettled as they are, one might expect developers and lenders to be pumping the brakes on commercial real estate projects. But that is not what Andrew Zech, chief operating officer of Nuveen Green Capital, is seeing.
“We are one of the most active construction lenders even during this time of volatility,” Zech said. “While new construction financing demand is slowing, the supply of new construction capital has slowed even faster, and we’re seeing opportunities to fund top developers in top markets.”
Zech estimated Nuveen Green Capital is closing a dozen new construction projects per month, making this the company’s biggest originations year since it was founded in 2015.
“And that number is increasing, not decreasing,” he added.
Zech said the fastest-growing demand is for fixed, low-rate bridge debt. This is especially the case for borrowers who are caught between rising debt costs and a longer road to stabilization than they had anticipated.
“It’s a larger version of what the industry faced when Covid hit in 2020,” he said.
Nuveen Green Capital’s expertise is in helping CRE borrowers obtain Commercial Property Assessed Clean Energy, or C-PACE, financing, which is available to qualifying borrowers in most states.
C-PACE is a public-private funding mechanism that allows owners and developers to access fixed-rate, low-cost and long-term financing to support improvements to their properties that make them more sustainable. Zech said there are a couple of key advantages to C-PACE financing that make it a particularly attractive option today.
One of them is the versatility of C-PACE to fund a wide variety of construction costs. While the program can help building owners finance the installation of traditional sustainable improvements like solar panels, the money is available to support projects that don’t necessarily scream “green,” but are nonetheless important to the energy-efficient operation of a building.
“The most common sustainability projects are things that need to happen for the continued viability of a building, such as a new roof, boiler or elevator,” Zech said. “Building owners continue to invest in the comfort and productivity of their tenants and to keep their assets competitive. Those investments are not optional.”
Keeping an important asset viable was why CRE investment firms Rabin and Reich Brothers worked with Nuveen Green Capital to obtain C-PACE funding to upgrade a 1.7M SF building in Madison, Wisconsin, that once served as the Oscar Mayer headquarters. They invested heavily in the building’s lobby, windows, lighting, HVAC, water fixtures and electrical systems, and financed those upgrades through C-PACE.
“We were able to reduce the required equity, enhance our return on investment and realize significant savings in energy usage” with C-PACE funding, Reich Brothers co-CEO Adam Reich said in a statement.
Another reason for businesses’ current interest in C-PACE is the ability to retroactively apply the financing to projects completed up to three years ago. Zech said the impact is most clearly seen in bridge lending.
“We can inject large chunks of capital — often 30% or more of a building’s total construction costs — to refinance existing construction debt and bridge a property to stabilization,” Zech said. “That often involves refinancing expensive or ‘twitchy’ mezzanine debt or preferred equity.”
For bridge financing, Nuveen Green Capital is frequently asked to reduce a senior lender’s basis or rebuild the building’s operating and capital reserves, Zech noted.
“We can accomplish those objectives all while decreasing the building’s weighted average cost of capital and dramatically reducing near-term cash burn,” he said.
Zech said C-PACE funding helped recapitalize hospitality projects during the pandemic — a big deal for properties whose guest rooms were mostly vacant.
“We provided bridge financing to nearly 60 hotels in the first year of the pandemic,” he said. “These projects needed help: They were facing revenue shortfalls, delays in stabilization and an uncertain future. Meanwhile, their construction debt had gone through the roof while investors were getting antsy about when they were going to see their returns.”
Zech said hotels used C-PACE money to restabilize their operating reserves, pay down the highest interest rate debt and lower the senior lender’s basis. Nuveen Green Capital also can pair the borrower’s recapitalization with a delayed repayment start date that begins two years after closing, providing the property with significant cash flow relief.
In addition to the attractiveness of C-PACE during these economically volatile times, Zech said he expects the Inflation Reduction Act of 2022 to spur more green CRE projects going forward. As a result, many more owners may seek out C-PACE funding.
“The act is going to have a massive impact on the sustainability of the built environment, which we love to see,” he said. “Nuveen Green Capital is excited to have a strong toolkit to solve our borrowers’ problems.”
To learn more about C-PACE financing, visit https://greencapital.nuveen.com.
This article was produced in collaboration between Nuveen Green Capital and Studio B. Bisnow news staff was not involved in the production of this content.
Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.
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