NY C-PACE: Local Law 96, Local Law 97, and How C-PACE May Be Coming Into Its Own

Property owners, investors, and lenders alike are heeding the call to bring commercial real estate into the 21st century with regards to environmental, social, and corporate governance (ESG) principles. Many jurisdictions are implementing legislation emphasizing clean energy solutions that lower carbon emissions for property owners, both with respect to retrofitting existing structures or requiring stricter environmental compliance standards for new construction. In light of these market and institutional shifts toward environmental consciousness, C-PACE, or Commercial Property Assessed Clean Energy finance programs, may finally have an opportunity to hit its stride, especially in New York City.

What Is C-PACE?

First developed in California in 2008, C-PACE programs provide for attractive financing for commercial property owners seeking upgrades or modernization of their real estate assets from an energy efficient perspective. C-PACE loans offer competitive terms to fund the cost of energy related property improvements (or in some cases, energy efficient aspects of new construction), with payment collected via property level assessments, similar to property taxes. This ’up-front‘ financing can be used to install solar panels, perform HVAC upgrades, replace windows, upgrade elevators, and make other building system improvements with an overall goal of reducing carbon emissions and energy costs. C-PACE financing is typically provided through private third-party sources, such as Petros Finance, Nuveen Green Capital, and others, and administered through local municipalities or local development authorities, as part of such entities’ municipal assessment programs. C-PACE financing repayment schedules may extend up to 30 years (which far exceeds more traditional two- to five-year construction loan terms), as the term is based on the projected useful life of the improvements funded by C-PACE loan dollars. Given that the customary collection mechanism for C-PACE financing is municipal assessments, C-PACE is uniquely situated with super priority over mortgage and mezzanine loans. The super priority nature of C-PACE financing arrangements, in many jurisdictions requires, C-PACE lenders to obtain prior consent from existing mortgage holders, ahead of recording the operative C-PACE documentation.