New Guidelines Arm NYC C-PACE Program With Fresh Energy

New York City’s Commercial Property Assessed Clean Energy (C-PACE) program’s pace has been sluggish since the first loan was made three years ago. But the commercial real estate industry is hoping new guidelines can provide a spark for the financing vehicle.

The guidelines released last month by NYC Accelerator, which is managed by the Mayor’s Office of Climate and Environmental Justice, aim to spur more C-PACE deals by opening the program to new construction projects and expanding to include buildings with ground leases. 

New York City’s C-PACE program previously enabled only property owners to obtain low-cost and long-term financing in exchange for certain energy-efficient building improvements on projects involving renovations, but not gut rehabilitation. The first New York City C-PACE transaction in June 2021 originated by Petros PACE Finance involved renovating the former 25-story Citibank building at 111 Wall Street with retrofitting for energy efficiency upgrades. 

Nuveen Green Capital (NGC) later provided $28 million in C-PACE financing for the retrofit of its parent company, TIAA/Nuveen’s building at 730 Third Avenue in September 2021 marking the last New York City C-PACE deal to cross the finish line.

Jessica Bailey, president and CEO of NGC, said she worked closely with the New York State Research and Development Authority and city officials to open the door to bigger C-PACE projects in the Big Apple. NGC, a clean energy lending arm of Nuveen, has been active with C-PACE deals nationally originating more than $800 million of volume in 2023.

“One of the restrictions that we had in Phase One of the program was that it just didn’t lend itself to interpretation that would allow for proceeds being meaningful enough for large developers to take advantage of it,” Bailey said. “It was a little bit overbuilt in terms of some of the energy savings requirements and the cost-benefit analysis that had to go into the engineering review of what was eligible.”

Bailey said NGC is actively working on “several” C-PACE deals for New York with plenty of demand from property owners in Manhattan and the outer boroughs across all asset types seeking out the financing vehicle. She said there are a lot of C-PACE inquiries in particular for hotel construction and office owners seeking conversions to residential use.

The timing of New York City’s expanded C-PACE program arrives as property owners begin to contend with how to respond to the city’s new Local Law 97 initiative aimed at reducing carbon emission.

Spencer Levine, president at RAL Companies & Affiliates, said C-PACE could be an attractive financing option for some building owners who seek necessary upgrades to comply with New York’s sustainability requirement under Local Law 97.

“It’s another tool for landlords and property owners to utilize here in New York.” said Levine, who is part of an advisory board at the Urban Land Institute holding discussions about the rollout of Local Law 97. “I think it could be an interesting opportunity for New York and another motivating factor to upgrading buildings here.”

Levine said C-PACE could be especially beneficial in New York for older office properties where owners are looking to either upgrade or convert into multifamily assets. Ral Companies’ Zero Irving office property in Union Square was completed in early 2023 with many sustainability features paid for through traditional financing, and Levine said C-PACE would have been a consideration had the program been greenlighted for new construction then.

Shaun Pappas, a partner at Starr Associates who practices in the law firm’s general real estate group, said he has seen interest from developer clients he works with about utilizing C-PACE and sees great potential for the program in New York City given how many properties need overhauls. He said a key to C-PACE taking off in the city will be educating landlords, developers and building boards about the financial benefits of these transactions for certain projects. 

“The ones that are building now that are in prebuilt stages are already contemplating compliance with new standards and trying to become just more energy efficient across the board,” Pappas said. “There’s also existing buildings that just need to be upgraded, and finding the money for that is important.”

While New York City’s C-PACE program has been slowed, New York State has seen multiple deals for new construction projects in recent years. These include a $36 million financing package from X-Caliber Rural Capital and CastleGreen Finance in May 2022 to build a Marriott-branded hotel property in Hyde Park, N.Y. 

New York is among 38 states along with the District of Columbia that have active C-PACE programs, according to data tracked by the nonprofit association PACENation. 

Officials for NYC Accelerator did not immediately return a request for comment on the city’s expectations and goals for C-PACE in New York City.  

Bailey said that, after some starts and stops with C-PACE in the Big Apple, the new guidance should spur plenty of momentum for the overall C-PACE program nationally with the nation’s largest city now on board.

“Not having an active program in New York City has been frustrating for those of who are based out here and we see the opportunity here, so we’re cautiously optimistic that this new launch of the guidelines has made a program that will be robust,” Bailey said. “New York City has been the star on top of the Christmas tree for a long time.”

Andrew Coen can be reached at acoen@commercialobserver.com