Expanding the C-PACE investor base

June saw Calvert Impact and PACE Equity launch Cut Carbon Notes, a finance program that is open to both institutional and retail investors.

Commercial Property Assessed Clean Energy (C-PACE) and other green financing investment opportunities have typically been limited to institutional entities, but a new avenue opened last month for retail investors.

In June, Bethesda, Maryland-based non-profit investment firm Calvert Impact – in collaboration with Milwaukee-based C-PACE specialist PACE Equity – launched Cut Carbon Notes, a financing program for developers seeking to build or redevelop low-carbon properties. The $400 million program is designed to supplement traditional C-PACE financing and, in a twist, allows for investment from both institutional and retail investors.

The offering, which is being distributed in part through retail advisory and brokerage accounts, is the first of its kind for individual investors who want to participate in this segment of the market.  “It is unique in terms of its broad distribution and who can buy it because C-PACE has been entirely financed by a handful of institutional investors so far,” explains Justin Conway, vice-president of investment partnerships at Calvert.

The Cut Carbon Notes program carries a minimum investment of $1,000. Its initial investment pool includes a mix of retail investors. One early investor that Conway cites as an example is a millennial who invested a sleeve of their retirement account into the program.

By September, Calvert Impact and PACE Equity expect to have raised $30 million, which will be used to support an initial batch of 12 projects. In addition to state-specific C-PACE qualifications, developers participating in the program have to pass additional low-carbon PACE assessments developed by the Portland, Oregon-based non-profit New Buildings Institute.

Beau Engman, founder and president at PACE Equity, says the assessment process encompasses all building systems and is solely focused on carbon footprints. The partners also use a proprietary specification called CIRRUS Low Carbon – which Engman notes is about 8 percent more efficient than the most stringent building codes in the country – to designate whether an asset can or cannot qualify for Cut Carbon Note program funding.

From a pricing perspective, Engman says that like C-PACE, the Cut Carbon Note financing also lowers the cost of capital for borrowers. He notes on average, the CIRRUS Low Carbon PACE pricing is about 70 basis points lower than standard PACE financing.

Picking up the PACE

Developers can use Cut Carbon Note proceeds to supplement C-PACE financing for industrial, office and multifamily assets and cover the cost of efficiency improvements including solar, smart building controls, HVAC system improvements and windows or lighting, among other items.

The Cut Carbon Notes program was launched at a time of volatility for commercial real estate debt financing, which has slowed origination volume across all asset classes. Environmental services non-profit PACENation data shows C-PACE investments totaled $5.17 billion in 2022 and have steadily risen over the last decade. 

A pullback in national and regional bank lending has left financing gaps across commercial real estate capital stacks, market participants say. Engman says CPACE financing represents one way to fill those financing gaps, and because of the market disruption, that its use has already picked up in activity.