New York pivots toward C-PACE reforms

Proposed changes to existing regulations are expected to make it easier for sponsors to obtain this emerging form of financing.

New York State is considering modernizing legislation which governs the use of Commercial Property Assessed Clean Energy loans, a step which market participants believe will jumpstart lending for this emerging section of the market. 

The move comes as the city is nearing a 2024 deadline when owners of buildings of more than 25,000 square feet will have to meet stringent energy efficiency and greenhouse gas emissions limits under the city’s Local Law 11. “C-PACE is a financial tool which can be used to transition buildings and help landlords to comply with the implementation of Local Law 97,” said Genevieve Sherman, head of sustainability and policy at Nuveen Green Capital.

Nuveen Green Capital, a Darien, Connecticut-based company which specializes in the origination of C-PACE financing, completed the second and last deal of this kind in New York City up until now. The firm, part of New York-based investment manager Nuveen, originated a $28 million C-PACE financing that was part of a $120 million loan project to support a green renovation of its headquarters building at 730 Third Avenue.

Shortly after that deal was completed, the legislation was put on hold, Sherman noted. 

“The city was not really open for business for C-PACE for some time but reopened again in the second half of this year,” Sherman said. “We are just getting our toes back into the water on projects and reaching out to clients with the expectation that we will see a huge uptick in business in the city.”

The need for green

Local Law 97, which is specific to New York City, is one of many location-specific sustainability laws that have been put into place across the US.

A report from Chicago-based advisory JLL found that demand for low-carbon US office is rising substantially as corporations assess their post-pandemic workplace strategies and cities put stringent sustainability goals in place for building owners.

The supply of low-carbon workspaces is set to outstrip supply by 75 percent by 2030, the JLL report found. “This equates to a projected supply shortage of 57 million square feet of low-carbon office space in the next few years,” the report said.

JLL also found that the dynamics of supply and demand vary significantly by city, as do the sustainability goals of local governments and tenants.

“Washington, DC, for example, has a higher imbalance than many other cities due to the large presence of government agencies with stringent sustainability targets to hit,” the report stated.

New York, meanwhile, is also seeing a substantial projected supply-demand shortfall when looking at the 100 largest occupiers in the city. This translates into about 23.3 million square feet of future demand compared to a pipeline of 8.1 million square feet of space that fits the sustainability goals of the largest tenants, JLL found.

The report concluded that across the largest US markets, only about 43 percent of class A office stock will meet demand.

New York nuances

In its current state, New York’s existing C-PACE legislation is slightly out of step with landlords that are looking at their buildings in a holistic way, according to Sherman.

“In addition to the need to comply with Local Law 97, a lot of buildings in New York are just old and have aging HVAC, boiler and chiller systems,” Sherman said. “Most building owners have a laundry list of deferred maintenance and a wish list of things, like a green roof or a better way of managing wastewater.”

Another key issue is the electrification of buildings. Sherman anticipates an increase in interest from landlords, but there are some hurdles to overcome before that can happen.

“One of the challenges in supporting these projects is that C-PACE financing is held to a cost-benefit ratio test, which means the amount we can lend to a building owner is capped at the total operating savings they can achieve from installing that kind of equipment,” Sherman said.

She continued: “If a building has fluorescent lighting and wants to switch to LEDs, the owner needs to be able to demonstrate a $1 million in energy cost savings for us to be able to give them $1 million in financing. The ratio has to be 1:1 or better and a lot of what building owners want to do by way of LL97 compliance, decarbonization, electrification, or climate resiliency doesn’t hit the ratio. This remains a barrier, but it is one we are working constructively on with the city.” 

One of the challenges the city is seeing is that energy efficiency improvements in buildings help to bring down costs – but not significantly or immediately, Sherman said.  “A lot of the types of improvements the city wants to make through Local Law 97 are capital intensive and require owners to think about a full picture that is more about total property cash flow, occupancy, and cost of borrowing in this economy, than it is about just energy savings or avoiding a fine. It is about creating better economic returns for the building owner.”


The revisions to Article 5-L, which governs C-PACE, is with the New York State Assembly and may be adopted later this year or early in 2024, Sherman said.

“If the legislation is adopted and becomes law, it would mean some of the issues we are seeing – including the cost benefit test – would make way for new standards that open for building owners to fund the full cost of Local Law 97 compliance projects. It would also open funding for entire categories of sustainability projects that we can’t fund today,” Sherman added. “Today, we can, for example, fund energy savings equipment like LEDs but we can’t fund the full cost of new windows, building electrification, storm-water management, or batteries.”