Picking up the PACE

Commercial property assessed clean energy (C-PACE) financing has been picking up momentum as an additional tool in the commercial real estate debt tool kit and playing a more sizeable role in capital stacks using the option. 

The most clear-cut example of C-PACE’s growing financing power was put on display in October last year with Petros PACE Finance supplying $153 million of debt toward the $820 million Black Desert Resort project in Ivins, Utah.

The financier, based in Austin, Texas, specializes in providing capital for energy retrofits on commercial properties, with this specific deal marking the largest recorded C-PACE injection in the program’s history. The firm previously closed the largest C-PACE transaction in New York in mid-2021 with its $89 million financing on 111 Wall Street to fuel the reduction of its carbon footprint. 

Petros – which was acquired by Athene Holdings in January 2022 – has been active in the marketplace even as interest rates continued their upward pace in the back-half of 2022. The firm was one of the key drivers behind C-PACE’s climb in prominence, which catapulted the sector to recording $4.2 billion in financing volume in 2022, according to data from non-profit PACE financing advocate PACENation. 

For the Black Desert Resort project, Petros plays a supplementary but crucial role in the capital stack at a time when senior lenders are pulling back on how much of a financing package they are willing to facilitate in the first mortgage position.

Mansoor Ghori, CEO and co-founder of Petros, says that this deal in particular exemplified the value C-PACE brings to any given deal, such as lower financing costs, more flexibility across the rest of the capital stack and the ability to back environmentally important projects. 

As part of the Black Desert Resort development, Reef Capital Partners also supplied $200 million for project components to make the asset more environmentally friendly than required by local laws. The $153 million from Petros is being used to fund energy-efficient and resiliency measures, such as LED lighting, HVAC and seismic strengthening.

Jim Stanislaus, chief financial officer and co-founder of Petros, says: “In this volatile interest rate environment, developers and property owners are looking for a C-PACE financing partner that can reduce costs, move quickly and work flexibly across the capital stack and provide comfort that the transaction will close.”

Kindred spirit

Prior to the Black Desert Resort deal solidification, neighboring hospitality financiers were similarly tapping into C-PACE to source funding for a resort in Keystone, Colorado. Concord Summit Capital tapped into nearly $55.5 million of C-PACE financing to build out its $232.5 million financing package for the construction of Kindred Resort, a mixed-use project next to the Keystone Ski Mountain River Run Gondola in Colorado.

By the numbers, both Concord and Petros used C-PACE to account for about one-fifth of the overall cost of financing, essentially culminating in a similar contribution to what could be sourced in a preferred equity or mezzanine debt investment.

The core benefit to using C-PACE in this case was that it is repaid on the property tax bill over a period of up to 30 years, which improves payback flexibility and opens the door to positive cashflows from a deal’s signing.