What you need to know about CPAC financing

If you own a New York property that is over 25,000 square feet, you must meet Local law 97 landmarks quickly due to the Climate mobilization law. This law stipulates that owners of larger buildings must reduce their emissions by 40% by 2030 or face substantial fines. However, the change is gradual, so emissions caps begin earlier in 2024, with different kilograms of carbon dioxide emissions allowed per square foot of buildings affected, depending on the building designation.

With reports starting in just over two years, homeowners are faced with a potentially expensive carbon retrofit. New York isn’t alone, as cities across the country, from Seattle to Miami, are instituting aggressive landlord benchmarks, which will be costly and force homeowners to think about how they’ll capitalize on that expense.

“CPAC financing is a non-recourse solution that gives homeowners the ability to pay for these required improvements and amortize them over 20 to 30 years with a low cost of capital,” said Matt Swerdlow, director of capital services at Ariel Property Advisors. “In the right situation, this can be a very profitable tool for staying ahead of the game or meeting carbon mandates. “

CPACE as a favorable financing solution

Clean energy financing valued by a commercial property, or CAPCE, was approved in New York to provide homeowners with additional leverage to build, upgrade or modernize their properties to meet new carbon standards.

“CPACE complements senior financing, but offers a significantly lower interest rate than conventional mezzanine debt with the ability to cover up to 100% of a project’s material and ancillary costs,” says Swerdlow. “The sum of senior and CPAC financings allows for exceptionally high loan-to-value ratios of up to 90%.

It is important to note that CPAC loans are non-recourse and do not follow the borrower; they follow the building and are treated as a special contribution billed with property taxes. The repayment takes between 20 and 30 years and can be repaid at any time without penalty.

“Because CPACE is billed as an appraisal, some landlords have been successful in passing this additional operating expense on to tenants,” adds Swerdlow. “Either way, the savings should outweigh the costs, as property values ​​will not drop due to higher tax burdens. “

Uses of CPAC products

The types of upgrades and renovations that CPAC funding can go to include more energy efficient HVAC and air conditioning systems, energy efficient lighting, low flow toilets and sinks, solar panels, windows, roofs, boilers, chillers, automation and building control. systems, insulation and doors, as well as new plumbing systems. Homeowners can also receive CPAC funding retroactively, meaning they can add CPACE funding to a property for any qualifying work done in the past three years, including newly constructed properties.

CPAC projects across the country

The State of Texas and the City of Milwaukee were among the first jurisdictions to implement CPAC in 2013. In Houston, CPAC funding helped 1225 North Loop West, a 200,000 square foot office building constructed in 1984, to achieve an expected saving of 38% in energy costs, or $ 3.6 million over 20 years. In this example, the owners replaced the building’s original cooler and upgraded the building’s lighting system to LED. Management also secured funds to replace air handlers, building controls and variable speed drives.

In Milwaukee, another 200,000 square foot building, 250 East Wisconsin Avenue, used CPAC funds to install LED lighting, modernize the automation and mechanical system, and replace elevators. The building, built in 1973, had been under-occupied since 2001 and anticipated an increase in energy costs as it was reoccupied. However, thanks to improvements and changes made with funding from CPAC, energy costs were reduced by 30%, even as the building’s vacancy rate declined.

CPAC and New York

111 Wall Street became the first large property in New York City to access CPACE to move forward with further green improvements. The building owners use CPAC funding to install new air conditioning and air conditioning systems as well as mechanical, electrical and plumbing systems. Other landlords who have used CPACE have found that the work done, paid for by the finance, diminished their utilities and, if leases allow, may even rebill the cost to tenants. This makes it a financial win-win for homeowners who will meet the standards imposed by local regulations and also improve their bottom line.

From October 2020 in New York, homeowners were required to visibly display a letter at the entrance to their building that serves as a benchmark score or starting point for the Climate Mobilization Act. There is also a useful calculator that allows homeowners to see what their carbon emissions are and if any improvements are needed to comply with local law 97.

If you own a city demanding carbon neutral upgrades, the reality is that you will likely have to plan for significant capital spending on green renovation in the near future – and if you are in New York, time is running out to do so. meet benchmarks. There are ultimately a variety of factors, such as a building’s current compliance, that will determine whether it makes sense to seek CPAC financing or a different strategy. What’s important for owners is that they assess their portfolios now and develop a long term plan to stay ahead of carbon benchmarks and have the capital strategy to do so.


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