A NEW TOOL
Clean energy program's financing boosts projects' sustainability, backers say
Many Oklahoma developers are about to gain a new tool for financing construction.
It's a time-tested program already used to help developers with costs to improve construction projects' environmental sustainability across the nation — the Commercial Property Assessed Clean Energy program, or C-PACE.
The financing tool provides developers with another source of dollars they could tap to pay certain costs to retro fit existing buildings or build something new — if those costs are tied to energyrelated upgrades.
C-PACE is actively being used by developers across 22 states and the District of Columbia.
Legislatures in another 15 states, including Oklahoma, have adopted statutes authorizing C-PACE programs.
So far, developers of 2,400 projects have used C-PACE to help them complete sustainability upgrades costing more than $1.5 billion.
Here, t he program gives each of the state's counties the ability to choose whether or not to adopt necessary rules that would allow developers to access the financing tool.
So far, only Tulsa County has opted in with one developer taking advantage of the financing, but the Indian Nation Council of Governments is working with officials across the state to get other counties on board.
How it works
C-PACE, officials said, allows commercial property owners to secure private low-interest, long-term loans from lenders that can finance the costs to improve a property's water and energy efficiencies.
Those upgrades might include water conserving fixtures, LED lighting, a higher grade of insulation and windows, upgrades of HVAC systems and chillers, the installations of automated building control systems and electric vehicle charging stations and the use of geothermal or solar energy systems.
Officials said C-PACE loans help developers tapped out with their traditional lenders complete capital stacks for projects, and could help fill gaps created by construction delays or cost overruns.
Debt tied to those upgrades is retired using an assessment placed on the property' s county tax record. Typically, C-PACE debt is repaid on an annual basis( lasting between 20 and 30 years), with payments beginning 12 to 24 months after financing is delivered, allowing developers enough time to complete building construction or renovation and stabilization before payments are due.
Until it is retired, the C-PACE debt stays with the property, even if it changes hands.
Backers say that encourages investments in upgrading a building's performance because a longer-term payback period enables those upgrades to pay for themselves over time through reduced water and energy costs.
C-PACE projects also help because they improve counties' taxable property base, improve the resiliency of their built environments, create energy efficiency and clean energy jobs and help counties meet efficiency and clean energy standards at little to no cost for them.
Backers say lender swilling to finance C-PACE related projects in Oklahoma have been secured and Tulsa County, with INCOG's help, launched a C-PACE pilot program last year.
Built out
C- PACE's 2019 pilot program in Oklahoma got its start through two Tulsa projects that were built by t he Ross Group. Warren Ross, chairman and p re sident of the company, said it tapped C-PACE dollars retroactively.
One project involving the Tulsa Club downtown converted that mid-rise commercial building, long time home of a social club and the Tulsa Chamber of Commerce, into a 90- room Hilton Curio Hotel. The Ross Group used $3.7 million in C-PACE funding to help pay for that $36 million project.
The other project, a $16.5 million, 116-room Holiday Inn Express& Suites, was built next to Tulsa's ONEOK Field on two lots that previously had been homes to two commercial buildings. The Ross Group used $1.7 million of C-PACE financing there.
Ross said the key to accessing the money was that the work it paid for had to achieve Energy Star ratings for each completed project in excess of what code required.
Ross said a substantial percentage of a project's cost can be addressed using C-PACE dollars.
“We are very excited about this tool being put into place herein Oklahoma,” Ross said. “In lieu of taking on third-party equity or debt mechanisms, we opted to use C-PACE because we like the debt structure of it.”
Renewable energy advocates are excited about its possibilities, too.
Lindsey P ever, a founding member of the Oklahoma Solar Association, said C-PACE provides developers with another tool they can use to make challenging projects doable.
“If you can make a building more energy efficient and reduce the utilities for whomever would be paying those, then that is such a win for everyone that is involved,” Pever said.
Spreading the word
Ross noted Oklahoma officials and private lenders took time to warm up to the financing mechanism C-PACE uses because of problems encountered by other states that allowed C-PACE to be used by residential property owners seeking to make their homes more energy efficient.
Those financial arrangements, he observed, created some difficult issues during the Great Recession as homeowners in California and Florida in particular defaulted on loans.
On top of that, plunging value properties left many C-PACE program lenders upside down on their debt, Ross observed.
“Now that it has matured, our lenders and county officials are much more comfortable with it. And it needs to be larger, commercial projects. That type off inancingisn' t available for owners of single-family residential properties” in Oklahoma and perhaps never will be, he said.
Adriane J ayn es, INCOG's energy program coordinator, agreed with Ross' observations.
She said IN CO G has created a steering committee involving Tulsa County officials to create a C-PACE administrative template that can be used in counties across the state and is working to raise dollars from donors to help pay for bringing aboard consultants and for other programrelated costs.
To create an active program, each county must approve are solution that authorizes C-PACE voluntary special assessment liens to be used within its jurisdiction.
However, property owners in Oklahoma won't make payments on the financing through county tax payments. Rather, they will make payments to lenders directly.
Because it is tied to the value of the asset, the financing can be stretched out over a lengthy period of time.
“It is a lower-cost source of capital,” Jaynes said.
She said Oklahoma created the program initially in 2009, but said flaws in the enabling statute prevented its use until two subsequent revisions to the law made during the past two legislative sessions cleaned those up.
The pilot program used by Ross is being expanded, she said.
“We are very much in the design phase, and working with other counties to get them interested in the program,” Jaynes said.
INCOG hopes to have C-PACE launched in additional counties before the end of this year.
“We are seeing some really interesting possibilities where it could be used on agricultural projects in rural counties in Oklahoma” as well, she said.
Developers must, as part of t he process, undertake an energy study that demonstrates the upgrades' capabilities to surpass Energy Star ratings.
But Ross said that' s worth the hassle.
“The whole idea is, when you upgrade all those features such as roofing, insulation, windows and LED lights, they all help reduce a project's overall energy load, and that is what C-PACE is intended to do.”