How a financing program can be part of the state’s solution to energy efficiency

In 2017, the Nevada Legislature passed a law allowing local governments to enact Commercial Property Assessed Clean Energy (C-PACE) programs. The goal was to make long-term, fixed-rate capital financing available for energy efficiency projects at a low cost. The concept is similar to “special improvement districts,” or SIDS, which affect many homes in the valley.

SIDS are created to finance infrastructure projects like roads and utilities, and get recorded as a lien against the properties benefiting from the work. Owners then pay the SID back through their regular tax bill. C-PACE is similar except that it involves private lenders in the hope of making the financing terms more flexible.

C-pace-eligible projects must be located on qualifying commercial or industrial land and must fund sustainability improvements. Once approved, the government records a lien against the land in the amount of the cost of the work and assigns the lien to a pre-qualified private lender. The lender then sets the loan’s terms in a financing agreement with the property owner.

Following C-PACE’S enactment, the cities of Las Vegas, Reno and Henderson adopted programs. But the statutory framework worked poorly. In 2021, through Senate Bill 283, Nevada lawmakers changed the program in a few crucial ways to make it more user-friendly.

Changes to improve the efficiency of the program include eliminating the requirement that each project receiving C-PACE financing receive a public hearing and exempting C-PACE from certain requirements that are required of other liens.

Lawmakers also expanded the list of eligible projects from “energy efficiency” and “renewable energy improvements” to include “resiliency projects” and “water efficiency improvement projects.” Importantly, “resiliency projects” broadly include building upgrades with a useful life of at least 10 years that address:

■ structural resiliency for seismic events

■ indoor air quality

■ wind and fire resistance

■ storm water quality or risks of flash flooding

■ the ability to withstand an electrical outage

■ the urban “heat island effect” or effects of extreme heat

■ the state of any other environmental hazard identified by municipality, or

■ the surrounding environment in which the land is located.

Lawmakers also limited government interference in negotiating the terms of the C-PACE loan and authorized lenders to pursue judicial foreclosure if the owner of a property fails to make timely payments.

Senate Bill 283 greatly improved C-PACE’S potential in Nevada. C-PACE financing benefits all parties involved and should be considered a serious option — especially in today’s market of compressed capital and high interest rates. Recognizing this potential, programs now also exist in the cities of North Las Vegas, Sparks and Fernley, and in unincorporated Clark and Pershing counties.

The benefits are worth mentioning. First, lenders may find it enticing. The lien survives bankruptcy and continues to bind the land after a sale or foreclosure like taxes do. An overdue C-PACE payment may also be paid out first in a foreclosure, just like overdue taxes.

Second, landowners may find this unique financing attractive. It complements traditional construction loans by filling a gap previously filled by short-term, high-interest loans that usually required a balloon payment (i.e., a large payment at the end of the loan term). Instead, C-PACE can provide 25 years of financing with a lower interest rate. This financing is available for both new building projects and rehabilitation of existing buildings. For any project, C-PACE typically has an interest-only period, can be passed through by a landlord to its tenants as rent, and lacks acceleration as a lender right (i.e., where the entire amount of the loan would become due if the borrower misses payments, as is the case in a typical mortgage).

Today, the state is facing a water crisis necessitating sustainability improvements and an increasing need to retrofit existing buildings as we run out of undeveloped land options. C-PACE financing could be an excellent part of our development solution.