Commercial property assessed clean energy (C-PACE) financing has enabled at least $2 billion of energy-saving upgrades in other states, but Maine bankers fear it will bring added risk to mortgage lenders.
Maine officials are finalizing a new statewide program that will allow commercial property owners and developers to finance energy-saving building upgrades at a lower annual cost through public-private partnerships among property owners, lenders and municipalities.
Known as commercial property assessed clean energy (C-PACE) financing, the program was authorized by Maine lawmakers in 2021 via the passage of LD 340. Rulemaking is being conducted by Efficiency Maine Trust, which will administer the C-PACE program, and that process is expected to be completed in the next few months.
C-PACE programs are designed to make it more affordable for property owners to finance energy-saving building upgrades through an innovative lending structure. Traditionally, construction and retrofitting of commercial buildings is financed with real estate loans whose repayment terms typically range from five to 10 years with a balloon payment due at the end. In contrast, C-PACE programs only cover the cost of energy-saving upgrades, offer terms of 15 to 30 years and are fully amortized with no balloon payment at the end.
At least two dozen states and the District of Columbia have active C-PACE programs in place. Those programs have resulted in more than $2 billion in private capital investment in energy-saving commercial building upgrades, according to the U.S. Department of Energy.
Connecticut was the first state to launch a C-PACE program in 2013. Since then, the state’s program has financed more than 350 green construction projects valued at over $230 million in total. Those projects have prevented an estimated 927,000 tons of carbon dioxide from being emitted, the rough equivalent of taking 185,000 cars off the road.
Some Maine developers say C-PACE will be the most significant new commercial real estate financing tool introduced in the state in decades. It can be used to finance the energy-saving features of new buildings or upgrades to existing structures. The program’s goal is to facilitate a more rapid shift toward energy-efficient buildings in Maine, where many older commercial properties such as apartments, offices and hotels lack modern energy-saving features.
Heating, cooling and lighting of buildings is responsible for 30 percent of Maine’s greenhouse gas emissions, according to the Maine Climate Council. Homes emit 19 percent, while commercial buildings account for 11 percent.
“We’re excited about the potential impact of the C-PACE program and think it’s going to help resolve significant problems in the market,” said James Neal, senior program manager of finance initiatives at Efficiency Maine.
But the C-PACE program is not without controversy. The Maine banking industry lobbied against the program’s enabling legislation and has expressed skepticism about the benefits of C-PACE financing compared with more traditional construction loans.
Under Maine’s program, a property owner’s mortgage lenders must agree to participate in any deals because C-PACE lenders get priority to collect past-due payments in a foreclosure. For that reason, it’s unclear how effective Maine’s program will be in terms of spurring green development. But developers point to banks’ acceptance of C-PACE deals in other states as cause for optimism.
Mark Stasium, director of commercial real estate lending at Camden National Bank, said the industry is still “trying to get its arms around” the potential risks and benefits of Maine’s new C-PACE program.
“As a general rule, bankers don’t like liens that have priority over our mortgages,” he said. “In a default situation, the C-PACE loan is going to have priority over the bank.”
The Maine Real Estate & Development Association (MEREDA) is hosting a breakfast panel from 7:30 to 9 a.m. Thursday, Dec. 8, at Holiday Inn By the Bay in Portland to discuss the new program. Panelists will include Michael Doty of Nuveen Green Capital, the nation’s leading C-PACE loan provider, James Neal of Efficiency Maine and Mark Stasium of Camden National Bank. The panel will be moderated by Paul Peck, founder of LWS Development and attorney at Drummond & Drummond.
Peck said Maine’s development community and property owners are thrilled the state enacted a new financing tool to help further its energy-efficiency goals.
“C-PACE will give developers and property owners another financing option, which will help get new development projects started and existing properties brought up to current energy-efficiency standards,” he said. “Given the huge spike in commercial interest rates, another financing tool is just what developers and property owners need.”
C-PACE financing is conducted through private lenders but is separate from a property’s other mortgage loans. With C-PACE financing, the responsibility for continued loan repayment is attached to the property itself and can be transferred to the property’s new owner in the event of a sale.
The building owner’s local municipality must have opted into the C-PACE program via a local ordinance, since it will be involved in attaching the debt to the property. The cities of Portland, South Portland and Westbrook already have potential C-PACE projects in the pipeline, although no local ordinances will be considered until after the rulemaking is completed.
Michael Doty, director of originations for New England at Nuveen Green Capital, said hundreds of cities and lenders in other states have come around to embracing C-PACE financing once they became more familiar with how the programs work.
He said C-PACE financing not only can help reduce Maine’s greenhouse gas emissions but also facilitate affordable housing development by making green multifamily projects feasible that otherwise wouldn’t be. Doty aims to convince more Maine lenders and municipalities to get on board.
“It can never be used in circumstances where the local bankers and municipalities aren’t comfortable with it,” he said.