Unlocking Capital for Clean Energy Projects
Earlier this year, Georgia passed House Bill 206, joining 37 other states and the District of Columbia in offering commercial real estate owners and developers a unique way to finance energy-efficient projects: Commercial Property Assessed Clean Energy (C-PACE) financing. This tool allows developers to access below-market-rate capital for new construction and renovation projects that promote sustainability. C-PACE financings are based on laws that are state specific. Georgia’s C-PACE financing program operates under Official Code of Georgia Annotated § 36-62-2.1.
C-PACE financing is not technically considered traditional debt; rather, it is structured as a special tax assessment placed on privately-owned commercial properties by local authorities at the request and with the consent of the fee owner of that property. The financing supports energy-efficient upgrades, with the assessment repaid annually over the expected lifespan of the improvements—up to 30 years. These special assessments “run with the land,” meaning the obligation transfers to a new owner if the property is sold.
What Qualifies for C-PACE Funding?
In Georgia, C-PACE financing can be used to cover hard, soft and associated costs for improvements such as mechanical systems, electric, plumbing, insulation, energy conservation, renewable energy components and resilience measures (including, but not limited to, seismic retrofits, flood mitigation, fire suppression, wind resistance, energy storage, microgrids and backup power generation) that lower the energy consumption or enable the qualifying property to produce clean energy. These improvements must be permanently affixed to the building and can apply to new construction or renovation projects. Eligible properties include privately-owned or leased commercial, industrial, agricultural properties and multifamily residential real property with five or more dwelling units. However, single-family homes and publicly owned buildings are not eligible under the program.
The Mechanics of C-PACE Loans
Under Georgia’s law, C-PACE financing is capped at 25% of the fair market value of the improved property and cannot exceed 80% of the non-equity portion of the capital stack (debt and C-PACE) unless waived by a senior mortgage holder.
Capital providers (primarily regional and community banks at this time) offer the financing, which is administered through local government-authorized program administrators, typically statutory development authorities established under the Development Authorities Law, O.C.G.A. § 36-62-1 et. seq. A program administration fee is added to the special assessment amount.
Atlanta: A Pioneer in Clean Energy Financing
Notably, the City of Atlanta began preparing for the C-PACE program long before the state adopted its framework. In 2012, Atlanta’s City Council passed a local PACE powers ordinance granting Atlanta the power to establish special districts where commercial property owners could voluntarily consent to an assessment for energy and water conservation improvements to their properties. Since 2021, Invest Atlanta, the city’s economic development agency, has overseen the program, closing over $29 million in C-PACE financings.
"C-PACE is a game-changer for Atlanta’s commercial properties, making energy upgrades more accessible and affordable, says Dr. Eloisa Klementich, CEcD, President & CEO of Invest Atlanta. “Commercial buildings are the largest energy consumers in the city and account for 58% of Atlanta’s CO2 emissions. In fact, 66% of the city’s energy use comes from buildings, making them a key target for reducing pollution. If just 50% of our commercial buildings reduced their emissions by 20%, we could save an estimated 2 million metric tons of carbon dioxide over the next decade. That’s a major step toward a cleaner, healthier, and more sustainable Atlanta.”
Filling the Financial Gap with C-PACE
C-PACE is an attractive financing tool because it offers low-cost, long-term capital solutions to fill gaps in the capital stack, making it particularly valuable in high-interest rate lending environments. For example, several Georgia borrowers have secured 30-year C-PACE loans with 7-8.5% fixed interest rates—compared to 10-15% short-term loans (payable in 1-5 years). Borrowers can use C-PACE loans for as much as 35% of the value of the building to be constructed or renovated. It is very important to note that companies can use C-PACE financing to cover past retrofits and renovations and defer their first payment until after stabilization. Additionally, most C-PACE loans do not require personal guarantees, adding flexibility. The below graph demonstrates how to fit a C-PACE loan into your capital stack to reduce the overall interest rate:
Navigating Hurdles in C-PACE Implementation
Some people may be wondering why it took so long for Georgia to pass legislation allowing for C-PACE financing. The program faced delays due to resistance from some of the larger banks concerned about the loan’s priority status. C-PACE can be viewed as a competitive product to bank debt. Because C-PACE is a governmental assessment, it takes a first-lien position priority on the property, ranking ahead of a traditional first-mortgage bank loan. Thus, if a senior mortgage lender decides to foreclose on the property, such a foreclosure will not wipe out the obligation associated with the C-PACE financing. These priority concerns can be addressed through an intercreditor agreement, as is customary in situations where multiple financiers are involved. These priority elements can complicate foreclosure scenarios, as a mortgage lender’s foreclosure cannot accelerate or eliminate the C-PACE loan’s obligations. The only remedy available to the C-PACE lender is foreclosure of the special assessments, which is effectively a tax sale.
Georgia borrowers have borrowed millions using C-PACE financing in the last few years. One recent success involved Peachtree Group, a preeminent C-PACE lender in Atlanta, which partnered with Invest Atlanta as the program’s administrator, to provide a retroactive $5 million C-PACE loan mid-construction. The loan helped finance cost overruns for a Class-A medical office building near Piedmont Hospital and Shepard Center. More specifically, the loan financed energy-efficient upgrades, including the building envelope, windows, HVAC, lighting and water fixtures. The C-PACE loan was below land value with a debt service coverage ratio (DSCR) of 5.91x in year two, LTV of 10.8% and LTC of 14.1%. The project exemplifies how C-PACE can deliver favorable financial outcomes alongside sustainable improvements. Invest Atlanta has worked on other deals with Peachtree Group and other lenders for the renovations of other Atlanta buildings as well.
Conclusion
C-PACE financing is transforming Georgia’s commercial real estate landscape, offering an innovative, cost-effective tool for real estate developers in Georgia who seek an attractive financing option for energy-efficient upgrades. Initiatives like Atlanta’s early adoption of PACE powers and House Bill 206 have made this powerful financial tool accessible across the state. As more property owners and lenders recognize its benefits, C-PACE is expected to become an essential component of capital planning, enabling cleaner, greener and more financially sustainable projects for years to come.
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