Low carbon verification pairs greener designs with reduced interest rates
By Tricia Baker, PACE Equity
Savvy developers and building owners are harnessing a unique tool to obtain vital reduced-rate financing in a challenging market. Recently, a warehouse developer used it to replace $4.5 million of preferred equity. An historic redevelopment project used it to close a $2.1 million gap in their capital stack. The owner of a self-storage facility used it to cover $3 million in the capital stack and lower their overall cost of capital.
The common thread between these projects? Each developer saw the value of a lower carbon building and leveraged their greener design to access a lower cost of capital through PACE Equity’s award-winning CIRRUS™ Low Carbon program.
Green designs help owners reduce operating expenses and improve property value since they consume less energy and water and produce fewer emissions. And now, energy efficient buildings allow developers to access more creative financing. In addition to the established financial and environmental benefits of operating a low carbon building, the industry-leading CIRRUS Low Carbon program has introduced financial and brand advantages that make low carbon design a key opportunity for developers.
Prior to CIRRUS Low Carbon’s introduction to the market in 2022, no private capital source offered lower rates for greener buildings. Now, developers can fortify their financing with a significantly lower interest rate when a project meets a design specification outlined by PACE Equity and the New Buildings Institute. This considerable rate reduction means boosted returns for a project. In fact, on average the financial benefit is 8 times the average incremental cost needed to meet the CIRRUS Low Carbon specification. PACE Equity’s unique model also includes, at no additional cost, design consultation with an in-house low carbon design team to help the project qualify for the lower rate.
Research by the Center for Active Design indicates 49% of building owners are willing to pay more for buildings that have a positive impact on health; achieving low carbon verification allows owners to leverage their green building status as a notable attribute. Beginning with a substantial rate reduction and continuing through the life of the building with an improved net operating income, achieving CIRRUS Low Carbon verification offers abundant financial benefits.
Paired with its valuable environmental and fiscal advantages, CIRRUS Low Carbon is also a brand-builder. In a low carbon economy where demand for green buildings is increasing, developers and owners who position themselves as leaders in energy efficient design are distinctly ahead of the curve. Low carbon verification becomes a core element of a building’s brand identity, attracting the growing number of potential residents, tenants, and buyers whose real estate decision-making includes a demand for “green.”
“Tenants care about environmental issues and lower utility costs,” said Shawn Neece, principal at Renew Partners, who used CIRRUS Low Carbon to help finance the redevelopment of a Cleveland theater complex into residential and office space. “Our goal is to have a good building that is efficient over the long run…that brings value to our tenants, investors, and us.”
CIRRUS Low Carbon uses Commercial Property Assessed Clean Energy (C-PACE) financing, offering up to 30% gap financing for a project capital stack. Through CIRRUS Low Carbon, green development is a triple win: for the environment, for developers and their bottom line, and for all who visit, work or live in lower carbon buildings. To explore low carbon financing opportunities and view case studies of CIRRUS Low Carbon verified buildings, visit paceequity.com/lowcarbon.
Tricia Baker is senior VP of Strategy & Impact at PACE Equity.