18 June 2021
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Retroactive Commercial PACE (C-PACE) and C-PACE can provide critical capital and liquidity
In the past few years, Commercial PACE (C-PACE) financing has transformed from a novel financing technique to a popular and important source of capital for all types of commercial real estate — particularly hotels scrambling for financing to reopen and take advantage of the “Great Recovery” now underway.
Because of our early involvement and experience, C-PACE financing has become quite a specialty niche in the hotel financing resources of our Global Hospitality Group®, representing both C-PACE lenders and borrowers. Because of our profile in this area, I was recently asked to give my thoughts on its benefits in a timely article written by Bryan Wroten for Hotel News Now. You can read an excerpt below or click the link to read the entire article.
PACE Lending Allows Hoteliers
To Recapitalize Past Projects
By Bryan Wroten, Hotel News Now
A lending platform designed to fund investments in renewable energy and energy-efficient improvements, commercial PACE lending has helped hotel owners and developers in need of capital during the COVID-19 pandemic.
PACE financing, which stands for property assessed clean energy, originated in the late 2000s, said Jim Butler, partner at Jeffer Mangels Butler & Mitchell and chairman of the law firm’s global hospitality group. This type of lending has taken a while to fully catch on with developers because state legislatures have to pass laws to enable it. Often county and local municipal governments must pass their own legislation, as well.
Currently, 36 states and Washington, D.C., have authorized commercial PACE lending, and of those, 24 states and D.C. have active lending occurring.
PACE financing has the potential to reach into the billions and trillions of dollars, and part of that potential comes from the hotel industry, Butler said.
The pandemic has devastated U.S. hotels, forcing some to close temporarily or permanently. Hotel owners are dealing with the revenue declines of 2020 while also facing property improvement plan requirements over the next few years.
“They’ve been saving every penny and going to the bare minimum, but they’re going to have to do property improvement plans and rehire people … train them and do marketing,” Butler said. “They’re facing a lot of costs in getting back into business.”
One of the things that makes PACE financing so appealing to borrowers is it’s a self-assessment, similar to a tax improvement district, except the owner voluntarily imposes a long-term tax agreement on the property for up to 30 years, Butler said. It’s a non-recourse loan, and interest rates are typically low at about 5% to 6% because of its high security. Rather than the owner holding the debt, the loan remains with the property even following a transaction.
PACE lending is tied to energy efficiency expenditures during new construction and renovations, and the improvements can help save on utility costs, he said. Borrowers can use PACE lending on things like HVAC systems, insulation, water systems, geothermal heat recovery, lighting and solar energy.
In some states, such as California, owners can take advantage of what’s called “retroactive PACE,” Butler said. What that means is owners can receive PACE funding for qualifying capital expenditures made in the recent past. California has a 36-month window.
“You can include all the expenditures which have already been made and are eligible for the PACE financing,” he said.
That means owners can look at what they spent on eligible improvements within the allotted time period and recover that cost through PACE, he said.
“You don’t have to spend it on those things,” he said. “You just must have spent it on them. If that’s the case, your funding is available for anything you choose. Pay down senior debt, operating expenses, expansion.”
Read the full HNN article here.
How we can help with Commercial PACE (C-PACE) financing
C-PACE lending has become an important and fast-growing sub-specialty in our hotel finance capabilities. We work with C-PACE providers/lenders and borrowers. In fact, we have been fortunate enough to work with one of the leading providers of C-PACE financing as they expand their national platform.
We welcome inquires to see if we can help you evaluate potential PACE financing opportunities.
Webinar and more on C-PACE financing
To learn more about C-PACE, check out our free on demand webinar, “Why so many are looking at Commercial PACE (C-PACE) financing now.”
You can also find more information on this topic on the Hotel Law Blog under the topic C-PACE Financing. Here are a few select articles and some representative transactions we have handled.
Is C-PACE the “new EB-5″ financing?
Retroactive C-PACE frees hotel investment capital
C-PACE Financing – Now an accepted tool for hotel lenders and borrowers
Should you be looking at Commercial PACE (C-PACE) financing now?
C-PACE Financing Lawyer: New York opening Commercial PACE – a big opportunity!
Some of our deals: C-PACE Financing on a roll!
- $10+ million C-PACE for TETRA and AC Hotel Sunnyvale
- $6 million C-PACE for Kimpton La Peer West Hollywood
- $2.3 million C-PACE for the Tapestry Suncoast Anaheim
- $23.8 million C-PACE loan for the Vista Collina Resort Napa
- $5.8 million C-PACE loan for Fairfield Suites Camarillo
- $42 million C-PACE loan for citizenM Los Angeles
This is Jim Butler, author of www.HotelLawBlog.com and founding partner of JMBM and JMBM’s Global Hospitality Group®. We provide business and legal advice to hotel owners, developers, independent operators and investors. This advice covers critical hotel issues such as hotel purchase, sale, development, financing, franchise, management, ADA, and IP matters. We also have compelling experience in hotel litigation, union avoidance and union negotiations, and cybersecurity & data privacy.
JMBM’s Global Hospitality Group® has been involved in more than $125 billion of hotel transactions and more than 4,700 hotel properties located around the globe. Contact me at +1-310-201-3526 or jbutler@jmbm.com to discuss how we can help.