With the adoption of increasing and costly environmental regulation affecting buildings nationwide, Commercial Property Assessed Clean Energy (CPACE) financing offers a unique vehicle that may be used to fund qualifying energy efficiency and renewable energy projects at a lower effective cost than traditional borrowing. CPACE recently became available in New York City for retrofit projects in commercial properties, and the city is expected to pass legislation that will make CPACE financing available for new development projects as early as September 2021.
A key element of CPACE financing is that, unlike traditional debt financing, a CPACE loan is repaid in installments through a charge on the applicable property’s tax bill, which typically allows for lengthy loan terms that could extend 20 to 30 years. This structure results in an interesting dynamic in the context of a residential condominium development, where a property is subdivided into multiple units, and typically conveyed to third parties rather than held by a single person or entity. The CPACE Program Guidelines indicate that “residential condominium units currently owned in common by a commercial entity” are eligible for CPACE financing, “unless and until such time as such a unit is sold.”
Here are five considerations this requirement raises for condominium developers, multi-family owners upgrading and converting their properties to condominium ownership, and lenders regarding the applicability of CPACE to their properties: