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PACE opens new world of commercial real estate financing options

I’m a finance guy – through and through. I like numbers. And more importantly, I like helping people get deals done.

So when a new commercial real estate financing option comes to light, I can’t help but excited about it.

It’s geeky, I know, but it’s important. This particular development holds a lot of promise for the industry.

It’s called PACE (Property Assessed Clean Energy) financing, and our new friend Adam Lipkin came into the Fried On Business studios to tell us all about it.

Lipkin is the Executive Director for Counterpointe Sustainable Real Estate in Miami, FL, a Hannon Armstrong partner (NYSE: HASI). Counterpointe Sustainable Real Estate is a direct capital provider of Commercial PACE financing.

PACE, Lipkin said, is set to be the fastest-growing financing option in the U.S., yet few have heard of it.

“PACE is going to be available to help make your buildings more resilient and more energy efficient,” he said.

It applies to high-cost improvements like high-impact windows, LED lighting, energy-efficient HVAC systems, roofs and more.

In a value-added situation for properties like office buildings, shopping centers, apartment buildings, hotels and senior living facilities, Lipkin said, this is worth investigating.

It works for new construction also, and it can help close the gap between the construction loan and your equity limit, he said. PACE can comprise 10% to 20% of the capital stack.

Lipkin said PACE is a public-private venture. It’s all privately funded. The public side is a voluntary tax assessment that gets paid annually through the property tax bill.

The rate is generally under 7%, he said, compared to 12% to 15% for mezzanine financing.

Simply put, PACE lowers the cost of capital and increases your return, Lipkin said.

“We were just at the UF (University of Florida) conference, and we were hearing from a lot of the equity groups that they’re really struggling to get to their return expectations. They need to be in the 16% to 18% return range, and they’re seeing all of these value-add multi deals in the 12% to 14% range,” he said.

“How about if you could reduce your cost of capital to hit that minimum hurdle of 15% to 16%? I think that might be interesting.”

Lipkin said PACE will be a game-changer for new construction. Because Florida law already requires upgraded windows, doors, HVAC systems, etc., the budget can remain as-is while the line items simultaneously qualify for PACE financing, he said.

Questions? Look for Adam Lipkin (C-PACE Guy) on Linkedin or call him at 786-563-3529.

This was a great discussion with a great guest. I’m only scratching the surface here, so click here to listen to the entire interview with Adam Lipkin, Executive Director for Counterpointe Sustainable Real Estate in Miami.



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