Mike Doty
Massachusetts is ready to become one of the nation’s strongest markets for a new type of public-private financing designed to power the electrification and sustainability of commercial real estate: C-PACE.
C-PACE allows owners and developers to access fixed-rate, low-cost and long-term financing to support sustainability measures on their properties, such as solar, water savings and energy efficiency.
A blend of drivers, including the passage of the federal Inflation Reduction Act (IRA), increasingly material carbon-driven legislation such as the BERDO (Building Emissions Reduction and Disclosure) 2.0 ordinance in Boston and the passage of a critical amendment allowing C-PACE to be used in new construction have set the stage for the funding tool’s continued growth across Massachusetts. The ability to deploy C-PACE to fund a variety of energy efficiency measures for retrofits, new developments and recapitalizations throughout the state presents an unprecedented opportunity for real estate owners to realize meaningful financial savings while generating positive environmental outcomes.
The IRA, in particular, has received significant attention as it gives additional impetus to the benefits of energy efficient design that can be unlocked with C-PACE. This historic climate action- and clean energy-focused bill puts billions of dollars into tax credits for energy efficiency, solar and battery storage.
Graham Higgins
A total of $370 billion has been committed to fighting climate change with a focus on lowering energy-related costs and significantly cutting national carbon emissions. Commercial building owners and developers that act early can maximize these benefits and capture the net operating income-boosting impacts of energy efficiency and onsite renewables implementation driven by a reduced utilities expense. Increasingly, owners and developers that focus on high performance and sustainable building design realize the dual benefits of significant operational savings while also minimizing environmental impact, which is an increasingly important focus for tenants and investors alike.
Tax Incentives Pair with Long-Term Benefits
In the Massachusetts market, technologies such as cold weather heat pumps, which enable highly efficient electric heating and cooling, are well-positioned to benefit from tax incentives in the IRA that directly lower building owners’ upfront costs. By pairing this initial cost reduction with C-PACE’s accretive benefits, the IRA enables more renewable energy and energy efficiency projects to make financial sense for commercial building owners, while also unlocking broader environmental benefits.
Boston’s BERDO 2.0 further compounds the benefits championed by the IRA and C-PACE. Similar to New York City’s LL97, BERDO 2.0 endeavors to reduce municipal carbon emissions through placing carbon caps on all covered buildings and introduces a fine of $234 per metric ton of carbon dioxide-equivalent if a building exceeds its cap. These carbon caps are dictated by building type, permitting more energy-intensive assets like hospitals to produce more carbon than less-intensive uses such as non-refrigerated warehouses. According to current public data, fines for the first compliance period from 2025 through 2029 alone could reach over $300 million for building owners across the city.
The exceptional combination of readily available, energy-saving building technologies, impending carbon fines and rate-payer, state and federal tax incentives create a powerful collective economic driver for owners and developers in Massachusetts to pursue sustainability-focused projects. At the same time, a challenging and unpredictable macroeconomic environment increases the need for the operating cost savings that more sustainable buildings produce.
C-PACE continues to provide a leading alternative source of fixed-rate, low-cost, long-term financing which enhances an asset’s ability to weather market volatility. As other sources of financing become exceedingly expensive, C-PACE offers a flexible solution across retrofit, new development and refinancing applications. In Massachusetts, the current combination of public policy, macroeconomic conditions and the untapped potential of energy efficiency and renewables are set to galvanize economic and environmental returns.
Mike Doty is originations director and Graham Higgins is transaction manager for commercial energy efficiency at Nuveen Green Capital.
