CHLA Lodging News Sept/Oct 2019

18 CALIFORNIA LODGING NEWS www.calodging.com upgrades and HVAC efficiency along with all related soft costs (e.g. permitting, etc.). Given the updates to the California Title 24 building code, approximately 40% of all the budgeted costs of gut rehab and new construction qualify for this financing. C-PACE enables flexible, long-term and inexpensive capital; works well alongside most other financing tools; and can complement pre-existing financing and development strategies. Because C-PACE funds up to 100 percent of the hard and soft costs of hotel commercial building upgrades and construction elements that improve energy performance, this financing is becoming increasingly sought-after for hotel new construction, rehabs, PIPs, and run-of-the- mill retrofits. The projects financed with C-PACE are achieving strong increases in return on equity as well as dramatic decreases to their overall weighted average cost of capital given the unique attributes of this financing mechanism. These are two critical metrics for anyone in the industry. Funding is capped at 20%–35% of the stabilized appraised value of the property and DSCR of 1.25x. Unique to the C-PACE program is that these funds are repaid through the tax assessment system as a special benefit. The California statute now enables the same governmental taxing authority for private use, as the State recognizes that these energy improvements have an overall public good as a result of increasing energy efficiency. Each owner’s tax bill will have the annual required C-PACE debt service as a separate line item that is due and payable along with the annual municipal property tax assessment, like an annual sewer assessment or Mello Roos bond payment. The assessments are like loans, in that they allow a property owner to pay off debt in installations over a long period of time. However, C-PACE assessments are not legally considered loans, rather it is a lien that provides strong collateral in the event the owner defaults on the assessment. Because the assessment lien is tied directly to the property, it can be transferred upon sale. In essence, the program enhances the credit of your asset because C-PACE looks a lot like low risk municipal debt. C-PACE lenders are then able to offer repayment terms that are not available anywhere else in the capital markets, which enables owners to benefit from lowering capital costs while at the same time reducing operating costs through the energy efficient improvements financed. Clean energy is an essential focus for today’s commercial property owners and developers, C-PACE enables flexible, long- term and inexpensive capital; works well alongside most other financing tools; and can complement pre-existing financing and development strategies.   continued