In 2020, the commercial real estate market underwent an unprecedented disruption as a result of economic volatility. Fortunately, 2021 saw a return to steady demand for construction projects, but with that came higher-than-average increases in construction costs as a result of material and labor shortages, and inflation. In the middle of 2021, final construction costs for a commercial project had increased by 4.5% according to JLL research.
Currently, across the country, rising construction costs and delivery delays are causing significant turmoil for commercial real estate projects. JLL estimates that through 2022 construction costs will increase between 4% to 7%. These increases have caused some developers to delay and even cancel planned construction projects, which might have penciled a year or two ago but no longer do.
Luckily, innovative options exist to alleviate the financial strain that rising construction costs are causing. Commercial Property Assessed Clean Energy (C-PACE) has several beneficial use cases, but one that is particularly pertinent is its ability to fill financing gaps resulting from rising constructions costs. C-PACE is a financing tool that enables commercial real estate owners to access low-cost, long-term, fixed-rate financing for sustainability improvements including energy efficiency, water conservation, and renewable energy projects that are underway, planned, or recently completed – helping to fund construction cost escalations and overruns.
Authorized by a state-level government policy that classifies clean energy upgrades as a public benefit, these measures can be financed with no money down and then repaid as a benefit assessment on the property tax bill over a term that matches the useful life of the measures. Over 38 states throughout the country have passed legislation to allow C-PACE financing.
In Los Angeles County, California, a developer recently leveraged C-PACE financing to fill a capital gap from increasing construction costs on a 132-unit, six-story student housing complex. About $6.5M in C-PACE capital was utilized to finance energy efficient development costs including plumbing and seismic improvements. “We were very pleased to include C-PACE in the development capital stack as it reduced our equity need and was accretive to our ROI,” said Bryan Elsey, Owner, Elsey Holdings. “The Nuveen Green Capital team was a pleasure to work with – efficiently guiding us through our first C-PACE project in addition to getting a new municipality opted into the C-PACE program.”
Nuveen Green Capital, which is the nation’s leading C-PACE provider, has been able to help stalled projects come to completion when they otherwise may not have been able to. A developer in Albany, NY that is currently working with Nuveen Green Capital began construction on his hotel before COVID, and was faced with a senior lender who backed out before closing as a result of the pandemic. The project had been stalled for 2 years. Nuveen Green Capital was able to step in and source a senior lender that was supportive of the developer’s full-electrification building plans and Nuveen Green Capital’s C-PACE was utilized as a source of supplemental financing. This will allow the sponsor to complete construction of the half-finished clean energy project, creating jobs and bringing economic activity and environmental benefits to their community.
Unexpected delays and cost overruns can be challenging to navigate in a commercial construction project. Nuveen Green Capital can help efficiently and effectively fill these funding gaps and get a project back on path to completion.
Visit our get started page to contact us and learn more about how Nuveen Green Capital can help move your stalled commercial construction project forward.