Projects financed through PropertyFit can eliminate an owner’s up-front investment and create immediate positive cash flow to the property owner. It can also lower operating costs, improve the value and market competitiveness of the asset and help the property achieve energy performance mandates.
This example compares CPACE financing with a self-funding and traditional bank financing for a comprehensive $350,000 energy improvement project that generates an energy cost savings of $40,000 annually.
A self-financed project would take 9 years to return the owner’s original investment through annual cash flows. If the project were funded with traditional bank financing that required a 20 percent owner investment and was financed at 4.00 percent, amortized over 20 years with a 10-year call, it would require a $70,000 cash investment from the owner, would initially take 3.7 years to become cash flow positive. But, because of the balloon payment due in year 10 it would require a new cash investment from the owner at that point. As a result, the real payback period to just over 15 years.
Now consider the impact of the CPACE financing structure. In this example, CPACE finances the entire project cost over a 25-year term at an interest rate of 6.00%. Annual assessments of $27,379 fully amortize the financing over that period. The results – the property owner’s up-front cash investment is eliminated and, even though the interest rate may be higher than bank financing, the project creates immediate positive cash flow to the property owner. Not only that, but the project increases the value and market competitiveness of the asset and help the property achieve energy performance mandates.
That’s how you shift what was once a capital expenditure into a cash flow positive investment in improved building performance. Run the numbers for yourself to see how PropertyFit can change the value proposition in your project.
Existing Building – Financial Comparison:
PropertyFit helps to accelerate the development of greener, more efficient buildings in Multnomah County. It is one of the first programs in the nation to offer CPACE financing for new construction projects. This innovative new financing tool unlocks capital to achieve superior building performance at more favorable terms then traditional mezzanine debt or preferred equity. It will change the makeup of your capital stack and can significantly reduce your weighted average cost of funds.
Developers who construct buildings that exceed energy code by 15 percent can finance up to 15 percent of eligible costs. Want to go deeper? If your project exceeds code by 30 percent, the percentage of CPACE financing increases to 25 percent of eligible costs—a strong incentive for owners and developers to construct high efficiency buildings. Click here for details on new construction technical standards.
But if improved building performance and reduced costs of funds aren’t enough, the unique structure of CPACE financing offers other valuable improvements over the traditional capital stack. Take a look.
- Reduced energy consumption will lower operating costs thus increasing NOI and the value of the property
- Improved efficiency increases the marketability of the asset resulting in faster lease-up and stronger tenant retention
- The financing is long term, fully amortized financing which eliminates recapitalization needs to pay a balloon payment
- It is non-recourse and requires no personal guarantee
- Construction interest costs can be capitalized into the financing
- The assessment automatically transfers to new owner upon sale
- No financial covenants are required
- Depending upon the accounting treatment, it may be off-balance sheet
Let’s compare its impact in a sample $10 million new construction project.
In this example, the project exceeded energy code by 15 percent. The result is that CPACE financing can substitute for 75 percent of the project’s mezzanine debt needs and reduced the overall cost of funds by 60 basis points resulting in a $60,000 annual cost savings. Increase the efficiency of the project to 30 percent above code and CPACE can now substitute for the entire mezzanine debt tranche and cuts the equity investment in half. All while reducing the cost of funds by 125 basis points and saving the project $125,000 annually.