Sponsored: Harnessing Stability and Sustainability – The Strategic Advantage of Investing in CPACE Private Credit
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By Greg Friedman, chief executive officer, Peachtree Group
Private credit, particularly CPACE – Commercial Property Assessed Clean Energy – financing, offers unique advantages for investors seeking stable returns and diversification. This type of investment is typically uncorrelated with traditional asset classes like stocks and bonds, helping to spread risk across a broader range of investments and enhancing the overall stability and resilience of an investor’s portfolio. Additionally, CPACE financing supports environmental initiatives and has been a largely untapped resource, offering hotel and commercial real estate owners access to lower-cost capital at a time when traditional capital avenues are constrained and demand for liquidity is at an all-time high.
Private credit investments generally provide higher yields than traditional fixed-income investments due to their customized and less liquid nature. With their added security from senior lien status, CPACE loans offer attractive risk-adjusted returns, making them an appealing option for yield-seeking investors. This stability and potential for higher returns are particularly compelling in this market as the hotel and commercial real estate sectors face mounting challenges with a convergence of maturing debt, tightening lending standards and rising interest rates, creating a perfect storm that threatens to upend the market.
According to JLL Research, a staggering $5.8 billion in U.S. hotel-securitized loans will come due by the end of 2024. This impending wave of debt maturities necessitates full repayment, refinancing, extension, or the sale of assets.
The challenge is stark: refinancing at current interest rates could leave many properties unable to generate sufficient income to cover their debt costs. The refinancing landscape is increasingly bleak, with banks continuing to tighten lending standards, leaving property owners with fewer options and higher risks.
CPACE financing has emerged as a vital lifeline in this challenging environment, offering a unique and innovative solution for property owners who desperately need liquidity to navigate these turbulent waters.
CPACE financing has rapidly gained traction. According to PACENation, the cumulative CPACE financing in the United States has surpassed $7 billion, underscoring its growing acceptance and adoption as an effective means to address financial challenges while promoting energy efficiency and sustainability.
The advantages of CPACE financing are many. It allows property owners to access capital for energy-efficient upgrades and renewable energy projects, which can, in turn, reduce operating costs and enhance property values. Moreover, CPACE financing is repaid through a property tax assessment, providing long-term, fixed-rate financing that does not require upfront capital.
Another aspect of CPACE is that it can be retroactive. It offers unique advantages for property owners by operating similarly to standard pre-project funding with one key difference: 100% of the loan proceeds can reimburse the property owner for costs already incurred. This feature makes Retroactive CPACE a valuable resource for property owners seeking better loan terms or improved cash flow for completed projects.
For hotel and commercial real estate owners facing imminent debt maturities, CPACE and retroactive CPACE financing offer much-needed stability and liquidity.
One compelling example of CPACE financing’s impact is the $40 million retroactive CPACE loan secured for a 147-room AC Hotel San Diego Downtown Gaslamp Quarter. This financing arrangement amortized over 30 years, provided substantial financial relief. The proceeds allowed for a significant paydown of the senior loan, thereby mitigating the bank’s exposure. This innovative capital structure significantly alleviated immediate financial pressures – closing in under 30 days – enabling the hotel to establish a solid cash flow foundation during its initial years of operation.
As the commercial real estate sector grapples with these unprecedented challenges, adopting CPACE financing is a prudent financial decision and a strategic imperative. By leveraging CPACE, property owners can ensure their assets remain financially viable and environmentally sustainable in the years to come.
In an uncertain market, CPACE financing offers a beacon of hope for hotel and commercial real estate owners, and now is the time to consider diversifying your investment portfolio with CPACE loans. Investing in this innovative financing option can secure stable returns, mitigate risks, and contribute to sustainable development. Explore the opportunities CPACE financing offers and take a proactive step toward strengthening your investment strategy in these uncertain times.
Peachtree Group is a sponsor of The DI Wire, and the article was published as part of their standard directory sponsorship package.
