Leveraging energy efficiency to create asset value

In early May, sources from within the U.S. Environmental Protection Agency reported that the federal government intended to end its long-running Energy Star program for energy-efficient appliances, according to the New York Times — spelling the possible end of a widely used voluntary tool in the multifamily industry. 

The sunset of the Energy Star program would be part of a larger agency initiative to eliminate divisions that oversee efforts related to climate change and energy efficiency, as reported by the New York Times. As of now, the program is still active, and no further reports or official announcements have been made on its status. 

Energy Star has saved consumers and businesses $500 billion in energy costs since its founding in 1992, according to the program’s 2023 report. On a yearly basis, it creates roughly $40 billion in energy savings at a cost of $32 million to taxpayers, according to the Institute for Market Transformation, a Washington, D.C.-based non-profit focused on high-quality buildings.

The program counts thousands of private organizations as its partners, including nearly 40% of Fortune 500 companies, according to the report. Its Sustained Excellence award winners, recognized for years or decades of support, include a number of multifamily companies: Houston-based Hines, Dallas-based CBRE, New York City-based Nuveen Real Estate and New York City-based Tishman Speyer, among others.

Since media reports surfaced last month about the program's demise, more than 1,200 organizations have signed letters appealing to the EPA to continue the Energy Star program, according to the IMT. “The real estate industry is really aligned … on the idea that it is essential to maintain the Energy Star program within the federal government,” Alex Dews, CEO of the IMT, told Multifamily Dive. “It is a public good that cannot be replicated in the same way outside of government.”

While Dews believes it would take an act of Congress to fully end the program, the EPA is ultimately responsible for how it manages Energy Star’s future implementation. 

Energy Star programs

Energy Star appliances have long been used as a selling point at new multifamily properties, highlighted to attract energy- and budget-conscious potential renters, according to Nicole Upano, assistant vice president of housing policy and regulatory affairs at the National Apartment Association. 

“Energy Star certifications are used widely, and they are recognized amongst residents,” Upano told Multifamily Dive. “That's a big reason why housing providers engage in Energy Star and seek out their certifications, … to cater to residents who care about these issues. It's also a huge way for residents to save money on their utilities.”

However, appliance certifications are only one tool that the program offers. Multifamily owners and operators have the option to achieve whole-building Energy Star certification through one of three minimum requirement paths. 

In addition, the program’s Portfolio Manager allows commercial building operators to track their energy and resource usage. This free tool helps users not only to gauge their building’s performance, but also to compare it against other providers. 

The Portfolio Manager is used to operate roughly 25% of all commercial building space in the U.S., according to Energy Star. “Just last year alone, over 300,000 buildings used the Energy Star Portfolio Manager,” Dews said. “For most of the history of this program, it's all been voluntary use. So building owners and managers used this as the single source of truth for how to compare their buildings against peer buildings.”

The Portfolio Manager program is also the basis for building energy requirements in seven states, 48 local governments and two Canadian provinces, according to Energy Star. Many of the NAA’s members use the Portfolio Manager to track compliance with their region’s regulations, according to Upano. 

Upano also notes that the program allows multifamily companies to save on operating costs and, in turn, make buildings more affordable. “There are a number of ways that Energy Star is utilized, and [if it is abolished] it would be difficult for our members who have long used these programs and sought their benefits,” Upano said. “It would be a huge risk to their investments to eliminate Energy Star.”

For now, absent any other guidance from the EPA, Dews recommends that users of Energy Star’s Portfolio Manager back up, process and document their data in the event of any unexpected outage.

“I think it's important that folks understand, regardless of where they sit relative to the building industry, … this is a key program that is widely used across the industry, and the disruption that it would cause if it were shut down or temporarily or permanently terminated is massive,” Dews said.

Energy Star Portfolio Manager — the software platform for benchmarking and managing building energy use — has powered the real estate industry’s approach to sustainability for years. It’s helped building owners access low-interest rate loans, comply with regulations (like New York City’s LL97 building performance law), take advantage of rebates and earn recognition that distinguishes their energy efficient building from the one next door. 

What’s more, it’s helped building owners put money in their pockets by returning an average ROI of $350 for every $1 invested, according to the U.S. Environmental Protection Agency, which administers the program. Today, 330,000-plus buildings with 35 billion sq. ft. in North America are more efficient because of it — all for free, thanks to taxpayers who fund the government program. 

But the Trump administration in its fiscal year 2026 budget request has proposed eliminating Energy Star and, with it, Portfolio Manager. That raises a question: How will building operators benchmark energy and sustainability if the ESPM software platform disappears?

A way forward

In the absence of ESPM, what should benchmarking look like? First, not measuring energy performance isn’t an option; knowing building efficiency is more than a reporting exercise — it’s integral to long-term property value, capital access and compliance, with energy-efficient retrofits capable of yielding a substantial return on investment. The performance of BXP, the world’s largest publicly traded office REIT, is a case in point. It’s reported saving $1.4 million annually in energy costs since 2017, according to an analysis our company has done.  

ESPM underpins this kind of success. If the status quo doesn’t hold and we need something to replace it, what should that look like? To figure that out, we talked with customers, some of them among the world’s largest real estate organizations. Here’s what’s on their minds:

• Funding: Should we depend on taxpayer-funded tools to manage mission-critical software products and solutions?
• Benchmarking: Should performance standards be based on the Commercial Buildings Energy Consumption Survey, a federal benchmarking tool that is updated every several years and based on a relatively small sample size?
• Politics: Should building data be placed in government programs vulnerable to shifting politics?
• Globalization: Should tools be North American-centric when real estate is a global business?
• Innovation: Can government offerings keep pace with dynamic regulatory and operational demands?

My takeaway from listening to the industry is this: the proposal is forcing real estate professionals to confront systemic gaps in what’s driving sustainability as a value generator. These gaps need addressing whether ESPM stays or goes.

A blueprint for what’s next

I’ve distilled these questions and proposed solutions into five principles that can pave the way to a better benchmark and an improved business case for sustainability overall.  

1. For industry, by industry. Industry tools and data should be governed by software users and data providers. 
2. Market-driven innovation. Tools must evolve and improve at pace with the market. AI, automation, and dynamic benchmarking are all table stakes.
3. Globally referenceable. Metrics should be consistent and comparable across portfolios and regions, to reduce regulatory friction, and investor confusion. 
4. Agnostic. Alignment is key in an industry of real estate’s scale. Any organization that contributes or adds value to data should be able to participate.
5. Sustainable business model. Access to tools like data management, benchmarking and reporting should remain free. To ensure the solution is durable and drives the pace of innovation and ROI, the platform must have transparent revenue streams.

Bridging the gap

The potential end of Energy Star forces fundamental questions around what should come next, why and on what terms. Those are healthy questions to ask at any time, but today, they’re critical for commercial property as an industry to move forward. The principles defined above will help us get there.

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By Ameresco

The way organizations manage energy within their buildings is changing at a record pace. Rising energy costs, stricter regulations, and a continued commitment to sustainability are driving this shift, but the real change is happening at the intersection of technology and new ways of thinking about energy, and the future of energy efficiency.

Smart Technology and Data-Driven Insights

In today’s environment, energy management is no longer confined to periodic check-ups or reactive fixes. Instead, it’s a dynamic process powered by smart controls, automation, and advanced analytics. These tools provide building operators with real-time insights into energy use and equipment performance, enabling them to make proactive decisions and optimize operations. The result is a more agile approach to energy management, where buildings can respond to changing conditions, whether it’s fluctuating energy prices, shifting occupancy patterns, or unexpected equipment issues.

Artificial intelligence and machine learning are rapidly becoming central to this transformation. By analyzing vast amounts of data, these technologies help predict future energy needs, identify inefficiencies, and recommend optimizations. For example, AI-powered systems can forecast energy demand based on factors like weather, occupancy, and historical usage. This allows buildings to adjust their operations in advance, reducing costs and minimizing downtime while enhancing comfort for occupants.

Renewables, Resilience, and a New Energy Mindset

Another key driver of change is the increasing integration of renewable energy sources, such as solar panels and battery storage, into building operations. These technologies are no longer just for early adopters; they’re becoming standard features in modern energy strategies. By generating and storing their own electricity, buildings can reduce their reliance on the grid, lower energy costs, and improve resilience during outages or disruptions. This shift is especially important as organizations strive to meet ambitious sustainability goals.

Centralized asset management platforms and digital twins (virtual models of physical assets) further empower organizations by providing a comprehensive view of energy performance across their entire portfolio. With access to detailed, real-time data, operators can spot inefficiencies, prioritize investments, and track progress toward energy and sustainability targets. This level of insight is invaluable in an era where every resource is integral to efficient operations.

Overcoming Challenges in Modern Energy Management

While modernizing building energy systems require investment, the benefits can outweigh the costs.  Upgrading older buildings to meet new performance standards not only enhances operational efficiency but also generates significant cost savings over time. Continuous monitoring and adjustment are necessary as regulations evolve, and organizations must stay ahead of changing requirements to avoid penalties and maintain compliance.

Integrating advanced technologies like digital twins and AI-driven analytics can seem daunting but the potential for energy cost savings is substantial. Organizations must carefully assess investments in these technologies which provide real-time data that enable precise energy management, reducing waste and lowering costs.

Another challenge lies in stakeholder engagement and change management. Successfully modernizing energy systems requires buy-in from building owners, operators, and occupants alike. Clear communication, education, and collaboration are essential to overcoming resistance to change and ensuring the successful adoption of new technologies and practices.

Real-World Impact and Future Opportunities

Across sectors from schools and hospitals to government facilities, organizations are already reaping the benefits of these modern energy management strategies. They’re not only reducing their environmental footprint but also positioning themselves as leaders in responsible energy management. The transformation in strategy views technology and energy as dynamic resources to be managed, optimized, and even monetized.

Looking ahead, the future of building energy management will be shaped by the continued integration of smart technology, renewable energy, and data-driven decision making. As organizations continue to modernize their facilities, they will unlock new levels of efficiency, resilience, and sustainability. For those interested in exploring these trends and strategies in greater depth, Ameresco’s recent white paper on the modernization of building energy systems provides valuable insights and practical guidance.

Facility managers looking to finance energy efficiency projects may turn to energy savings performance contracts, offered by traditional energy service companies, or a newer option, agreements with energy-as-a-service firms. 

The two models are similar in many ways but possess key differences that can help determine which is best for your facility or portfolio.  

According to the U.S. Department of Energy, energy savings performance contracts facilitate infrastructure improvements that pay for themselves over time, which can make facilities less vulnerable to budget impacts from utility rate hikes and extreme weather and enhance their ability to plan and budget.

The energy service company will design, install and finance the energy-saving measures, according to Gary Williams, senior director of sustainability and energy solutions at ESFM, the facilities management division of Compass Group. “Usually in that type of system, [the ESCO will] guarantee the energy savings, and so the [money saved] is used to pay for the project cost and reduce the financial risk,” he said. 

ESPCs tend to be well-suited for large projects in groups of buildings or campuses that can effectively support multiple types of efficiency measures under a single contract, according to a report by the DOE’s Better Buildings Coalition Financial Allies. They have received widespread government support, including guidance from the Federal Energy Management Program on how government facility managers can solicit ESPC bids, BBCFA says. 

For example, Brockton, Massachusetts, is using a $7 million energy savings performance contract with Ameresco to implement comprehensive upgrades and preservation measures at historically significant buildings, the company announced in March. 

In energy-as-a-service models, the facilities outsource energy management to specialized providers. “So, the customer starts to write checks to me, not the utility,” Al Subbloie, CEO of energy-as-a-service company Budderfly, previously told Facilities Dive. The provider finances, installs and manages energy-saving measures. It recoups the cost of the upgrades by keeping a share of the savings the measures create, typically over a 10-year contract period.

Budderfly’s customers to date include large retail and foodservice chains like Craveworthy Brands and healthcare systems like UConn Health. For Craveworthy Brands, Budderfly is providing high-efficiency HVAC systems, LED light fixtures, refrigeration controls and water conservation systems it expects to provide value over a 10-year period, it said in April 2024. 

Energy-as-a-service models like Budderfly’s can provide more flexibility for facility managers, according to ESFM’s Williams. These models are newer and feature less-standardized structures, with ongoing innovation in their design, according to BBCFA. While these agreements, like ESPCs, can support large, multisite, multimeasure projects, they can also be applied to smaller, targeted projects in individual buildings, its report says.  

In ESPCs, the building owner owns any equipment installed via the contract. The owner can choose to finance the installation through a separate third-party financier, “typically using a loan or capital lease structure. This means that the equipment will usually appear as an asset on the owner’s balance [sheet] while any financing appears as a liability,” BBCFA says. In the energy-as-a-service model, the service provider purchases, installs and owns the equipment, meaning owners have no asset or liability added to their balance sheets, per the report. 

“[Energy-as-a-service] definitely offers a more flexible approach because you can develop it further as you go along,” Williams said. “What's nice with that model is that [service provider] can outsource and subcontract other energy solution services from different companies, so you get the benefit of maybe utilizing more energy efficiency technologies that are available, versus [those offered by] the energy saving contract.”

Pete Christakis, president of the East USA and Greece regions and project risk for Ameresco, said in an interview that ESPCs also offer flexibility, however. 

“We provide a service to our customers, not a particular product. That allows us to actually pick the best possible solution. It doesn't have to be a specific manufacturer,” Christakis said. “Some customers may have facilities that have a certain [particular] product. And then they get the benefit of us being able to install that same product versus a standard design, building-type arrangement, where someone would actually possibly install something different.” 

A key difference between these models is that energy-as-a-service is a pay-for-performance structure: Customers directly purchase realized, measured energy savings through defined service payments using a fixed rate, such as dollars per kilowatt-hour saved, per the BBCFA’s report. Under an ESPC, customers pay for contracted services such as measurement and verification, maintenance and repair. If the energy efficiency installation is financed, the customer will make fixed financing payments to lenders as well, regardless of savings performance, BBCFA says. 

The right approach for any given building or company’s energy efficiency needs will depend on factors including the size, scope and sector of the project, these experts say. 

“It's actually pretty simple. [We look at] vintage of building, square footage, utility costs and any capital projects they may have done recently,” Christakis said. “From there, we can really do some back of the envelope [math] pretty quickly to come up with what type of opportunity exists.”

SAVANNAH, Ga. – Facility managers can maximize resources and energy savings by focusing on targeted, small-scale HVAC interventions, according to a researcher at Stanford University. 

By implementing a performance-based prioritization strategy, “you can get 80% of the benefit with 20% of the work,” said Joshua Neutel, a Ph.D. student at Stanford University, presenting Tuesday at Realcomm IBcon. 

Following an extreme heat wave in Palo Alto in 2017, Stanford University depleted the amount of chilled water in its storage tank, requiring the institution to turn off cooling in entire buildings, Neutel said. To make sure that didn’t happen again, researchers, in collaboration with Stanford University’s operations team, conducted a study of 10 buildings to determine the amount of energy that could be saved by raising cooling set points to lower demand. 

“The research question that the [facilities team] posed to us was, ‘How much energy can we actually save?’” Neutel said. “The plan was to flicker set points up and down, which would allow us to measure ahead of time what the reduction would be when we do the set point adjustments.” 

In addition to looking at the set points, the team identified a large number of fault signals that were being generated by the building management system. “We identified 1,500 faults in one building alone,” Neutel said. “This is a big problem. There’s too many data streams and we can’t sort through all these issues. We also can’t send technicians to go fix all those issues, so we needed some way to prioritize.” 

In response, the researchers examined the energy use of different rooms alongside the amount of faults coming from different zones. When they changed the cooling set points, they found that a large majority of zones that were driving energy savings were close to their cooling set points. 

The researchers ran additional experiments that looked at adjusting set points in progressively smaller sets in different zones. “Basically we wanted to get zones that had the highest air flow and were closest to the cooling set points,” Neutel said. “Those are the ones we targeted, and we just kept going up and up that spectrum.” 

They found that when they adjusted the set points in 20% to 40% of the zones, they saw 40% to 90% energy savings, depending on the building. When they adjusted 2% to 20% of the zones, they found between 30% to 50% of the savings. “The point is, you can get big savings with relatively few zones, and we proved that out with our experiments,” he said.  

The team then examined zones based on two criteria: those that were cooling dominant and those with lots of faults. By looking at both energy use and the amount of faults coming from a zone, they could prioritize which areas to send teams to and where to make adjustments, Neutel said. 

For example, if a room was sending lots of faults but wasn’t using much energy, it wouldn’t make sense for the operations team to spend resources resolving those issues. On the other hand, if a zone was using lots of energy but didn’t show any faults, then it was probably a room with high external heat gain — for example, a hallway with a big skylight — that could be excluded from sending cooling requests to the overarching system. 

“The sweet spot is right in the middle,” Neutel said. “A zone that is dominant and faulty … are the ones that we care a lot about. These are faults that are possibly, likely, driving energy demand in the entire building, and we can fix these.”

Facilities managers can help light a competitive fire under their organization if it's dragging its feet on energy improvements, facilities management software company Accruent says in a white paper. 

Money freed up through energy savings that goes into business growth can help organizations make more money, the paper says.

“Businesses that can improve their energy efficiency will reduce costs, even when prices remain high,” Accruent says in Building the Energy-Efficient Office. “This cash can be redeployed as they see fit, improving liquidity when others may be struggling to cover operating costs.” The paper was released in 2023 but takes on new relevance as facilities managers wrestle with cuts to their operating budgets.  

If the organization lacks capital to replace or revamp outdated HVAC equipment or make other large improvements to the building and its systems, there are small-scale changes that can add up to savings, it says. 

Unplug laptops. An organization with a policy for employees to unplug portable devices when not in use can save several dollars a month for each laptop and tablet. “Multiply [that] by a workforce of 100 people, and it starts to add up,” the paper says. Turning off office equipment rather than leaving it on standby can help, too. 

Update food and beverage appliances. Office kitchens tend to have the same appliances as households. Replacing them with smart appliances that shut down when not in use can generate savings. “Smart hot water taps, for example, use up to 55% less power on standby and can be combined with scheduling controls to manage energy use,” the paper says. 

Keep IT systems well-maintained. Computers, printers and other IT equipment are the biggest energy consumers behind building systems, the paper says. If the equipment isn’t working properly, it can take more energy to operate them than it ordinarily would. Even if employees avoid using them, the equipment will still consume energy if they’re left plugged in. 

Be smart about lighting. Switching to LED lights is a start, if that hasn’t been done yet, but that by itself won’t generate maximum savings. Turning them into smart lights that go on and off based on occupancy can further boost savings. That’s particularly important if cleaning crews work at night. “If cleaners only enter the building when the rest of the occupants have gone home, energy use is sustained for a longer time,” the paper says. If the lights go on and off as cleaning crews move about the building, that saves energy by not “having the whole building or floor lit up.” Daylight blinds can help, too. These let employees maximize natural lighting without creating glare. 

Manage ventilation. A third of a building’s heat is lost through ventilation, the paper says. Having the system on an automatic schedule can be a problem if the system can’t sync up with the weather when it turns cold or hot unexpectedly. “An unseasonable heatwave could leave occupants opening windows without being able to adjust the heating,” the paper says. So, it’s better to be hands on in managing ventilation. 

Facility managers looking for ways to reduce energy use to meet sustainability goals and reduce costs might be tempted to draw up a capital expenditure plan for upgrading building systems. But before doing that, consider conducting a building audit to look for simple fixes, says Gary Williams, senior director of sustainability and energy solutions at ESFM, a facilities management division of Compass Group USA. 

“We find that we really need to guide them in the right way, because many people have different ideas of where [energy efficiency] starts. You have to look at the complexity of the investments,” he said. “You do the benchmark, see where you are and then decide what to do next. Because now there’s room for improvement.” 

Simple fixes can often result in large energy savings, he said. 

“Before you go and lay out [a] big capital expenditure and replace [HVAC electric motors] just because they are a little outdated, there are many things we find that can improve the efficiency on all the electric motors,” Williams said. “Just by installing a variable frequency drive you’re saving at least 40%, sometimes up to 60% [of energy use].” 

Operators can also implement smart lighting that adjusts brightness based on occupancy levels and daylight levels to reduce energy consumption, said Williams, who leads ESFM in helping its clients become more energy efficient. 

Another commonly overlooked way to reduce energy is HVAC system cleaning, he said, because many systems are on rooftops. 

“People don’t like to climb up top [and] there are safety rules when you climb up a ladder,” Williams said. “In my experience, as soon as you climb on a rooftop and find these units, the first thing that jumps out at you is a lack of maintenance.” 

Many times, you don’t need to replace a unit, he said. “You just need to maintain it properly. You’ve got to clean the ducts. But most times we’ll find dirty filters. Very frequently, clogged filters on HVAC systems can account for at least 15% of wasted energy for that unit.” 

The next part to inspect would be economizers, which can get jammed up and reduce the amount of fresh air flow coming into an air handler unit, he said. “Because if you get too much outside air coming in, that air has to be conditioned, whether it’s heated or cooled. So you waste energy.” 

A good way to go about finding these areas of energy waste is a “treasure hunt” where the maintenance team goes around a facility and looks for common issues. This often includes cleaning filters, adjusting and fixing dampers and installing demand control ventilation, he said. 

“Just by making sure the dampers are set correctly, you’re going to save 40% of your energy from HVAC systems,” he said. “The main thing is educating the people.”

Facilities managers with capital set aside for a new HVAC system or other energy upgrade can get more bang for their buck if they work with an energy service company because it will offset any costs that the project doesn’t recoup in energy savings, a champion of these companies says.

“The energy service companies guarantee the amount of savings,” Timothy Unruh, executive director of the National Association of Energy Service Companies, said earlier this month on the Modern Facilities Management podcast. 

To get the benefit, facilities managers must work with these ESCOs to get an investment rate audit before they start the work. That’s an assessment of all the system and operational changes needed to make the building as efficient as possible. The scope of work could include relatively easy upgrades, like adding window film to control the amount of sun coming in or upgrading to second-generation LED lights, or big-ticket items like replacing the HVAC system, adding building controls or making upgrades to the building envelope.

Facilities managers might be tempted to use their limited capital to fund a single project, like HVAC replacement, but they’re more likely to generate enough energy savings to pay for the retrofit if they take the comprehensive approach identified in the audit, Unruh told podcast host Griffin Hamilton.

Big-ticket items “often cost more than the energy savings they produce,” Unruh said. 

But by taking a comprehensive approach, changes that have a high return on investment, like upgrading to LED lights and adding window film, tend to generate enough savings to help offset the costs of the more expensive work. “These other [upgrades] can produce extra savings that can help cover the other projects,” he said.

Just as important, the comprehensive approach enables facilities managers to get necessary capital projects done that the building needs, regardless of the energy improvements, he said.

“They get a building that’s been renovated and no longer has a capital requirement hanging out there or some deferred maintenance thing they haven’t had time or money to do,” he said. “So, the money is effectively being covered to do a building renovation, improvements in lighting, indoor air quality, better temperature control – a whole building that is now much better.”

ESCOs have been around for almost 50 years, so they have a track record that facilities managers can review to see how these projects have performed over time, Unruh said. The typical project has a lifespan of between 15 and 20 years, he said, so in calculating whether a project has generated enough savings to offset its costs, the calculation has to be over that period.

“You’re living with the project for 15-20 years,” he said. 

ESCOs generally work with public facilities, like schools and municipal buildings, which tend to be resource constrained and in many cases don’t have capital to do any type of major project. In these cases, the ESCO can provide financing to get the work done with the understanding that ultimately the payback is going to come from the project itself through the energy savings that are generated. 

“It’s not rocket science. It’s not something new and fabulous that just came up last week. This is very much a clear science that’s been around a long time,” he said. “Engineers know how this works, and the savings can be counted on.”

The first phase of the Black Desert Resort near Zion National Park in Ivins, Utah, had a soft opening in October. This development phase of the 630-acre property features a resort hotel, spa, golf course, roughly 1,000 condos, and 190,000 square feet of commercial space, including shops and restaurants.

The sustainability-minded resort used Commercial Property Assessed Clean Energy, or C-PACE, financing for installing energy-efficient HVAC systems and insulation, earthquake mitigation and water conservation measures. 

“We wanted to develop the property in an environmentally sustainable and sensitive way, one the community would be proud of,” said Jon Day, CFO at Reef Capital Partners, the commercial real estate investment company that owns the resort. "The irrigation system and water storage were constructed with water conservation as the top priority, which is especially important in a desert like Utah. We built the system with industry-leading technology and materials, and the C-PACE money helped us.”

Managing partner Patrick Manning named some of the resort’s other sustainable features: It uses low-voltage power over ethernet, “running only 10 volts to lights, security cameras and door locks across the entire property,” he said. “C-PACE helped us accomplish that [and] our water conservation measures. Because of C-PACE, we were able to finance efforts that banks wouldn’t,” Manning said, describing the experience as “seamless.”

Petros PACE Finance, which provided the project with $153 million in C-PACE financing, called the Black Desert Resort “the largest single transaction in C-PACE history” when the deal closed in October 2022. The resort secured a 30-year agreement at a 7% interest rate and a 25-year amortization period, Day said.

C-PACE is gaining momentum as a way for commercial real estate owners and operators to fund sustainability upgrades, including retrofits and energy efficiency improvement projects. In the jurisdictions where it’s available, it’s an attractive option for facilities that are seeking long-term financing with lower monthly payments, said R-Zero CEO Jennifer Nuckles. 

Features of C-PACE financing

With C-PACE, building owners and operators can typically get long-term, fixed-rate, non-recourse financing for up to 30 years for real estate projects that increase energy or water efficiency, including retrofits, upgrades and renewable energy installations. Interest rates may start as low as 7%, according to Peachtree Group, an investment firm that says it has facilitated 91 C-PACE transactions totalling $925 million.

The financing offers other advantages as well. The mechanism “looks exactly like a tax assessment. There are no covenants [like] you’d find in normal mortgage loans. There’s no additional collateral,” said Mansoor Ghori, founder and CEO of Petros PACE Finance, which has funded C-PACE transactions in 17 states and Washington, D.C., according to its website. The maximum amount of C-PACE money a project can typically secure equals about 30% of the value of that building, Ghori said. 

Also notable is that repayment is attached to the building where energy efficiency improvements are being made, not to the property owner, according to a report from Patrick Dolan and Anna Lee, partners at Norton Rose Fulbright, which represented Petros in New York City’s first C-PACE financing transaction. That transaction, worth $89 million, was for energy efficiency improvements at a Wall Street-area building and was secured in 2021. 

C-PACE financing “has gone from a niche product to a fairly mainstream financing tool. You're now reaching an institutional client base that didn't exist before, and a lot of it is due to expansion of legislation and educational resources,” said Rafi Golberstein, CEO of Minneapolis-based PACE Loan Group, which provides C-PACE financing across the U.S. 

State progress and barriers

A state or local government must enable C-PACE financing via legislation and then launch a program to make it available in that jurisdiction. Washington, D.C., and 40 states have PACE-enabling legislation, and D.C. and more than 30 states have active C-PACE programs, according to the PACENation website. 

North Carolina is among the most recent states to approve C-PACE legislation, which it did in July, on the heels of Georgia and Idaho’s enactments earlier last year.

Minnesota signed a bill into law in May extending the maximum term for C-PACE financing from 20 years to 30 years and raising the loan-to-value ratio from 20% to 30%. The revision also broadened the scope of PACE-eligible projects to include building resiliency improvements and water conservation. The state’s program now finances energy projects that include fuel-switching, and it no longer requires eligible energy projects to lower net energy consumption provided greenhouse gas emissions are reduced, Golberstein said. 

The law also removed requirements that projects be cost-effective, Golberstein said. During a Minnesota House Climate and Energy Finance and Policy Committee meeting in March, Golberstein testified that the requirement had hindered electrification and decarbonization projects in the state. 

Maryland requires an amortization schedule of no more than 20 years, which makes the mechanism less financially attractive in the state, according to Chris Nevin, mid-Atlantic regional manager of institutional real estate at First National Bank. 

When considering C-PACE financing for a particular project, “It has to make good financial sense. C-PACE can provide an important boost for a hard-to-finance project or a borrower who is in a less solid equity position — but established developers who come to the table with a strong balance sheet may not see the same benefits,” Nevin said. “In fact, there could be situations where it ends up adding costs in the long run.” 

While states like Minnesota have made strides in expanding C-PACE, New York City has faced a more challenging path. The city established its C-PACE program under the Climate Mobilization Act in 2019, but the program has seen only three deals come to fruition since 2021, according to PACE Loan Group.

One hurdle had been the requirement that all projects achieve a savings-to-investment ratio, or SIR, of 1.0 or greater. That meant “the projected energy savings had to equal or exceed the investment cost” and “projects had to demonstrate a dollar of savings for every dollar of PACE money they sought,” said Laura Rapaport, founder and CEO of North Bridge, which provides C-PACE financing to institutional commercial real estate developers across the U.S. 

In August, however, the New York State Energy Research and Development Authority updated its state guidelines to eliminate the SIR requirement for certain projects, including new construction and major renovations that qualify for C-PACE, retrofits that will completely electrify a building and those that install HVAC, ventilation or water heating systems that meet certain efficiency standards. Those changes apply across New York state; the NYC Accelerator PACE Financing Program updated its guidelines in August to reflect these changes for New York City projects.

“The SIR requirement previously limited C-PACE adoption, as many projects struggled to demonstrate immediate cost parity,” Rapaport said. “We expect to see rapid expansion of C-PACE adoption in [New York City] with the elimination of the SIR barrier and the inclusion of new construction and major renovation projects.” 

C-PACE and multi-state projects

Despite the appeal of C-PACE financing, the state-by-state nature of C-PACE programs can give pause to building owners and developers managing portfolios across multiple states. “Every state has its own tax law,” Golberstein said. A company wanting to use it to retrofit properties in multiple states would need to secure financing in each state. 

“When we think about larger [real estate investment trusts] or regional property owners with portfolios in three or four states or markets, it’s about doing a small deal and giving it a run. And, if that works, you [replicate] it across the portfolio, where applicable,” Golberstein said.

Nuckles recommends that property owners with large portfolios conduct a portfolio-wide audit to identify properties that have the potential for the highest cost savings. “I'd tailor each C-PACE transaction to the specific needs of the properties within the portfolio. Improvements can also always be implemented in phases,” she said. “It behooves the hotelier who owns four properties, as they can approach it from a portfolio perspective and then go down to the individual property level. Owners and operators can be in a scenario where benefits outpace outlays in a particular year.” 

Golberstein emphasized the similarities of the state programs. “So, if you’ve done PACE in Tennessee, it’ll be oddly similar to doing PACE in Nebraska. There’ll be some slight nuances, but [at a] high level, it’s going to be the same process. So, the real question is whether you’re in a PACE-eligible state,” he said.

Jaime Del Álamo, head of ESG value & risk Americas at JLL, sees more differences, however. 

“C-PACE works at a more regional level, and conditions vary widely by state, with differing rules, provider availability and even qualification,” said Del Álamo, who is currently involved in a couple of C-PACE financing deals. “It’s an excellent financing alternative on an individual basis, but I don’t think it’s mature enough today to be able to advise one single owner in a national scheme and say, ‘OK, we can use C-PACE to finance X amount of properties distributed throughout the country,’ because there’s a lot of nuances today per market and even in [how] the market is performing.” 

Nuckles noted the long-term benefits that can come from C-PACE program-financed improvements, including lower maintenance and operational costs and reduced energy consumption. 

C-PACE is “adaptive and cost effective,” Nuckles said. “It’s a symbol of the evolution of the real estate industry, [which] is moving much more toward a sustainable future.”