🔒As green financing booms across the U.S., CT could lose its edge

Connecticut has long been a standout for its unique energy-efficiency financing program targeted at commercial and industrial properties, but it has been losing ground of late.

Other states have been ramping up so-called Property Assessed Clean Energy (PACE) financing, which allows property owners to finance solar panels and efficiency improvements through low-interest loans whose repayments are rolled into local property-tax bills.

While Connecticut’s program — C-PACE — remains the largest in the country on a per-capita basis, others around the U.S. have been growing several times faster in recent years, threatening to challenge the state’s long-dominant position.

“There is a national ramping-up that is going on,” said Mackey Dykes, vice president of commercial and industrial programs at the Connecticut Green Bank, the quasi-government agency that oversees the state’s C-PACE program. “We want to remain a leader.”

To do that, the Green Bank is plotting a growth strategy that includes pursuing more deals in underrepresented sectors, like non-owner-occupied buildings, and better marketing the program to property holders who are unfamiliar with it.

It’s also recruited a high-profile new customer — Norwalk-based Spinnaker Real Estate Partners, which is active in several Hartford projects — to help sell the program.

Still, growth challenges remain. Some property owners and lenders remain wary that green investments will show a return.

“I talk to a lot of building owners and some of them just don’t trust it,” Dykes said.

That’s despite the fact that the Green Bank says its careful deal analysis ensures the investment will net out positively, in addition to benefiting the environment.

C-PACE enables property owners to take out a low-interest loan to make various energy and efficiency improvements. Repayments are made through voluntary assessments on property-tax bills. That structure gives the loan an enviable first lien position in the event of a default, lowering financing risk and, therefore, the interest rate.

A small state by population and geography, Connecticut’s C-PACE deal flow has long stood out.

Since 2013, C-PACE and its private lending partners have helped finance $145 million worth of solar arrays, efficient lighting, HVAC improvements and other energy-reducing, money-saving upgrades.

However, across the country, the dollar value of commercial PACE deals has been growing at nearly 60 percent annually on average since 2014, compared to 20 percent in Connecticut, according to an analysis of data from C-PACE and the national nonprofit PACENation.

Ohio’s program recently leapfrogged Connecticut into second place in terms of cumulative deal value, and states like Colorado and Minnesota have seen triple-digit growth rates over the past year or so.

Having a top-ranked PACE program brings bragging rights, but more importantly, it signifies that the state is doing its part to reduce energy consumption and pollution in the building sector, which produces nearly one-third of Connecticut’s greenhouse-gas emissions, according to state data.

Growth strategy

To grow what is already an impressive C-PACE portfolio, Green Bank’s strategic plan includes enticing more third-party lenders to pursue the loans and financing new construction projects, as opposed to building retrofits, which is a growing trend across the country.

But its main focus is tapping into new customer bases, Dykes said.

While C-PACE has seen healthy volume from owner-occupied Class B and C buildings, non-owner-occupied facilities have been a tougher get.

That’s where Spinnaker comes in.

One of the more active developers in Connecticut, Spinnaker is a relatively new C-PACE customer that recently lent its voice to a Green Bank marketing video touting the program, with hopes that others will consider it.

Spinnaker develops and owns mixed-use, commercial and apartment properties in Connecticut, Missouri and Oregon.

It’s tapped nearly $1.8 million in C-PACE financing for three of its Connecticut projects, adding rooftop solar arrays and other improvements to save a projected $4 million over the next few decades.

Of late, Spinnaker has made inroads into Hartford, with two downtown deals pending, and it recently took over redevelopment of New Haven’s former Coliseum site.

Spinnaker CEO Clay Fowler said he’d been aware for years that PACE financing has been growing in popularity, but it took some convincing to give it a shot.

The application process for its first C-PACE deal was paperwork intensive, but the next two went more smoothly, he recalled.

“Once you do something difficult once, it becomes a lot easier,” Fowler said.

Some of his industry peers, he said, lack familiarity with the program, but he’s trying to raise awareness.

He’s also seen firsthand that some commercial real estate bankers aren’t comfortable with C-PACE because it requires them to take a second lien position behind the C-PACE loan in the event of a borrower default.

Dykes said banks that are OK with C-PACE realize it can improve a property’s value and the borrower’s cash flow.

Defaults are also extremely rare, according to a study by the Lawrence Berkeley National Laboratory.

All of Spinnaker’s C-PACE deals thus far are in Fairfield County.

Asked whether Spinnaker might tap C-PACE for its pending purchase of 55 Elm St. or a mixed-use development at the corner of Park and Main streets in Hartford, Fowler couldn’t say for certain.

He said that decision depends on the project’s economics and factors like available roof space.

“From a purely philosophical view of the world, I would do the right thing on every job, but there are financial imperatives,” he said.