Green Loans and C-PACE Financing in Commercial Real Estate: Loan Structures, Principles, Guidelines

Description

To address concerns about climate change and the effect that lending and investment decisions may have on the environment, commercial real estate lenders and investors are seeking ways to not only face the oncoming challenges and perils of climate change but also to satisfy new (though increasingly common) legislation demanding that commercial property owners reduce the environmental footprint of their buildings. Green loans and C-PACE financing are part of a critical strategy to address sustainability demands while also meeting an owner's investment objectives and financial returns.

A green loan is defined as any type of loan instrument made available exclusively to finance or refinance, in whole or in part, new and/or existing eligible green projects. This includes term loans, revolving credit facilities, and working capital facilities. To establish guidelines to ensure consistency across the wholesale green loan market, the Loan Market Association (LMA), together with the Asia Pacific Loan Market Association (APLMA) and the Loan Syndications and Trading Association (LSTA), published the Green Loan Principles (GLP) and Guidance on GLP. The GLP establishes a framework of market standards and voluntary recommended guidelines for a loan to be categorized as "green."

C-PACE financing generally provides upfront funding for clean energy projects for building property owners in the commercial, multifamily, and nonprofit sectors. To date, 40 states including the District of Columbia have adopted some form of C-PACE financing legislation. These programs use property liens to allow consumers to repay the funding on their property taxes over the long term, and they permit transferability of the assessment upon sale of the property.

C-PACE financing may be administered by state governments, local governments, or third-party administrators and can be layered in with other forms of financing, such as mortgage loan financing and historic tax credits. C-PACE debt typically cannot be accelerated and does not affect a lender's foreclosure rights and remedies.

Listen as our authoritative panel discusses the evolving landscape of green lending and C-PACE financing in commercial real estate. The panel will examine the various types of loans available and the underlying principles and guidelines required for these loan products and programs.