Alaskanomics: Alaska’s Economy

By Tim Bradner

Commercial property owners have a new tool to finance rehabilitation of older properties and to build money-saving energy conservation features into new construction.

It’s called Commercial Property Assessed Clean Energy, or C-PACE, and it allows certain types of property improvements to be financed with payments made as an assessment by a local municipality, much like sewer and water assessments are done.

Municipalities must first approve C-PACE lending and so far the Municipality of Anchorage and the Matanuska-Susitna Borough have done this. The Kenai Borough, Fairbanks North Star Borough and City of Borough of Juneau are studying the idea and will likely soon approve C-PACE lending. Similar programs are now operating in 30 states.

Alaska’s program is much more attractive, even compared with those in other states, after Alaska’s Legislature expanded an earlier, more limited C-PACE authorization, which was limited to financing energy conservation improvements to existing buildings.

The new legislation, in House Bill 227, sponsored by Anchorage State Rep. Calvin Schrage, allows lending for energy conservation in new as well as existing buildings along with “resilience” projects in buildings, which means structural strengthening to withstand natural events like windstorms and earthquakes.

Private lenders, like Northrim Bank, provide the financing but the repayments are administered by a municipality as part of a property tax or utility assessment.

HB 227 also allows refinancing, too, but the key advantage is that repayment to a lender can be stretched out with less up-front costs, again because the program works like traditional utility assessments.

Lower payments occur when a loan is paid off over a longer time period as compared with a shorter period, much like payments on a 30-year home mortgage compared with a 15-year fmortgage.

Jenny Willardson, a real estate broker in the Matanuska Valley, hopes the program will help jump-start needed commercial property development in Mat-Su, which needs to diversify its tax base away from residential properties.

Willardson said many existing commercial buildings in Mat-Su are older and in need to upgrades. “I work with business owners who are looking to buy or lease space and one of the most common problems in our site selection is that it’s difficult to find quality buildings that are well-maintained,” Willardson told Mat-Su’s borough assembly before they voted to approve C-PACE.

“Many of Mat-Su’s commercial buildings need improvements both structurally and aesthetically. C-PACE retrofits could facilitate some of these improvements, and because of the long amortization period, of 20 to 30 years, the cost to the owner becomes more manageable.”

The program will be particularly important to small businesses. “Many of these are local mom and pop investors or building owners, for whom raising capital can be more difficult than for an institutional investor,” Willardson told Mat-Su’s assembly.

The energy improvements typically lower operating costs and when energy costs rise the burden of those is felt to a greater magnitude by owners of less efficient buildings. Resiliency projects, protecting against natural hazards, typically lower insurance costs.

Overall, costs become more predictable, particularly through the energy retrofits.

“In theory, the low payments for the retrofit improvements would be offset by the savings in operating costs,” Willardson said. Lower operating and insurance costs can add value to a building for the owner.

Interest rates on loans tend to be lower too, based on experience with C-PACE in other states. Payments made as a part of a municipal assessment tend to have very low default rates and are considered less risky by banks.

Another feature of C-PACE is that the loan is tied to the building rather than the owner. If the property is sold the C-PACE loan goes with it, so that the new owner enjoys the same advantageous terms.

Alaska’s first C-PACE project, in Anchorage, was concluded by Connecticut-based Nuveen Green Capital and Northrim Bank. It involved a $680,000 project to retrofit the “RIM Building” in downtown Anchorage.

Included in the building retrofits are heating system upgrades, new LED lighting, a new hot water heater and installation of a new combined heat and power system that will reduce the building’s reliance on the local electric grid.

The building owner, RIM Investments LLC, is projecting an estimated 42 percent reduction in energy costs, according to an announcement of the project by Anchorage Mayor Dave Bronson.

C-PACE seems like s win-win, said Stephanie Nowers, the Mat-Su assembly member who sponsored the resolution to adopt the program there.

“This is completely voluntary (for property owners) and the financing is all private. “The only thing a municipality provides is the opportunity for businesses to take advantage of it,” she said.

Tim Bradner is publisher of the Alaska Economic Report and Alaska Legislative Digest