A North Carolina Senate bill passed its first committee step Tuesday that would give commercial real estate developers a lower-cost financing option available in 35 states.
The proposed bipartisan bill has been sought for years by out-of-state developers looking to enter or expand their investments in North Carolina, including downtown Winston-Salem.
Senate Bill 802, titled “C-PACE Program,” was recommended by the Senate Commerce and Insurance Committee.
A similar version of Senate Bill 42 was not heard out of committee during the 2023 session and must complete rigorous review by five committees before reaching the Senate floor.
PACE is the abbreviation for the federal Program for Property Assessed Clean Energy, which, according to the U.S. Department of Energy, is designed as “an innovative mechanism to fund energy efficiency and renewable energy improvements on privately owned property.”
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PACE has commercial and residential components and allows property owners to personally finance the upfront costs of energy and other eligible improvements on their property and then pay the costs back over time through voluntary appraisals, which are attached to the property, not the individual.
The committee was informed that North Carolina has the largest number of commercial facilities in the nation that do not offer the C-PACE financing tool, which could cost the state billions of dollars in commercial real estate projects.
“The reason this is so urgent right now in North Carolina is because we've gotten to the point where financing is becoming a required option for everything: multifamily housing projects, manufacturing projects, office buildings,” Sen. Michael Lee, R-New Hanover, told the Commerce Committee.
“When multistate developers are considering financing, they will be looking at states that have C-PACE because those states will be able to close these deals in a high interest rate environment.”
Owners of eligible commercial property could apply to the North Carolina Economic Development Partnership, which would serve as the administrator, for approval of long-term private loans for up to 30 years, according to a legislative staff analysis.
Potentially eligible commercial properties include privately owned commercial, industrial or agricultural properties, or privately owned residential properties consisting of five or more dwelling units.
A qualifying improvement is a permanent improvement. The loan allows owners to use private funds to “pay for property improvements, including energy efficiency, water conservation, renewable energy and resiliency measures.”
“This statewide program allows local governments to provide low-cost, long-term financing, making projects more affordable,” Sen. Michael Lazzara, R-Onslow, told the committee. “Participation in the program is voluntary and transferable to new property owners.”
“Most of these capital projects are five years, so you can have a 20- to 30-year amortization schedule with payments fixed up front. The valuation component lowers the total cost in the financial markets.”
Repayment is secured by an assessment placed on the improved property by a participating local county or city government. A C-PACE lien is placed on the improved property until the financing amount is repaid in full.
In exchange, local governments would grant the private lender “the right to receive the proceeds of the levy repayments” and delegate all billing, collection, and enforcement duties related to the levy. County commissioners must consent to any C-PACE-funded projects in their county.
Potential participants in C-PACE's private funding could include Mayfair Street Partners of Alpharetta, Georgia, which opened an office in Winston-Salem in 2018.
The company's downtown projects include the Indigo Hotel in Pepperville and the ROAR mixed-use complex at 633 N. Liberty St.
The local Mayfair office is led by partner and managing director of development and construction Simon Burgess, who could not be reached for comment Tuesday about SB 802 clearing its first stage in committee.
When SB 42 was introduced in February 2023, Burgess said the “biggest downside in North Carolina right now” is the lack of PACE funding.
“If you're doing a hotel project, you can get a large loan at a lower interest rate than the banks are offering, and the money is paid back through an environmental levy on room rentals,” Burgess said.
Burgess said at the time that due to a lack of funding for PACE in North Carolina, “we have no intention of developing it in the state at this time outside of Winston-Salem.”
“North Carolina is losing billions of dollars because developers won't come in over the next few years until interest rates come down,” Burgess said.
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