Commercial Property Assessed Clean Energy Assets Increasingly Popular Among Funds

Author:Mr Gilbert Liu and Laurence Pettit
Profession:Kramer Levin Naftalis & Frankel LLP

An innovative type of securitized asset is increasingly popular among fund managers, specifically bonds backed by commercial Property Assessed Clean Energy (C-PACE) special tax assessments. Although demand for C-PACE financing was slow to get off the ground, interest from property owners has been growing and has led to an increasingly full pipeline of C-PACE products, prompting us to take a closer look.

One company in California completed its debut securitization, worth $103.6 million, in July. The senior class of those bonds received a triple-A rating from DBRS, the first time a C-PACE securitization received a rating at that level. Meanwhile, the originator of the securitized C-PACE assets expects to float another $500 million of bonds in 2019. Similarly, other companies have sold bonds worth tens of millions and are now expecting to place much more.

One key feature that could make C-PACE financing an attractive option for some originators and property owners is that it is expected to be countercyclical. Here's why: If economic conditions weaken, more property owners looking to sell their holdings might make various upgrades in the hopes of attracting buyers. Among the potential options open to sellers is...

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