LOS ANGELES — Peachtree Group is eyeing $1 billion in total C-PACE loans by the end of 2024.
As of the end of 2023, the Atlanta-based investment firm has cumulatively lent nearly $750 million in C-PACE debt — or commercial property assessed clean energy financing — since it entered this segment in 2019. Jared Schlosser, senior vice president of originations and C-PACE at Peachtree, said the company is already making progress on new deals.
“We're coming out of the gate certainly hotter than we did last year,” he said, adding that it will ultimately depend on market volatility and whether there are enough deals to make it happen.
C-PACE loans are fixed-rate loans designed to pay for sustainable elements in building design and construction as well as renovations. Borrowers pay back these loans through property taxes as liens are placed on their properties.
The company closed on its largest deal ever, a $46 million C-PACE loan for the Thompson hotel under development in Palm Springs, California, Schlosser said. It was challenging deal that took more than a year to work through, but Peachtree executives closed it in December for a total of $150 million in C-PACE deals that month. In 2023, the company closed on $250 million in C-PACE originations.
The difficulty hoteliers have faced in recent years in getting financing has led to higher interest on these loans, a development that Peachtree’s C-PACE lending arm has capitalized on.
“We were joking about being back at this conference in 2020 and saying'C-PACE with people just looking at you funny,” Schlosser said. “Now, there’s more C-PACE lenders here than there are borrowers.”
It’s important for hotel developers to know that if they want to get a standard loan in today’s environment, they’ll need a lot of deposits with a bank, he said. That’s created new opportunities for Peachtree’s C-PACE platform.
“Any way to shave costs down, whether it’s using PACE or any other creative structure, is probably the only way that you can get a shovel in the ground right now,” he said.
The lack of liquidity currently has sped up the adoption for C-PACE, Schlosser said. People have to use it to make certain deals pencil now, and there are institutions agreeing to it now that weren’t years before.
“People have seen it enough where there’s enough case studies, there’s enough structure where you should be able to figure it out,” he said.
Peachtree has an advantage in being able to offer traditional debt along with C-PACE in the same stack, he said.
C-PACE is tied to the U.S. Treasury bonds. Schlosser said he’s skeptical of the predicted three interest rate drops in 2024, but if the Treasury rate goes down, the costs of C-PACE decrease as well, leading to a likely increase in demand for it. Even in the current environment, most of the C-PACE lending that Peachtree is doing is with a rate of about 7.5%, which is good money regardless of where rates are, he said.
It comes down to where the 10-year Treasury goes, Schlosser said. Some economists think it will go down, while others think the Treasury will go to 5% and stay there, he said.
“It’s impossible to try to predict now, but I think a fixed-rate product that is able to reduce the cost of capital in a floating-rate market where rates are high is certainly attractive regardless of whether rates get cut or not,” he said.