Article Originally Published in HotelBusiness.com
Hotel owners are facing one of the most demanding operating environments in decades. Interest rates remain high, property valuations are resetting and the costs of running a hotel—particularly energy—continue to rise. Meanwhile, guests have elevated expectations, lenders are more selective and the pressure to maintain profitability in an uncertain market has never been more significant.
In this climate, hotel owners can no longer afford to delay strategic upgrades that make their properties more efficient, resilient and competitive. Sustainable innovation is no longer nice to have; it’s quickly becoming essential for long-term success. Fortunately, hotel owners now have a powerful tool to help them implement these upgrades without draining their reserves or disrupting cash flow: CPACE financing.
Energy is among the most volatile and burdensome line items in a hotel’s operating budget. The rising cost of utilities—from climate control to lighting to laundry—cuts directly into margins. According to recent projections, U.S. natural gas prices alone are expected to increase by nearly 50% in the coming year. These rising costs can add up fast for hotels, especially older properties.
However, energy costs are also one of the most addressable threats. Owners who invest in energy-efficient systems, solar panels, HVAC upgrades or water conservation measures can significantly reduce operating expenses. More importantly, they gain more control over those expenses, becoming less reliant on grid pricing and utility volatility.
This is where CPACE (Commercial Property Assessed Clean Energy) financing comes into play. CPACE enables hotel owners to access long-term fixed-rate financing for eligible improvements like energy efficiency, renewable energy and resiliency upgrades. Unlike traditional loans, CPACE is repaid through a special property tax assessment over a period that can extend up to 30 years. That means no upfront capital outlay, non-recourse financing and the potential to pass along costs to future owners if the asset is sold.
By using CPACE, hotel owners can make the upgrades they need today without disrupting operations or tying up cash reserves.
These improvements do more than reduce costs. Properties that are upgraded with efficiency and resiliency in mind tend to command stronger interest from guests, brand partners and investors. As consumers become more conscious of sustainability and more sensitive to comfort and reliability, hotels that can market lower carbon footprints, modernized systems and energy independence stand out in a crowded market.
There’s also growing evidence that sustainability enhances asset value. Properties that have made these upgrades are often better positioned for refinancing or disposition. Buyers are looking closely at operating expenses and capital needs. A hotel with a new roof, efficient systems and solar capabilities is far more attractive than one that faces deferred maintenance and high utility bills.
Sustainable innovation also offers protection against increasingly frequent and severe weather events. Hurricanes, heatwaves, floods and freezes can cause major disruption. Hotels that integrate battery storage, microgrids and storm-resistant features can maintain operations, reduce damage and serve as safe havens in times of crisis. That kind of resilience doesn’t just protect the bottom line—it enhances a hotel’s reputation and guest loyalty.
Hotel owners don’t have to tackle everything at once. The key is starting with the most impactful and cost-effective improvements. CPACE makes that possible. It’s an accessible scalable financing solution that aligns with the long-term nature of hotel ownership and investment.
In a tightening market where margins are under pressure and capital is harder to come by, CPACE offers hotel owners a path forward. It provides a way to modernize properties, cut expenses, increase competitiveness and build resilience—all without adding traditional debt to the balance sheet.
Today’s environment demands more from hotel owners. With sustainable innovation and the strategic use of CPACE financing, those demands can become an opportunity—not just to survive but to grow stronger and more competitive in the years ahead.
Peachtree Group
Peachtree Group is a direct balance sheet lender focused on funding first mortgage bridge loans, mezzanine loans, preferred equity investments, and commercial property assessed clean energy (CPACE) financing. Jared Schlosser is responsible for Peachtree's hotel originations platform and its CPACE program.
En el entorno financiero actual, los patrocinadores buscan formas creativas de capitalizar las operaciones. Una de esas formas es Financiamiento de CPACE.
Jared Schlosser, vicepresidente ejecutivo de Peachtree Hotel y CPACE, conversó con Malcom Davies, presentador del podcast On the Edge, para hablar sobre cómo los patrocinadores pueden utilizar CPACE para todo, desde aprovechar las pilas de capital para el desarrollo hasta la recapitalización retroactiva de proyectos e incluso como fuente de capital de rescate.
En este episodio, comprenda mejor:
Para obtener más información sobre CPACE, visite nuestra Preguntas frecuentes sobre CPACE.
ATLANTA (Jan. 24, 2024) – In December, Peachtree Group achieved a significant milestone by securing $150 million in Commercial PACE (CPACE) financing, approaching $750 million completed since its inception in 2019. For the year, Peachtree Group completed 23 commercial property assessed clean energy financing transactions across the U.S. for a total of approximately $250 million in directly originated and balance-sheet funded CPACE financing.
Commercial real estate faces a tough 2024 as trillions of dollars in debt comes due and refinancing gets harder, compounded by banks tightened lending standards.
“In this challenging lending market, Commercial Property Assessed Clean Energy financing has emerged as a crucial source of liquidity. This financing option is becoming increasingly essential as owners grapple with looming debt maturities and limited refinancing opportunities,” said Jared Schlosser, Peachtree Group’s senior vice president, origination and head of PACE financing.
CPACE has grown relatively quickly and, in just over a decade, has hit a cumulative $5.2 billion in U.S. commercial real estate financings, according to PACENation, confirming the growing market adoption and acceptance of this innovative financing tool.
“CPACE has been a game-changer by offering a unique advantage over other forms of financing with its long-term, fixed-rate financing that lowers the project's cost of capital,” Schlosser said.
Peachtree Group is one of the most active hotel commercial real estate lenders in the U.S., ranking as the eighth-largest U.S. hotel lender by the Mortgage Bankers Association in their most recent rankings. Of the CPACE transactions completed this year, roughly 50% were in hospitality.
“CPACE financing aligns with the financial, environmental and guest experience goals of hotels, making it a popular choice for owners looking to improve energy efficiency, reduce costs and enhance their sustainability initiatives,” Schlosser said.
· The Thompson, Palm Springs, Calif.
· El Caminante, Dana Point, Calif.
· The Marriott Tribute Hotel, St. Augustine, Fla.
· Palihotel, San Francisco, Calif.
· DoubleTree by Hilton Youngstown Downtown, Youngstown, Ohio
· 950 3rd Street, Washington, DC(Multifamily)
· Reserve at Vinedo, Paso Robles, Calif. (Multifamily)
· Old City Hall, Tacoma, Wash. (Mixed-Use)
“This innovative financing mechanism empowers property owners across all sectors to embark on energy-efficient upgrades, renewable energy installations, and water conservation initiatives, all while minimizing their financial burden,” Schlosser said.
Peachtree Group is an investment firm driving growth with a diverse portfolio of commercial real estate assets and other ventures. We’ve executed hundreds of investments since inception with a focus on real estate acquisition, development, and lending. Today, we manage billions in equity, augmented by services designed to protect, support, and grow our investments.
Commercial Property Assessed Clean Energy (C-PACE) is an innovative financing program that is gaining popularity across the U.S., as it offers a low-cost, long-term capital solution that doesn't require upfront equity from the property owners. The central appeal for using this program for energy-efficient upgrades and retrofits is that any level of C-PACE used will lower the overall cost of capital compared to mezzanine, third-party equity or even many senior loans. This is impactful for commercial property developers.
In the current market, the cost of capital has increased significantly, along with higher interest rates and wider spreads from lenders. In addition, higher financing costs put pressure on loan-to-value (LTV), loan-to-cost (LTC) ratios, and the amount of capital lenders are willing to provide, reducing liquidity for new developments. Construction costs have also increased significantly with back-to-back years of double-digit increases, with further increases in 2023 as CBRE expects a growth of 5.4% for construction costs.
C-PACE is in heavy demand because it's a fixed-rate product, starting in the mid-single digits. It also can be up to 35% of the capital stack. With a typical senior loan at 65% loan-to-value, providing C-PACE at 30% of the stack, the lender becomes below 40%, lessening its capital risk. As a result, it is helping development projects across all real estate sectors pencil to start construction and those in mid-construction reach get completed.
Today we see more requests for this financing as budgets are blowing out with cost overruns. C-PACE provides the needed capital when the developer cannot offer additional equity or banks are unwilling. The following are examples of mid-construction projects that utilized C-PACE funding from Peachtree to bring projects across the finish line.
