Eco-Friendly Construction Aided by New Lending Program

New environmental laws, designed to combat climate change, are driving up the costs of real estate development. Now developers are taking advantage of a financing tool to help pay for green-building requirements.

The loan model, known as Property Assessed Clean Energy, or PACE, was created in 2008 to subsidize the costs of building improvements that create environmentally sustainable and resilient properties. PACE is emerging as developers go-to for creating more energy-efficient buildings that are compliant with tougher environmental standards.

Laws fighting climate change in New York, California, and elsewhere are accelerating the demand for PACE. New York City approved a PACE ordinance to allow landlords to comply with its Climate Mobilization Act, which requires owners of buildings of 25,000 square feet or more to curb their greenhouse gas emissions. The city’s PACE program is set to be operational early next year, said Fred Lee, co-chief executive of the New York City Energy Efficiency Corporation, a nonprofit green building lender and the city’s PACE program administrator. Supporters of PACE say the loan is better than conventional debt used for similar upgrades because it is typically cheaper, it has a fixed interest rate and terms are 20 to 30 years instead of three to five. PACE’s original mission was to finance eco-friendly upgrades in existing buildings. Developers are increasingly using PACE to fund entirely new construction and do gutting or renovations to old buildings.