PACE Equity provided a creative capital solution for building owners to turn vacant building into a green office and retail space in South Denver
PACE Equity recently completed funding to finance energy efficient upgrades for the complete renovation of a 1920s J.C. Penney building that will be transformed into 3400 SOBO, a flex-office and -retail space in South Denver. PACE Equity provided low-cost capital and introduced the owners to an advantageous structure that allows them to pass through a portion of the funding costs to the building’s tenants.
By utilizing nearly $600,000 of PACE Equity funding, the owners maintained the building’s historic 1920s look and feel while upgrading both the design and energy efficiencies, creatively achieving the owner’s vision for the property without having to contribute additional capital of their own.
Working closely with Ken Fukayama of BHS Properties, PACE Equity quickly executed the funding process to meet the building owners’ timing needs, and modeled different scenarios taking into account local property taxes and market values. PACE Equity educated owners on leveraging the tax assessment structure of funding for a triple net lease, which allows owners to pass through a designated amount of their choosing to tenants. Ultimately, PACE Equity helped the building owners arrive at the optimal mix of pass-through expenses and reimbursements while providing the lowest cost of capital,
Collaborating with PACE Equity subject matter experts, the building owners were able to pass 25 percent of the funding costs to tenants through the Common Area Maintenance (CAM) charges and PACE Equity’s structure, significantly reducing the cost of capital to 3 percent.
“My focus is to increase the value of our real estate investments. An obvious way to do that is by cutting costs for building owners and increasing operating income. PACE Equity is an excellent tool to meet those goals, and in this case benefits both the building owners and the tenants. Once PACE Equity introduced us to their unique funding solution for this renovation, we immediately saw the advantages,” said Ken Fukayama, BHS Properties.
Energy efficient components funded by PACE Equity for the 3400 SOBO renovation include roofing, new HVAC units, energy-efficient windows, a high-efficiency hot water heater and complete LED lighting. Incorporating these components is projected to save the building owners over $143,000 in energy costs and reduce energy use by 17 percent.
PACE Equity worked with BHS Properties, the building’s owners and Colorado C-PACE to complete funding for 3400 SOBO in May 2019.
The economic benefits go hand-in-hand with environmental benefits. It often takes some education from our end and collaboration with clients for them to realize we can pass through a portion of the costs, making it more affordable for everyone in the long run,” said Michael Leahey, managing director with PACE Equity. “In the end, it’s a win-win. Owners receive the lowest cost of capital for the energy-saving components while building tenants benefit from lower utilities."