BY STEVE DUPREY
While Sam Evans Brown recently touted the energy benefits of the C-Pace legislation moving through the Legislature, as a prime advocate for this legislation, I want to highlight an even more significant impact he didn’t mention. Though his profession promotes clean energy — a worthy goal — this bill is actually a key tool for helping solve our housing shortage.
Steve Duprey
The mechanism is straightforward: By moving the energy components of any commercial development project, such as a new apartment building, into a second mortgage with significantly longer terms than most first commercial mortgages, the legislation reduces the down payment needed by developers, both for-profit and nonprofit. This allows developers to stretch their equity further and invest in more housing projects.
While some states have tied this financing to “green energy,” this legislation does not. Any project developed in accordance with our state building code will be eligible to move all “energy” components — from windows, insulation and siding to roofing and heating/cooling systems — into a second position mortgage, typically with a 30- to 40-year amortization. This contrasts with first mortgages, which normally require repayment within 20 years. By shifting 20%-40% of a project into a secondary mortgage with a longer term, this approach not only makes the first mortgage lender more secure but also reduces the overall mortgage payment needed for a project to “pencil out.”
Consider this example: A developer undertaking a $10 million housing project typically needs a 30% down payment — unlike home mortgages, commercial terms are much stricter. This would mean a $7 million mortgage and $3 million in a down payment. However, if $3 million of that project consists of eligible energy components, the first lender might reduce their loan to $5 million. The C-Pace lender would then take a second mortgage for the $3 million in energy components, reducing the developer’s required down payment to $2 million. This frees up $1 million in equity for other projects.
Some might question why lenders would accept a second mortgage on only part of the building. The key difference is that C-Pace loans receive the equivalent status of a municipal tax lien and cannot be extinguished by property sale or foreclosure.
This security makes these loans comparable to long-term CDs for lenders.
In typical New Hampshire commonsense fashion, James Key Wallace, executive director of the NH Business Finance Authority (BFA), collaborated with key stakeholders — primarily the banking community and municipal association — to revise the existing, unworkable law. Through extensive discussions, the BFA addressed their concerns: first mortgage holders retain their rights, municipalities face no costs or additional work, and the state incurs no expense as developers bear all program costs. Towns and cities can opt in without burden, making participation an easy choice. Multiple industry groups have stepped up to add their support to creating this important tool.
In conclusion, while C-Pace promotes smart energy practices, its greater value lies in enabling developers to spread their equity across more housing projects. The NH State Senate and House leadership, by prioritizing this legislation, are taking an important step toward addressing our housing shortage and are to be commended for supporting and moving this legislation forward so early in the session. Governor Ayotte’s support, expressed during her campaign and at a recent statewide housing forum, acknowledges this tool’s utility in what will be a multi-year effort. While many other steps will be needed, this tool promises to make a significant impact in helping to produce more housing.
At the risk of jinxing this bill as it works through the legislative process, this effort represents the best of our Legislature doing good work on big issues that will help all of New Hampshire. Bravo!
Steve Duprey is a NH real estate developer and civic leader involved in housing issues for over 40 years.
