CPACE originator teams up with ColumbiaNational Real Estate Finance to provide construction loan for five-story, 125,000 square foot building in Canton area
MD Energy Advisors has sourced a $2.5 million commercial property-assessed clean energy (CPACE) loan for 28 Walker Development Group to reduce their weighted average cost of capital for 40TEN, the first commercial office building in downtown Baltimore City to be constructed entirely using heavy wood timber materials. Located within 28 Walker’s mixed-use Collective at Canton, the five-story, building at 4010 Boston Street will contain approximately 125,000 square feet of Class “A” office space upon its delivery at the end of this year. Site work for 40TEN is in its final stages and vertical construction is expected to commence within the next two weeks.
The CPACE loan is in addition to the $28 million construction loan sourced by ColumbiaNational Real Estate Finance, a commercial mortgage banking firm with offices in Baltimore, Columbia and Washington, D.C. This represents the fourth project in which MD Energy Advisors and ColumbiaNational have jointly collaborated in the past year, with others including a177,000 square foot self-storage and light industrial building in Baltimore County owned by Garver Development Company; Gaslight Square, an 80,000 square foot commercial office and industrial complex in Baltimore City and The Paramount Baltimore, a nearly 95,000 square foot music venue currently under construction in Baltimore City.
“This represented our first use of a CPACE loan and, following a thorough analysis of the process, we determined the funding mechanism would be a highly-beneficiary component of the 40TEN capital stack,” explained Scott Slosson, Chief Operating Officer for 28 Walker Development. “The funds will be applied to sections of the building envelope that contribute to its energy efficiency such as the windows, façade assembly and exterior skin. A portion will also be used for the specialty HVAC systems engineered to improve air quality and stimulate outdoor air flow. MD Energy Advisors explained how CPACE financing can substantially reduce the amount of equity needed for a construction project and, because they are local, it was extremely easy to navigate through the process.”
Unique attributes of first heavy wood timber building constructed in Baltimore
Upon revealing plans early last year for the first building made from heavy wood timber materials to be constructed in Baltimore City, 28 Walker Development outlined the unique attributes of the project. This included creating an organically-warm exterior and interior design with flooring, columns and exposed ceilings comprised entirely of wood, which increases its positive energy efficiency. 40TEN will feature a communal rooftop amenity deck free to all tenants. Half of the deck will be under roof to include conference facilities and kitchen space, with the other half offering space for employees to eat, relax and enjoy panoramic views of the downtown skyline and Canton waterfront.
40TEN is equipped with 15-foot ceiling heights and over-sized windows to maximize the amount of natural light entering the building. It will also be highly-amenitized to meet the post-pandemic demand of tenants including touchless entry systems, antimicrobial finishes, a common lounge/coworking area, conference facilities, a state-of-the-art fitness center and free tenant parking.
The building is the centerpiece of the Collective at Canton mixed-use development which also includes retail space, luxury apartments and shared communal outdoor green space. Celebree School has leased 10,275 square feet of indoor space at 40TEN and will utilize a 6,000 square foot outdoor playground area, and several new leases are expected to be signed in the coming weeks.
Integrating CPACE into the capital stack program
CPACE is a financing mechanism that is typically used to finance energy and water-related improvements of a real estate project. New construction and gut rehabs are strong candidates for the product and CPACE will reduce the weighted average cost of capital for building owners when compared to preferred equity and or mezzanine financing. CPACE is fixed rate, long term, non-dilutive and non-recourse with rates routinely under 6% on a 20 to 25-year term and amortization.
“28 Walker Development is innovative in their approach to real estate development and financing. By understanding their needs, we successfully lowered their weighted average cost of capital, as well as reduced operating expenses and the carbon footprint through financing a more efficient building envelope for the project,” stated Jason Schwartzberg, President of MD Energy Advisors. “Ground up construction and gut rehabs are prototypical applications of CPACE. With the heavy timber aesthetic, high ceilings, abundant natural light and mindful programming,40TEN will be a great addition to the Baltimore skyline.”
2022 loan activity expected to be vibrant in Baltimore-Washington, D.C. area
“Our team closed approximately $2.3 billion in first mortgage loans last year and, despite the expected headwinds from a rising interest rate environment on the horizon, we expect continued vibrancy in 2022,” stated Kevin Tehan, Principal for ColumbiaNational. “A tremendous amount of capital exists in the market right now, and many projects that were put on hold during the height of COVID are now springing back to life. With pay rates as low as 5.5%, CPACE loans are a cheaper source of equity than traditional joint venture or preferred equity. In today’s competitive environment, banks and even some life insurance companies have become more comfortable with having CPACE as part of the capital stack. We have teamed with MD Energy Advisors on multiple loans in the past year with both life companies and traditional banks.”
Headquartered in Baltimore, MD Energy Advisors is a customer-centric energy management, marketing, and efficiency firm providing energy solutions to utilities, private companies and residential clients. The company identifies opportunities to reduce energy-related operating expenses, offers strategies that improve environmental impact and provides financial vehicles to help implement these strategies.
For additional information about MD Energy Advisors, visit www.MDEnergyAdvisors.com
