CDPQ and Nuveen Launch US$ 600 M Sustainable CRE Financing JV
The Caisse de dépôt et placement du Québec announced Monday that the $332 billion Quebec pension will partner with Nuveen Green Capital to launch a C$830 million ($600 million) financing program for sustainable commercial real estate development across the U.S.
Specifically, the program will offer Commercial Property Assessed Clean Energy financing, as well as senior bridge and construction financing for sustainable real estate developments.
Since 2014, C-PACE, a U.S.-focused financing mechanism, has allowed building owners to make energy efficiency improvements by using financing to pay for upfront costs, which are then repaid through an assessment on the properties’ tax bill. The structure of C-PACE allows for long-term financing and makes transferability of repayment obligations to new owners easy.
“Developing greener buildings and reducing the carbon footprint of our built environment can create significant value,” said Marc Cormier, executive vice president and head of fixed income at CDPQ, in a statement. “Through this distinctive financing program, we are able to accelerate the implementation of environmentally sound measures for commercial real estate owners and developers.”
CDPQ had approximately $320 billion in assets under management as of December 2023.
Nuveen is one of the largest providers of C-PACE financing in the U.S. According to a statement, the firm had provided 41% of the total C-PACE originations volume in 2023. While it is not a federal program, roughly 40 states have legislation which permits the use of C-PACE financing.
Nuveen, a wholly owned subsidiary of TIAA, will act as the primary sourcing agent for the financing program with CDPQ, according to a statement.
“This program represents another exciting milestone for the C‑PACE industry and Nuveen Green Capital,” said Jessica Bailey, president and CEO of Nuveen Green Capital. “We are thrilled to be working with CDPQ to build this one-stop shop for bridge and construction loans to meet the growing need for commercial real estate financing.”
C-PACE has been used for more than 3,300 commercial real estate projects since 2012, according to nonprofit industry group PACENation.
Razak Musah Baba of IPE Real Assets also reports CDPQ and Nuveen's US green capital division form $600m real estate financing venture:
Caisse de dépôt et placement du Québec (CDPQ) and Nuveen’s US green capital division have set up a $600m (€546.6m) commercial real estate financing venture.
The Canadian investor and Nuveen Green Capital (NGC) have launched the financing programme which combines commercial property assessed clean energy (C-PACE) financing and senior bridge and construction financing.
The pair said the financing programme will provide a “substantial source of flexible, committed, and discretionary capital for new large-scale construction and bridge financings across key asset classes and markets”.
NGC will act as the primary sourcing agent for the integrated financing programme.
Marc Cormier, EVP and head of fixed income at CDPQ, said: ”Developing greener buildings and reducing the carbon footprint of our built environment can create significant value. Through this distinctive financing programme, we are able to accelerate the implementation of environmentally sound measures for commercial real estate owners and developers.
”We are excited to combine our long-term capital with Nuveen Green Capital’s extensive expertise to offer a sustainable integrated financing solution that fully aligns with CDPQ’s climate strategy and commitment to decarbonize the real economy.”
Jessica Bailey, president and CEO of Nuveen Green Capital, said: ”CDPQ’s strong commitment to sustainability and track record of innovation align very well with our mission. This programme represents another exciting milestone for the C-PACE industry and Nuveen Green Capital.
“We are thrilled to be working with CDPQ to build this one-stop shop for bridge and construction loans to meet the growing need for commercial real estate financing.”
Earlier today, CDPQ issued a press release stating it and and Nuveen Green Capital launched a USD 600-million integrated financing program for sustainable commercial real estate development:
CDPQ, a global investment group, and Nuveen Green Capital (NGC), a leader in sustainable commercial real estate financing solutions, announced today the launch of a USD 600‑million (CAD 830‑million) integrated sustainable commercial real estate financing program. This innovative offering combines Commercial Property Assessed Clean Energy (C‑PACE) financing and senior bridge and construction financing aimed at the U.S. commercial real estate (CRE) market.
The competitive, single-source program will provide a substantial source of flexible, committed, and discretionary capital for new large-scale construction and bridge financings across key asset classes and markets. The program will offer a turnkey solution while also driving the adoption of sustainability measures in commercial buildings. As a leading provider of C‑PACE across the United States, NGC will act as the primary sourcing agent for the integrated financing program.
“Developing greener buildings and reducing the carbon footprint of our built environment can create significant value. Through this distinctive financing program, we are able to accelerate the implementation of environmentally sound measures for commercial real estate owners and developers,” said Marc Cormier, Executive Vice-President and Head of Fixed Income at CDPQ. “We are excited to combine our long-term capital with Nuveen Green Capital’s extensive expertise to offer a sustainable integrated financing solution that fully aligns with CDPQ’s climate strategy and commitment to decarbonize the real economy.”
“CDPQ’s strong commitment to sustainability and track record of innovation align very well with our mission,” said Jessica Bailey, President and CEO, Nuveen Green Capital. “This program represents another exciting milestone for the C‑PACE industry and Nuveen Green Capital. We are thrilled to be working with CDPQ to build this one-stop shop for bridge and construction loans to meet the growing need for commercial real estate financing.”
Aligned with the U.N. Sustainable Development Goals, C‑PACE is a U.S. commercial real estate financing initiative to promote a cleaner and safer built environment. In the 40 states where it is offered, commercial property owners can obtain accretive, long-term financing for energy efficiency, renewable energy, water conservation and climate resiliency measures for new development, renovation, or post-construction recapitalization projects.
Since its founders launched the first successful C-PACE financing program in 2014, NGC has been at the forefront of establishing the asset class. Today, the U.S. C‑PACE market surpasses over USD 7 billion in financing activity across over 2,300 projects1. In 2023, NGC provided 41% of the total C-PACE originations volume2.
1Based on C-PACE Alliance’s 2023 National C-PACE Program Volume Data.
2Based on C-PACE Alliance’s 2023 National C-PACE Program Volume Data and NGC’s total origination’s volume for 2023.About CDPQ
At CDPQ, we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public pension and insurance plans, we work alongside our partners to build enterprises that drive performance and progress. We are active in the major financial markets, private equity, infrastructure, real estate and private debt. As at June 30, 2024, CDPQ’s net assets totalled CAD 452 billion. For more information, visit cdpq.com, consult our LinkedIn or Instagram pages, or follow us on X.
CDPQ is a registered trademark owned by Caisse de dépôt et placement du Québec and licensed for use by its subsidiaries.
ABOUT NUVEEN GREEN CAPITAL
Nuveen Green Capital is a national leader in sustainable commercial real estate financing solutions and an affiliate of Nuveen, the investment manager of TIAA responsible for over $1 trillion in assets under management. Established in 2015 by the C-PACE industry’s founders and standard-setters, Nuveen Green Capital is a private capital provider dedicated to making sustainability a smart financial decision for commercial real estate owners who seek to improve the energy, water and resiliency performance of their property. For more information, visit www.nuveen.com/greencapital.
Alright, let's kick Monday off with another green deal from CDPQ, a leader among global investors in sustainable financing.
This latest deal with Nuveen Green Capital (NGC) will help accelerate sustainable commercial real estate development across the United States.
As stated in the press release, this innovative offering combines Commercial Property Assessed Clean Energy (C‑PACE) financing and senior bridge and construction financing aimed at the US commercial real estate (CRE) market.
In case you aren't aware, buildings are a big part of the problem when it comes to climate change.
In fact, a McKinsey paper on climate risk and opportunity for real estate states this:
The real estate industry accounts for approximately 40 percent of global combustion-related emissions, 28 percentage points of which come from building operations. That means most of the emissions from the world’s real estate industry come from running buildings as opposed to building them. Though these are daunting figures, there is good news. First, it’s possible to decarbonize building operations profitably—and the ways to do it already exist at scale. Second, making net-zero plans is now faster and easier thanks to today’s latest technologies.
Existing options for decarbonizing buildings include heat pumps; the electrification of heating, cooling, and cooking elements; improved envelopes and better insulation in buildings; and on-site renewables. Although these sustainable upgrades may require upfront investment, they can create significant savings over time.
The traditional approach to creating a net-zero game plan for a portfolio—sending an engineer in to file a report on each building—can be slow, laborious, and expensive. Fortunately, solutions such as using artificial intelligence and machine-learning-based approaches are now an option. These tools can pull from a wide range of data sources to quickly formulate net-zero plans, even for portfolios with thousands of buildings. That’s a boon for building owners and operators, many of whom are facing new pressures to decarbonize from regulators and from tenants and investors who have made their own net-zero commitments.
Climate change is a serious challenge. But the fact that the world can get closer to net zero by decarbonizing 28 percent of global emissions in financially neutral or positive terms with today’s technology is reason to be hopeful. As real estate owners and operators create net-zero plans for their assets, these actions will create demand signals for heat pump and solar manufacturers, letting them know how much they must produce to effectively scale. The contractor and technician ecosystem can then be made ready for mass deployment. It can all happen now. It’s just a matter of getting started.
Cushman & Wakefield also put out an insight paper in 2023 on how now is the time for commercial real estate to make a big impact on climate change:
As sea levels continue to rise, the reality of climate change and its impact across the commercial real estate industry—and the world—is becoming clearer.
When Hurricane Sandy struck New York City in 2012, flooding impacted more than 90,000 buildings, disrupting commercial activity and costing the city nearly $20 billion. As sea levels continue to rise, the reality of climate change and its impact across the commercial real estate industry—and the world—is becoming clearer. We must act now to avoid the magnitude and very real risk of long-term social and economic disaster. This reality was highlighted the week of March 20 when the Intergovernmental Panel on Climate Change released their 2023 Report on Climate Change. Developed by nearly 800 of the world’s leading scientists, and eight years in the making, this report is the most comprehensive, robust assessment of climate change to date, and its message is clear: the consequences of human-induced global warming will only worsen extreme weather events, putting countries, cities and people at risk. For the real estate industry, there is a very real opportunity to address climate change by decarbonizing buildings and achieving net-zero emissions across the globe.Location Matters
The level of climate risk is magnified by the built environment’s development, location and interrelated socioeconomic factors. For example, in New York City, the southern tip of Manhattan is already at risk from flooding, and some of the world’s most expensive real estate— around $130 billion in building value1—exists within existing floodplains. We’ve reached a place in time when some of the richest cities in the world are facing dire social and economic consequences because of climate change.
Keeping to 1.50C Warming
Even if we could limit rising temperatures to 1.5 degrees Celsius, it would not solve all the world's ills. Every additional half-degree of warming brings the effects of climate change to hundreds of millions of people and significantly increases the cost of mitigation.
Most countries are now considering adaptation measures to build resiliency against the risks that increased temperatures bring, but according to the IPCC, there is a significant funding gap to address the changes that must be made, especially as investment and funding for fossil fuels far exceeds funding for climate mitigation and adaptation. Climate finance will need to increase by 500% by 2030 to reach mitigation goals alone. Developing countries will need $127 billion per year by 2030, and $295 billion per year by 2050, to adapt to the changing climate. By 2019, funding had only reached $30 billion per year.
According to the IPCC report, there is a 50% chance that global temperatures will surpass 1.5 degrees Celsius before 2040. If high emissions continue, the temperatures could increase to between 3.3 to 5.7 degrees Celsius by 2100. In the modelled pathways to limit global warming to 1.5 degrees Celcius, greenhouse gas emissions must peak immediately, then drop rapidly 40% by 2030 and 60% by 2035. Greenhouse gas emissions continue to increase, and the small drop seen during the pandemic has since been surpassed. Greenhouse gas emissions are 12% higher than in 2010 and 54% higher than in 1990.Decarbonization of the Built Environment
Reducing greenhouse gas emissions is not enough; we must also remove carbon from the environment. The IPSS finds that there is no pathway to 1.5 degrees Celsius that does not require decarbonization. There are two main sources of carbon removal: those reliant on land and those taking place in our oceans. They range from nature-based to technological approaches. The built environment must pay careful consideration to how it carries out the groundwork of new buildings, how it looks to re-forest areas that have been reduced to provide building materials and to ensure carbon sinks, such as peat bogs, freshwater lakes and wetlands, rainforests, and grasslands, continue to grow and thrive.
The number one cause of climate change remains the burning of fossil fuels. The existing and planned fossil fuel operations would see a major overshoot in the emissions of carbon dioxide, leading to further warming and irreversible consequences. Major reductions are needed—global use of coal will need to fall by 95%, oil by 60% and gas by 45%, all by 2050. There is good news in the retirement of coal-fired power plants across Europe and the U.S., but investments are still being made to increase coal capacity in some of our major economies.
Reductions are not solely the responsibility of the fossil fuel industry, as they are supplying to meet the demand of industry and consumers. We all need to make major changes to how we live our lives and operate our businesses. It is not sufficient to look to replace fossil fuels with an alternative. The bottom line is that we must simply reduce the amount we consume.
The IPCC report cites 10 key solutions needed to mitigate climate change, six of which must be addressed by the real estate industry:
- Retrofit and decarbonize buildings – As detailed in our recent Obsolescence Equals Opportunity reports released in the United States and Europe, there is an overwhelming case for meaningful change. Whether driven by legislation, asset age or changing occupier expectations, the need to retrofit and decarbonize buildings is crucial in cutting global emissions.
- Investing in clean energy and efficiency – A key change needed is a switch to renewable energy and installation of efficient heating and cooling systems—a departure from gas toward air-source heat pumps, ground-source heat pumps, solar thermal panels and other renewable technology.
- Decarbonizing cement, steel, and plastics – There is a need to change fundamentally how we think of building materials, both in new assets or in repositioned and refurbished buildings. Aluminium, steel section, glass and reinforced concrete are particularly high emitters of embodied carbon.2 Alternatives include low-carbon cement, recycled steel, bamboo, smart glass windows and many iterations of traditional concrete.3
- Shift to electric vehicles – The demand for electric vehicles (EV) is evidenced by the long lead times to secure one, even though EV charging capacity and availability is lacking. According to the U.S. Department of Energy, 80% of EV charging is done at home,4 which leaves 20% of cars looking for a charger away from home, providing opportunity for building owners to install EV chargers wherever possible—especially if they’re looking for an incentive to return to the office5
- Increase public transport, walking and cycling – A real estate fundamental—location, location, location—still holds true. It is ever more critical to be in a location that is well served by public transport and that offers facilities such as bike storage, bike servicing, showers and lockers.
- Eat more plants and less meat – For the many office buildings and retail environments that offer food and beverage to meet the needs of workers, serving more plant-based alternatives to hundreds of millions of people each day would make a significant impact on our climate and the volume of our global emissions.6
Ultimately, What Does All of this Mean for the Built Environment?
The time for change is today, and there is no alternative to addressing the challenge we face if we want to have any hope of keeping global warming to 1.5 degrees Celsius. There is little hope of keeping within the boundaries set in Paris in 2015. To keep to those targets, we would need to reach peak fossil fuel use and emissions this very hour—and we know this is not going to happen. As custodians of our environment and developers of the built world, we have an important role to play. Everything we do must protect and enhance the value of buildings and the environments they inhabit.
There is no doubt of the urgency of the situation. Antonio Guterres, Secretary-General of the UN, could not be clearer when he described the IPCC report as a “survival guide for humanity.” He further warned that the "climate time bomb is ticking" and urged rich nations to slash emissions.
The actions we take—or fail to take—today will resonate for thousands of years and for innumerable generations. We could not be in a better place, as part of the real estate industry, to make significant changes that will change the lives of many millions, indeed billions of individuals, across our planet.“Think for tomorrow, but act for today.” Mahatma Ghandi
1 https://www.c40.org/what-we-do/scaling-up-climate-action/adaptation-water/the-future-we-dont-want/sea-level-rise/#:~:text=As%20with%20other%20climate%20hazards,such%20as%20Bangkok%20and%20Shanghai. External Link
2 https://pliteq.com/news/building-vs-carbon-footprint/ External Link
3 https://www.cicconstruction.com/blog/eco-friendly-sustainable-building-materials-for-greener-construction/ External Link
4 https://www.canarymedia.com/articles/ev-charging/5-charts-that-shed-new-light-on-how-people-charge-evs-at-home External Link
5 https://www.bbc.co.uk/news/business-64914894 External Link
6 https://www.bbc.co.uk/news/science-environment-49238749
The truth is there is a lot of work to be done in commercial real estate to retrofit and decarbonize buildings but in order to kick-start all this, you need incentives and proper financing in place.
As stated in the first article above:
Since 2014, C-PACE, a U.S.-focused financing mechanism, has allowed building owners to make energy efficiency improvements by using financing to pay for upfront costs, which are then repaid through an assessment on the properties’ tax bill. The structure of C-PACE allows for long-term financing and makes transferability of repayment obligations to new owners easy.
Here, CDPQ partnered up with Nuveen Green Capital to launch a US $600 million financing program for sustainable commercial real estate development across the United States using C-PACE.
The demand is there because building owners/ operators want to decarbonize or risk obsolescence and seeing their property values plunge.
That's really the essence of this program and why the need is so great, it's crunch time for commercial real estate.
By the way, notice the financing of commercial real estate loans which was part of Otera Capital now falls under the purview of Marc Cormier, Head of Fixed Income at CDPQ:
“Developing greener buildings and reducing the carbon footprint of our built environment can create significant value. Through this distinctive financing program, we are able to accelerate the implementation of environmentally sound measures for commercial real estate owners and developers,” said Marc Cormier, Executive Vice-President and Head of Fixed Income at CDPQ. “We are excited to combine our long-term capital with Nuveen Green Capital’s extensive expertise to offer a sustainable integrated financing solution that fully aligns with CDPQ’s climate strategy and commitment to decarbonize the real economy.”
It's worth noting CDPQ will retire the Otéra Capital brand name on January 1, 2025. The Real Estate Finance team will now work under the CDPQ name. This decision is part of the real estate subsidiary integration process announced in January 2024 and you can read the press release here.
Alright, not much more to add but clearly CDPQ and Nuveen are partnering up to finance the transition economy in commercial real estate and as I stated, the demand is intense and this transition is only beginning.
Below, Jessica Bailey, CEO and President, Nuveen Green Capital, covers clean energy policy developments and the need for low-cost capital will continue to drive building owners and developers to look for new sources of financing.
Prior to co-founding Greenworks Lending in 2015, Jessica Bailey led the design, management, and implementation of the nation’s first successful C-PACE program at the CT Green Bank. In its first two years, the program financed $75 million in clean energy projects and executed the first securitization of commercial efficiency assets – more than doubling the volume of C-PACE transactions between 2013 and 2014. From 2004-2012, Bailey worked at the Rockefeller Brothers Fund (RBF), an $800 million foundation based in New York. As the Fund’s program officer for sustainable development, she co-managed a $7 million portfolio of grants focused on mitigating climate change and promoting clean energy.
Bailey has received numerous awards and positive recognition for her work. She was selected for Ernst & Young’s Entrepreneurial Winning Women of 2019 program. In 2014, Bailey was named a “Champion of Change'' by the White House for solar deployment. For her work designing the successful Connecticut C-PACE program, The Hartford Business Journal dubbed her a “Green Warrior;” and after co-founding Greenworks Lending and scaling C-PACE nationally, Jessica was named to Connecticut Magazine’s 2018 list of “40 under 40” (watch the second clip).
Smart lady, watch her describe their activities and how they helped the Hotel Marcel in a case study here.
Lastly, a 2022 session exploring the financial opportunities and challenges created by the NYC Climate Mobilization Act, including Local Law 97 and property assessed clean energy (PACE) loans. Panelists include Jessica Bailey, President and CEO of Nuveen Capital; John Mandyck, Chief Executive Officer of Urban Creen Council; Tyng Patka, Partner at Duval & Stachenfeld LLP; and Curtis Probst, Chief Executive Officer of NYCEEC; moderated by Director of CSB's Invest NYC SDG Initiative, Marianna Koval.
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