News & Insights

Overview

Office distress is no longer a landlord problem alone; it is a municipal finance problem. Since 2019, large office markets have experienced material value declines and tax assessments are catching up. Cities that rely on commercial property taxes are experiencing shortfalls due to elevated vacancy rates. The feedback loop is straightforward: lower NOI pushes down assessed value, which erodes the tax base. Budget offices are modeling multi-year office write-downs that are reflected directly in property tax receipts. Cash collection reports show how assessment timing and billing cycles can amplify pressure on municipal cash flow. Return-to-office trends are improving, but utilization remains below 2019 levels in many metropolitan areas.

Market Takeaway

This is not only about valuation, it is about utility. An obsolete office product with persistent vacancies, outdated HVAC and envelope systems, and an elevated energy intensity drags down cash flow. That drag suppresses assessed value and squeezes city budgets. Conversions and deep retrofits are the path back to productive use, not a luxury.

Policy Alignment

Policy makers are aligning incentives with reuse. Recently enacted property tax exemptions for qualifying conversions, paired with targeted zoning and permitting reforms, are designed to enhance the feasibility of office-to-residential projects that incorporate income-restricted housing. Municipal economic development teams are pairing these tools with private capital to stabilize the assessment roll.

What C-PACE Is

Commercial Property Assessed Clean Energy (C-PACE) is a long-term, fixed-rate, non-recourse financing option for qualified energy efficiency, water conservation, renewable energy, and resilience improvements. Repayment occurs through a voluntary special assessment on the property tax bill. Because the assessment travels with the property, not the borrower, C-PACE supports long holding periods and transfer on sale, subject to state law. Mortgage lenders typically consent because the structure reduces operating costs, strengthens DSCR, and supports refinance outcomes.

Clearwater’s Take

Clearwater PACE is a direct, institutionally backed provider focused on speed to yes, lender alignment, and disciplined underwriting. We finance up to 100 percent of eligible hard and soft costs for HVAC, controls, lighting, building envelope, electrification, domestic hot water, water conservation, renewables, and resilience. Terms are fixed-rate and long-duration, with amortizing payments collected via the property tax bill and non-recourse to the sponsor, subject to program rules and state law. Typical deal sizes range from $5MM to $300MM, sized to the lesser of 40 percent Last-Dollar Loan-to-Cost (LTC), 35 percent of stabilized value, or a minimum DSCR at stabilization appropriate to the asset type. The structure is designed to sit alongside senior construction or bridge loans, with the consent of the mortgage lender, and to complement mezzanine, preferred equity, tax credits, and local incentives. Lower utilities and maintenance lift NOI, which improves DSCR and debt yield, supporting valuation and assessed value over time.

Use Cases

1. Office-to-residential conversion where C-PACE funds are used for electrification, envelope improvements, high-efficiency HVAC and hot water systems, code upgrades, and resilience enhancements, while equity focuses on unit finishes and lease-up.
2. Repositioning as an office space, where C-PACE covers BAS, LED lighting, chillers, elevators, IAQ improvements, and smart controls, to attract tenants and extend the useful life.
3. Hospitality refresh where energy and water measures improve ADR, occupancy, and operating margins.
4. Industrial modernization that deploys solar, LEDs, advanced controls, and process electrification to de-risk long-term operating costs for owner-users and logistics portfolios.

Execution Roadmap

Eligibility and sizing begin with a quick review of plans, energy scope, and Sources and Uses to deliver an initial proceeds view. Senior lender alignment is achieved through early intercreditor dialogue and consent, ensuring that calendars remain tight. Program administration manages state and local requirements and documentation. Independent energy engineering provides baseline and as-designed models, useful lives, savings verification, and measure-level scoping. Funding occurs at close or on milestones, with repayment via the tax bill. Post-installation verification supports the refinance narrative and valuation addendum.

Capital Stack Example

A representative conversion stack includes a senior construction loan sized to lender constraints and takeout logic. This C-PACE assessment is a fixed-rate, long-term assessment, sized to eligible measures, and paid via the property tax bill with lender consent. Additionally, it features sponsor equity or preferred equity focused on non-eligible scope and leasing. The outcome is a lower blended cost of capital, stronger DSCR at stabilization, and a better refinance runway. The city gains a path from underused office to productive housing and a more stable tax base.

Why This Matters For Cities

Cities need assets to carry their weight again. Conversions and retrofits turn unused square footage into income-producing properties with modern systems. When office values decline and assessments follow, budgets feel the impact. C-PACE targets building-level causes of erosion, inefficient operations, and functional obsolescence, and finances fixes at scale.

Closing Thought

The office reset will not be reversed solely based on sentiment. It reverses when assets become useful again. C-PACE is disciplined, performance-linked capital that funds improvements tenants feel and appraisers recognize. Clearwater PACE delivers that capital, helping sponsors repair buildings, helping lenders de-risk refinances, and helping cities stabilize budgets in real-time.

Sources

1. The Washington Post
2. San Francisco Controller
3. NYC Comptroller
4. Business Insider
5. Kastle Systems
6. New York State RPTL 467 m