The recent completion of a $190 million C-PACE financing deal for Virgin Hotels Las Vegas marks a milestone in sustainable hotel infrastructure. It highlights a growing trend within the industry towards energy-efficient, eco-conscious developments.
With hotels being significant consumers of energy and water, there is an increasing imperative for operators to implement sustainable infrastructure practices. This includes energy-efficient upgrades to heating, ventilation, and air conditioning (HVAC) systems, the installation of LED lighting, and advanced water-saving plumbing solutions, among other innovations. The benefits of sustainable infrastructure in hotels are multifaceted, encompassing operational cost reductions, enhanced guest experiences, and a significant reduction in environmental impact.
The Virgin Hotels Las Vegas, an iconic resort property part of the Curio Collection by Hilton, has exemplified this movement through its recent sustainability-focused upgrades. These improvements were made possible through Commercial Property Assessed Clean Energy (C-PACE) financing, an innovative and increasingly popular tool in the commercial real estate market. This financing model is proving transformative for hoteliers looking to balance business priorities with environmental responsibility.
C-PACE financing is a game-changer in sustainable infrastructure development. Short for Commercial Property Assessed Clean Energy, C-PACE provides flexible financing solutions for new and existing commercial real estate projects, particularly those focused on energy efficiency, water conservation, and environmental sustainability. Available in 40 states and Washington D.C., C-PACE has grown rapidly as a vital financing mechanism for capital-constrained markets.
In the case of Virgin Hotels Las Vegas, C-PACE capital was used to recapitalize hotel improvements, such as HVAC and LED lighting upgrades, window replacements, water-saving plumbing fixtures, and desert landscaping enhancements. These upgrades reduce the property’s environmental footprint and enhance operational efficiency and guest satisfaction.
Nuveen Green Capital (NGC), a national leader in sustainable commercial real estate financing, facilitated the deal. “We could not be prouder to have partnered with HRHH PropCo, LLC to recapitalize the impressive Virgin Hotel Las Vegas – the largest C-PACE transaction in Nevada and the second largest-ever C-PACE financed deal in the country,” said Cory Jubran, Senior Director of Originations at Nuveen Green Capital.
While C-PACE financing offers numerous benefits, it is not without its challenges. One consideration is the long-term commitment required; C-PACE loans are often repaid over 20 to 30 years, which may complicate future property sales. The financing is also repaid through property tax assessments, which could raise property taxes and potentially deter some buyers or investors in competitive markets.
Additionally, there is a risk of overleveraging if borrowers use C-PACE to refinance existing debt. Overleveraging can create financial strain if a property’s performance does not improve as expected. The complexity of structuring these deals, particularly when multiple lenders are involved, can add further challenges. Finally, while C-PACE is available in many states, its adoption is still limited in certain regions, and some property owners may be hesitant to embrace this relatively new financing tool due to unfamiliarity or regulatory concerns.
Despite these potential downsides, C-PACE remains a powerful tool for hoteliers committed to sustainable infrastructure improvements. By carefully assessing their financial goals and market conditions, many property owners are finding that the benefits of C-PACE outweigh the risks.
As more hoteliers adopt sustainable infrastructure practices, the hospitality sector is primed for a transformation that can significantly reduce environmental impacts while enhancing business viability. The $190 million C-PACE financing deal for Virgin Hotels Las Vegas is a testament to the growing movement toward sustainability in the hospitality industry. It reflects the convergence of financial innovation, environmental responsibility, and long-term business strategy.
