The Next Era of Commercial Real Estate Finance and Lending: Navigating New Risks and Opportunities in an Evolving Landscape of Climate Risks, Sustainability, and Market Shifts

By Kristin E. Niver and Frederick H. Mitsdarfer III

Kristin E. Niver is a real estate finance attorney and counsel at Robinson+Cole in the New York and Washington, D.C., offices. Kristin is vice-chair of the Section’s Commercial Real Estate Transactions Group and chair of the Section’s Affordable Housing Committee.

Frederick H. Mitsdarfer III is a partner at Tarabicos Grosso, LLP in New Castle, Delaware. He is vice-chair of the Section’s Mortgage Lending Committee and is a member of the Section’s Standing Committee on Continuing Legal Education. Fred is also a fellow of the ABA’s Standing Committee on Professionalism and a fellow of the ABA’s Standing Committee on Continuing Legal Education.

Climate risk is becoming a critical factor in commercial real estate (CRE) finance, affecting lending practices, underwriting criteria, and capital availability. Properties in high-risk areas (e.g., flood zones, wildfire-prone regions) are facing stricter lending conditions, higher costs, or even loan denials.

How Climate Risk Is Reshaping Commercial Real Estate Finance and Lending

As illustrated in more detail below, the real estate investors most likely to capitalize on emerging opportunities are those who are able to proactively mitigate climate risk and incorporate sustainability practices and resilience planning into their portfolios.

CRE lenders are also now incorporating climate risk assessments into their loan terms, increasing interest rates, as a very basic example, or requiring large reserves for properties in high-risk climate areas (e.g., flood zones, wildfire-prone regions). Properties exposed to climate hazards are seeing reduced loan-to-value (LTV) ratios, requiring borrowers to put up more equity. Lenders now also require more comprehensive environmental and climate risk reporting even before approving financing.

As the recent Los Angeles wildfires and Florida hurricanes have illustrated, climate-related disasters are leading to soaring property insurance costs, affecting debt service coverage ratios (DSCR) and overall loan viability. As highlighted in more detail below, some insurers are even pulling out of highrisk climate markets altogether, forcing borrowers to seek expensive specialty coverage in order to secure financing at all.

Lenders and appraisers are now factoring climate risk into everyday valuations, potentially lowering asset values and reducing the amount of capital available for loans. Properties with high climate exposure may be harder to sell or refinance, raising concerns about the long-term viability of such an investment. Some properties could become obsolete or uninsurable due to regulatory changes, making them unattractive to lenders.

The shift toward sustainable and resilient investments is exemplified by the fact that many institutional investors now favor properties with at least some environmental, social, and governance (ESG) credentials across the board, increasing demand for sustainable finance solutions.

Furthermore, lenders are reducing exposure to regions prone to hurricanes, rising sea levels, and wildfires and there is a growing preference for financing properties in cities with strong climate adaptation plans and lower environmental risks. Some lenders now even require climate adaptation plans or sustainability commitments from borrowers. Others are even exiting specific markets because of climate concerns, leading to “lending gaps” and higher borrowing costs for affected areas.

Lenders now evaluate physical risks (extreme weather) and transition risks (regulatory changes, carbon pricing) when assessing any loan. Physical risks include risks that affect a property’s longterm value, insurability, and cash flow and include flood risk, hurricane and wind exposure, wildfires, heat stress and drought, and sea level rise. Transition risks include such things as regulatory and market risks, including a political party change, as we have seen recently. As some governments impose stricter climate laws, properties that do not meet sustainability standards may lose value due to new energy-efficiency requirements, face higher operating costs from carbon pricing or local energy mandates, or struggle to refinance if not aligned with ESG lending criteria.

Impact of High Climate Risk on Loan Terms

Lenders may lower LTV ratios if a property faces extreme weather risks, but energy-efficient properties also may qualify for a higher LTV, thereby reducing a borrower’s equity requirements. Lenders may add what is commonly called a “climate premium” to interest rates for properties with high physical risk. Lenders may require borrowers to obtain additional flood, hurricane, or wildfire insurance, as well. Climate risk also can harm required DSCRs by increasing expenses, reducing revenue, and tightening lender underwriting standards, and lenders may even require shorter loan terms or amortization periods for assets in high-risk locations. Lenders also are increasingly adjusting reserves and escrow requirements for real estate loans based on climate risk. Properties in highrisk areas (flood zones, wildfire-prone regions, coastal areas, etc.) or with high transition risk (regulatory compliance, carbon pricing, or market shifts) may require larger reserves and higher escrow deposits to protect the lender’s exposure.

Lenders now evaluate physical risks (extreme weather) and transition risks (regulatory changes, carbon pricing) when assessing any loan.

How Investors Are Protecting CRE Assets from Climate Change

With climate change increasingly affecting CRE, investors are adopting protective strategies to mitigate risk, protect asset values, and ensure longterm profitability, regardless of politics. This is because climate change is affecting the financial bottom line. Investors are increasingly using analytics and even artificial intelligence (AI) to assess exposure to climate hazards like floods, hurricanes, wildfires, and rising sea levels. Using these data, lenders and investors are reducing exposure to highrisk locations by acquiring assets in climate-resilient regions. They also are proactively obtaining risk data from firms like Moody’s to guide investment decisions.

Physical Resilience Upgrades

Investors are requiring physical upgrades to properties, including but not limited to flood protection measures such as installing flood barriers, improving drainage systems, and elevating critical infrastructure to reduce flood damage; wind and storm resilience protections, such as reinforcing buildings with impact-resistant windows, storm shutters, and upgraded roofing to withstand extreme weather; and, most obviously following the catastrophic Los Angeles fires, wildfire prevention, such as creating defensible spaces, using fire-resistant materials, and upgrading HVAC systems with air filtration to mitigate fire and smoke risks. Heat adaptation is another new requirement, including implementing cool roofs, enhanced insulation, and shaded outdoor spaces to reduce heat stress.

Sustainable Building and EnergyEfficient Design

Investors are focused on energy-efficient buildings that meet sustainability standards and those that have solar panels, battery storage, and microgrids to ensure energy resilience during extreme weather events. Water efficiency measures are another focus, such as requiring owners to implement rainwater harvesting, low-flow fixtures, and drought-resistant landscaping to adapt to water scarcity, to name just a few of such possible measures.

Insurance and Financial Risk Mitigation

Lenders and investors are now requiring insurance policies with expensive specialized climate risk coverage and regularly updating policies based on new risk assessments, which could affect refinancing terms. Some large investors also are creating their own insurance pools to manage climate risks cost-effectively.

Lease and Tenant Adaptation Strategies

There are also many new lease and tenant adaptation strategies developing in this context, such as structuring leases to pass on sustainability costs and responsibilities to tenants and encouraging tenants to adopt energy-efficient practices and providing incentives for sustainability efforts. Flexible space design and the creation of adaptable spaces also can help accommodate changing climate conditions and tenant needs.

Strategic Exit Planning and Asset Repositioning

Investors are also increasingly resorting to selling off their high climate-risk assets altogether, offloading properties with excessive climate exposure before insurance or regulatory changes devalue them. Repositioning properties is another possible option, such as converting high climate-risk buildings for alternative uses that are more weather resilient (e.g., from retail to logistics or life sciences). Developers and investors are also “land banking” in more climate resilient markets, acquiring land in lower-risk areas for future development as migration patterns shift due to extreme weather events as we have seen recently in Florida and California.

Case Examples

2025 Los Angeles Wildfires

The recent Los Angeles wildfires are just one example of how climate risk is profoundly affecting real estate investing, influencing property values, insurance dynamics, and market behaviors. Climate was previously considered as part of a “triple bottom line,” but climate risk is now affecting the financial bottom line, plain and simple, regardless of politics. The financial toll of the wildfires in Los Angeles is immense, with losses estimated to exceed $30 billion. The surge in claims is prompting insurance companies to reassess their risk models, leading to increased premiums for properties in fire-prone areas. Some insurers are opting to leave highrisk markets entirely, reducing options for property owners and potentially making it more difficult to obtain coverage. This trend could further deter investment in areas deemed vulnerable to wildfires.

The loss of over 16,000 structures exacerbates an already-existing housing shortage in Los Angeles, potentially driving up property values and rents in affected areas. Interestingly, however, and not widely discussed, is the notion that wildfires may present certain opportunities for investors while posing challenges for affordability. Rebuilding efforts face hurdles such as stringent building codes, permitting processes, and the high costs of construction. Investors must navigate these complexities, which can affect project timelines and profitability. There are also ethical questions surrounding the obligations to rebuild.

Recent Florida Hurricanes

Another key example is the Florida hurricanes. Over recent years, a series of high-profile hurricanes in Florida— from hurricanes like Irma, Michael, and, more recently, Milton, Helene, and even Ian—have exposed several vulnerabilities in the CRE market. The effect of Florida hurricanes on the CRE market and on the ability to secure insurance has been multifaceted, with immediate physical damage and long term economic and underwriting consequences. Hurricanes often cause widespread structural damage to commercial properties—from office buildings and shopping centers to industrial facilities. Damage may range from roof and facade destruction to complete loss of property, forcing owners to allocate large amounts for repairs or rebuild, which in turn affects property valuations and can depress market prices in the short term. Studies have shown that although many properties are insured, the delay and complexity in damage assessment and claims settlement often result in extended downtime for businesses, reducing rental incomes and overall property value. Repeated hurricanes can contribute to what some call a “hurricane stigma,” a situation in which investors become more cautious about properties in high-risk areas. This caution often leads to lower transaction volumes, more conservative pricing, and higher risk premiums factored into property valuations. Even if recovery eventually occurs, temporary dips in values and prolonged uncertainty can affect commercial financing and development decisions.

Effect on the Insurance Market

In the wake of recent hurricanes in Florida, insurers have increasingly reassessed their risk models. With insured losses from storms such as Milton and Helene reaching tens of billions of dollars, many insurers are either hiking premiums significantly or pulling back altogether from high-risk regions like coastal Florida. For example, major carriers have been reported to increase commercial property insurance rates by double-digit percentages in some regions, yet others (like Progressive and Farmers) have reduced their exposure, forcing more policyholders into the state-run insurer, Citizens Property Insurance Corporation. These market shifts not only raise the cost of insurance for property owners but also can lead to gaps in coverage availability, making it harder for businesses to secure affordable and comprehensive policies.

With the frequency and severity of hurricanes increasing (a trend linked to climate change), insurers face more frequent claims and higher aggregate losses. Insurers also are now paying closer attention to building age, construction quality, and hurricane resilience measures when underwriting policies. Properties built before updated building codes (pre–Hurricane Andrew, for instance) often either are excluded or face very high premiums. Insurers and reinsurers alike have tightened their underwriting criteria, which may require property owners to invest in upgrades (like impact-resistant windows and reinforced roofs) to secure coverage or even lower their premiums.

Although Florida’s CRE market has historically been resilient—often rebounding strongly after storms—the increased cost and difficulty of obtaining insurance is gradually altering investment patterns. Lenders, investors, and developers are starting to incorporate more stringent risk assessments into their financing and valuation models. With the strain on private insurers, state authorities have occasionally stepped in to regulate rate increases or even restructure the market. Initiatives aimed at enhancing building codes and incentivizing resilient construction could help mitigate future losses, though they also may increase upfront costs.

Florida hurricanes have driven up repair and reconstruction costs and have created uncertainty for CRE investors. Insurers in Florida are reevaluating risk, resulting in higher premiums and more selective underwriting. Together, these factors can depress property values in the short term, complicate financing, and ultimately pressure the market to adopt stricter risk mitigation and resilience measures.

Standardizing How Climate Risk Is Priced into Real Estate Valuation and Underwriting

Given more and more extreme weather events, a key step forward would be for the United States to better standardize how climate risk is priced into real estate valuation and underwriting, following the EU. The EU, of course, has mandatory climate stress testing for financial institutions that ensures that climate risks are always being factored into lending and investment decisions. The EU Taxonomy for Sustainable Activities and Sustainable Finance Disclosure Regulation (SFDR), as one of many examples, requires investors to report environmental risks and sustainability efforts in detail.

The United States also needs more green financing tools and other incentives for resilient buildings. The EU offers green bonds, sustainability linked loans, and other low-interest loans for climate-resilient and energy efficient buildings. The EU also offers stronger tax incentives for building retrofits, energy efficiency, and renewable energy adoption. As discussed below, the United States should increase adoption of C-PACE (Commercial Property Assessed Clean Energy) financing for climate resilience upgrades. The United States also needs more subsidized loans and tax credits at the federal and state levels to incentivize climate adaptation, although these very programs were created in connection with the landmark Inflation Reduction Act and are currently in jeopardy, highlighting the partisan divide on climate action, which unfortunately ignores the realities of how climate risk is affecting CRE finance irrespective of party lines.

How Buildings Contribute to Climate Change

Buildings play a major role in contributing to climate change, accounting for nearly 40% of global CO2 emissions; 28% of global emissions are attributed to the HVAC systems buildings require for heating, ventilation, air conditioning, lighting, appliances, and electronic devices. The vast majority of buildings in the United States still rely on fossil fuels for electricity and heating, as well as hot water and cooking, therefore emitting CO2. Gas boilers, furnaces, and water heaters all burn natural gas and release CO2. High-energy buildings (glass skyscrapers, older structures) often waste energy from poor insulation and inefficient systems. The remaining 11% of global emissions are attributed to the construction materials and processes (known as embodied carbon) needed for real estate development, including the cement and steel production used in construction, which is extremely carbon intensive. Cement alone contributes to 8% of global CO2.

Urban areas are known as “heat islands” because buildings and cities trap heat, making them hotter than rural areas. Concrete, asphalt, and glass absorb heat, raising temperatures. The air conditioning required then increases local emissions, creating a feedback loop where more cooling is needed.

Inefficient building design and poor insulation also waste energy. Older buildings with outdated HVAC systems are energy inefficient, and single-pane windows and poorly insulated walls in older buildings let heat escape, increasing heating costs. Cooling systems also use refrigerants that contain potent greenhouse gases. Air conditioners and refrigerators contain hydrofluorocarbons (HFCs), which are a thousand times stronger than CO2 at trapping heat, and leakage from old and damaged A/C units also worsens climate change. What is more, as global temperatures rise, there is an even further demand for AC, which in turn leads to more emissions from fossil fuel electricity and refrigerants. Better insulation in buildings can reduce cooling needs.

A building’s climate impact can be reduced with more energy-efficient design such as passive solar, high-performance insulation, and triple-pane windows. With the help of solar panels, wind energy, and geothermal systems, buildings also can use renewable energy. Lower-carbon materials also can be used in the construction of buildings, including green concrete, recycled steel, and sustainable timber. Smart technologies such as LED lighting, automated HVAC, and energy-efficient appliances also can cut down on costs. Net zero and carbon negative buildings, increasingly required in many major cities, generate as much or more energy than they consume.

For these reasons, the buildings constituting CRE are a big cause of climate change—but also the solution. Because buildings are the major contributors to climate change, sustainable design and green technologies also can drastically reduce their impact. The future of CRE clearly depends on decarbonizing buildings through efficiency, electrification, and sustainable materials, and yet these upgrades and retrofits to buildings need to be financed at a time when capital is already prohibitively expensive from high interest rates and construction costs.

Financing Tools Available to Help Real Estate Investors Mitigate Climate Risk

Commercial Property Assessed Clean Energy Financing: An Innovative Tool for Sustainable Development

In the ever-evolving landscape of CRE, innovative financing solutions are crucial for advancing energy efficiency and sustainability for the reasons described above. One such solution gaining traction is Commercial Property Assessed Clean Energy (C-PACE) financing. This tool allows property owners to fund energy improvements through a unique structure that benefits both the owners and the environment. Below we briefly explore the mechanics, benefits, and applications of C-PACE financing as a key example of much-needed green financing to address the many climate-risk-related issues discussed above, drawing on recent developments and examples to illustrate its potential impact.

Understanding C-PACE Financing

C-PACE financing enables commercial property owners to finance up to 100% of the costs associated with energy efficiency, renewable energy, and water conservation improvements. Unlike traditional financing, C-PACE is secured by a special voluntary assessment lien on the property, repaid through property tax bills. This innovative financing mechanism offers several unique features that make it an attractive option for property owners and lenders alike.

One key feature of C-PACE financing is the non-acceleration of liens. In the event of a default, only the past due portion of the C-PACE assessment takes senior priority over other liens, protecting mortgage lenders’ interests. This feature provides significant reassurance to senior lenders, as it does not interfere with their foreclosure rights. Unlike other forms of subordinate financing, C-PACE does not require an intercreditor agreement with senior lenders, allowing them to retain their full foreclosure rights in case of a default.

Another advantage of C-PACE financing is the option for senior lenders to require escrowing the C-PACE assessment, similar to property tax and insurance escrows, to mitigate risks. Additionally, at closing, all C-PACE funds are deposited into an escrow account, ready to be drawn as project costs are incurred, providing assurance of fund availability. This immediate availability of funds ensures that capital is ready for project expenses, reducing financial uncertainties for property owners.

Furthermore, improvements financed through C-PACE often lead to increased property values by enhancing energy efficiency and reducing operating costs. This increase in property value benefits both property owners and mortgage lenders, as the collateral’s worth is enhanced, providing additional security for the loan. By improving energy efficiency, C-PACEfunded projects also can increase a property’s net operating income, further enhancing its valuation.

Legislative Framework and Government Role

C-PACE programs require enabling legislation at the state level and authorization from local governments. As of 2023, 38 states and Washington, DC, have passed C-PACE-enabling legislation. These laws define the roles of local governments in implementing and managing C-PACE programs, often leveraging existing statutes for special assessments. The involvement of state and local governments is crucial for the successful implementation of C-PACE programs, as they are responsible for levying the special assessments and ensuring compliance with program guidelines.

The process of obtaining C-PACE financing involves several steps and key players. Property owners initiate the process by identifying eligible improvements and applying for C-PACE financing. Capital providers, typically third-party lenders, offer the necessary funds for the projects, secured by the C-PACE assessment lien. Municipal governments play a critical role by levying the C-PACE assessment and collecting repayments through property tax bills. Program administrators oversee the application process, ensuring compliance and facilitating communication between stakeholders.

Growth and Influence of C-PACE Financing

Since its inception, C-PACE has grown significantly. By mid-2023, over $6.3 billion had been funded through C-PACE, with more than 3,200 commercial projects completed and substantial job creation resulting from these investments. The program’s rapid growth underscores its effectiveness and appeal to both property owners and investors.

processes need to be addressed. The split-incentive issue arises because property owners may not be motivated to invest in energy-efficiency improvements if the benefits, such as reduced utility costs, accrue primarily to the tenants. Overcoming this challenge requires both regulatory measures and educational initiatives to align the interests of property owners and tenants.

Innovative Solutions and Future Directions

The expansion of C-PACE financing has not only facilitated numerous energy efficiency and renewable energy projects but also contributed to economic development through job creation and increased property values.

Applications and Case Studies

C-PACE financing is used across various property types, including hospitality, health care, office, and mixed-use developments. Specific examples of funded improvements include HVAC systems, lighting, building envelopes, and water conservation measures. For instance, in Philadelphia, C-PACE has been used to mobilize over $100 million towards energy efficiency and air quality upgrades, significantly reducing the city’s carbon footprint. The ability to finance a wide range of improvements makes C-PACE a versatile tool for enhancing the energy performance of different types of commercial properties.

One of the significant expansions of C-PACE in Pennsylvania was its inclusion of multifamily housing and air-quality improvements, as enacted by Senate Bill 635 in 2022. This expansion is particularly influential in cities like Philadelphia, where energy insecurity and high utility costs burden low-income residents. C-PACE financing offers a sustainable solution to upgrade aging energy systems in affordable housing, though challenges such as the split incentive and complex application

To enhance the accessibility and effectiveness of C-PACE financing, several innovative solutions are currently being explored. Simplifying the application process and providing bridge funding can make C-PACE more attractive to property owners of affordable multifamily units. Streamlined application processes can significantly reduce the time and effort required to secure C-PACE financing, making it more accessible to property owners who may lack the resources to navigate complex application procedures.

Involving local financial institutions, such as community banks and credit unions, can help fund smaller projects that larger banks might overlook. These institutions, with their closer ties to local communities, can play a pivotal role in expanding the reach of C-PACE financing to smaller and more diverse projects. Additionally, increasing awareness among property owners and financial institutions about the benefits and processes of C-PACE can drive higher adoption rates. Educational initiatives can demystify C-PACE financing and highlight its advantages, encouraging more stakeholders to participate in the program.

Problems with C-PACE Financing

As we have discussed, C-PACE is a financing mechanism that allows commercial property owners to fund energy-efficient upgrades, renewable energy installations, and resilience improvements through a special assessment on their property taxes. Although it offers many benefits, there are also certain challenges and risks associated with the program, including the senior lien priority.

C-PACE assessments are typically senior liens, meaning they take priority over a mortgage in case of default. This means that senior lenders often resist C-PACE financing because they think it can jeopardize their ability to recover funds if the property goes into foreclosure. Some mortgage lenders may refuse to approve C-PACE financing altogether or may require borrowers to pay off the C-PACE loan before refinancing or selling.

Complexity of Underwriting and Approval Process

C-PACE requires multiple layers of approval, including senior lender consent, compliance with state and local regulations, and underwriting of the project’s expected energy savings. This process can sometimes be slow. C-PACE financing also may come with program fees, legal expenses, administrative costs, and origination fees, which can be higher than for traditional financing options. These extra administrative costs may reduce the financial benefits of energy savings, making it less attractive compared to other financing options like green bonds or standard bank loans. The loan sizing is also based on energy savings, which, in some cases, can be very unpredictable.

Another challenge of C-PACE is that it is not universally available. As noted above, C-PACE legislation is authorized state by state, and even in states where it is legal, not all municipalities are willing to participate. Furthermore, property owners in nonparticipating areas cannot access the program, limiting its widespread adoption.

There are also open questions about the refinancing or the resale of properties financed with C-PACE. Some buyers are reluctant to purchase properties with C-PACE assessments because they inherit the repayment obligation through the property tax bill. Related to this is the concern that many property owners do not fully understand the long-term tax assessment implications of a C-PACE loan and may be surprised to find higher-than-expected tax bills or legal complications. These concerns may complicate property sales and refinancing, potentially delaying transactions or requiring buyers to negotiate the payoff of the C-PACE loan.

Future of C-PACE Financing

C-PACE financing represents a transformative approach to funding the energy efficiency and renewable energy improvements required in the CRE sector for the reasons described above. By leveraging this innovative tool, property owners can achieve significant energy savings, enhance property values, and contribute to broader environmental goals. The continued growth and adaptation of C-PACE programs will be crucial in addressing the energy challenges of the future and promoting sustainable development practices. As more states and local governments adopt and refine C-PACE programs, the potential for this financing mechanism to drive positive change in the real estate market and beyond will continue to expand. Through collaborative efforts and innovative solutions, C-PACE can play a central role in building a more sustainable and resilient future for all.

Inflation Reduction Act

The U.S. Inflation Reduction Act (IRA) of 2022 was a landmark piece of legislation that introduced and expanded upon several green financing tools to support clean energy and climate resilience for the reasons we have discussed above, including funding for low-cost loans for energy efficiency improvements and tax credits for renewable energy.

Greenhouse Gas Reduction Fund

One of the most significant of these programs is undoubtedly the Greenhouse Gas Reduction Fund (GGRF). GGRF is administered by the EPA to finance clean energy and climate-friendly projects across the United States. GGRF is designed to cut greenhouse gas emissions by funding clean energy projects, accelerate private investment in green infrastructure and low-carbon solutions, support disadvantaged communities through environmental justice initiatives, and create jobs in the clean energy sector.

GGRF provided a total of $27 billion for establishing a national green bank to support clean energy projects, with a focus on low-income and disadvantaged communities. The award was distributed among three major grant programs, each targeting different aspects of clean energy investment: $14 billion for the National Clean Investment Fund (NCIF), $6 billion for the Clean Communities Investment Accelerator (CCIA), and $7 billion for Solar for All:

1. National Clean Investment Fund ($14 billion). NCIF provides financing to nonprofit clean energy lenders to finance clean energy and energy-efficiency projects across the United States, including energy-efficiency upgrades in buildings; solar, wind, and battery storage projects; decarbonization projects; electrification of heating and cooling; and electric vehicle (EV) charging stations.

2. Clean Communities Investment Accelerator ($6 billion). The focus of CCIA is on community-based lenders serving low-income and disadvantaged communities and is intended to expand access to climate solutions in underserved areas, ensuring economic and environmental benefits for all. CCIA is also intended to provide workforce training programs in communities across the United States for clean energy jobs.

3. Solar for All ($7 billion). Solar for All is intended to help states, local and tribal governments, as well as green banks and nonprofits expand solar energy access for lowincome households and invest in community solar projects, including shared solar for renters and low-income families and rooftop solar installations for low-income homeowners. The purpose of Solar for All is to make solar power more affordable and accessible while reducing energy costs for lowincome families.

The financial institutions and nonprofit groups that received the GGRF grants are to use the funds to provide loans, grants, and financing assistance for clean energy projects. The GGRF is expected to significantly leverage private capital, with every $1 of federal investment expected to attract $7 billion in private investment, multiplying the effect.

GGRF is a transformational investment in climate solutions and a major step toward the United States achieving net-zero emissions by 2050, reducing carbon emissions, lowering energy costs for families and businesses, accelerating clean energy deployment nationwide, and creating thousands of clean energy jobs.

Clean Energy Tax Credits (Investment and Production)

The IRA significantly extended and expanded the investment tax credit (ITC) and the production tax credit. The IRA also created a new direct-pay transferability mechanism whereby businesses can now sell tax credits to other entities for upfront capital.

1. ITC Adders

The IRA added bonus incentives on top of the base ITC to substantially boost the overall value of a renewable energy project’s tax credit. The IRA intended for these adders to reward developers for meeting specific criteria that advance policy goals like domestic manufacturing, community revitalization, and social equity.

The base ITC generally offers a tax credit equal to a fixed percentage (commonly 30%) of a project’s eligible cost. ITC adders increase this percentage when a project satisfies additional requirements. For example, if a solar project meets all necessary labor, manufacturing, or location standards, the credit can jump well beyond the base rate—sometimes approaching 60% or more of the project cost.

There are three primary types of ITC adders:

• Domestic content adder. The first is the domestic content adder. This adder is intended to incentivize the use of US-manufactured materials (e.g., steel, photovoltaic modules, inverters). Projects that meet a minimum domestic content threshold (e.g., 40% currently, increasing over time) receive an extra 10 percentage points on the ITC, boosting the credit and supporting American manufacturing. The intent of this adder is to create a stronger domestic supply chain and more jobs domestically.

• Energy community adder. The second adder is the energy community adder. This adder supports economic revitalization in areas historically dependent on fossil fuels (like brownfield sites or regions with coal mine closures). With this adder, projects located in designated “energy communities” can earn an additional 10 percentage points on the ITC. The goal of this adder is to transform and reinvigorate communities adversely affected by the decline of the fossil fuel industry.

• Low-income communities adder. Lastly, the low-income communities adder promotes clean energy access in underserved or lowincome areas. With this adder, projects serving low-income communities (or those located on Indian land) may qualify for a bonus—often 10% or 20%—that increases the ITC value. The purpose of this adder is to reduce energy costs for vulnerable communities while expanding renewable energy access.

In practice, a project begins with a base ITC, often 30% of the eligible project costs, and by satisfying some of the additional criteria described above—such as prevailing wage and apprenticeship standards, using a specified percentage of domestic content, or being situated in an eligible community—the project qualifies for one or more adders. With these adders, the total tax credit can climb significantly (for example, from 30% up to 50–60% or more), which dramatically improves the project’s financial returns by reducing upfront costs and shortening payback periods.

A higher ITC directly lowers capital costs, improves internal rates of return, and accelerates payback periods for renewable energy investments. By mandating domestic content and supporting projects in economically distressed areas,

ITC adders stimulate local manufacturing, create jobs, and help transition communities away from fossil fuels. Incentives like the low-income adder ensure that renewable energy benefits— such as reduced electricity costs and increased energy independence—reach underserved communities.

ITC adders are a powerful component of the renewable energy incentive framework under the IRA. By offering bonus credits for using domestically produced materials, revitalizing energy communities, and serving low-income areas, these adders not only improve the financial feasibility of solar and other renewable projects but also promote broader economic and social goals. ITC adders can help developers maximize the benefits of their clean energy investments, providing needed financing to address some of the challenges we discuss above.

2. Loan Guarantees and Direct Loans

via the Department of Energy (DOE) The IRA also expanded the Department of Energy’s loan guarantees and direct loan programs by providing $40 billion in a new loan guaranties and expanding the already-existing Title 17 loan guarantee program that supports clean energy and infrastructure projects.

Climate Change Skeptics: What It Means for Commercial Real Estate’s Role in Climate Risk Mitigation

Climate change is poised to significantly influence CRE lending and investing, and yet skeptics in government persist. Although any deregulation as a result of changing political views could reduce compliance costs for developers in the short term, it also will lead to increased environmental risks. These increased environmental risks, in turn, could lead to rising insurance premiums, which could actually counteract any anticipated reduction in compliance costs. Furthermore, while developers may face less regulatory pressure to adopt green building practices, changing trade policies and the imposition of tariffs, for example, may lead to increased construction costs and supply chain constraints. The rapid change in climate-related regulations because of recent political and ideological shifts also is introducing a generalized uncertainty into the marketplace, potentially affecting investment decisions and valuations in the CRE sector generally, as many commentators have recently noted. If the federal green financing programs created by the IRA are clawed back, owners will nonetheless still need to comply with the strict environmental regulations imposed by many cities and states and also implement any climate risk mitigation measures as required by lenders and investors as a result of recent extreme climate events, as discussed above. For this reason, green financing tools such as C-PACE and other low-cost loan programs and tax credits are crucial given the ever-increasing role of climate disasters in shaping the CRE marketplace. Fortunately, many cities and progressive states such as California, New York, and Massachusetts have their own green financing initiatives, such as state-backed bonds, tax incentives, and grants for energy-efficient construction, and private banks also are continuing to provide green bonds and sustainability-linked loans, but these are unlikely to be enough without the landmark IRA financing.

Uncertain Future of IRA Green Financing Tools

The IRA remains a cornerstone of US climate and clean energy policy. Enacted only a few years ago in 2022, the United States was just beginning to see how its provisions, including GGRF and expanded tax credits, as discussed above, would drive significant investments in clean energy improvements.

Unfortunately, there has been a significant shift in energy and environmental policies, particularly concerning GGRF. As of early 2025, federal agencies were instructed to pause the disbursement of funds appropriated through the IRA. This pause includes funds allocated to programs like GGRF. There also have been efforts to reclaim already-allocated funds. EPA Administrator Lee Zeldin announced his intention to reclaim funds previously allocated, calling for a Department of Justice investigation into the fund’s disbursement. These recent actions, of course, have sparked legal challenges and debates regarding the executive branch’s authority to halt or retract funds that were lawfully appropriated by Congress. Environmental organizations and some lawmakers argue that such a move undermines legislative authority.

The suspension and potential retraction of GGRF funds, of course, will delay or halt countless clean energy and greenhouse gas reduction projects across the United States counting on this financial support. These actions also reflect the current administration’s broader strategy to prioritize fossil fuel energy sources over renewable energy initiatives, marking a significant departure from the previous administration’s climate policies. These recent developments surrounding the IRA have therefore sparked a broader debate over environmental policy and government spending, highlighting the partisan divide on climate action and clean energy financing tools.

Conclusion

As demonstrated above, climate change is increasingly moving beyond partisan politics since it is no longer just an environmental issue but a financial concern for investors’ bottom line and loan underwriting. The economic impact of climate change on CRE investment is unavoidable. The recent Los Angeles wildfires are just one of many examples of this. Climate change is causing real financial losses due to extreme weather, supply chain disruptions, and rising insurance costs—and businesses, including major corporations and investors, are pushing for climate action because it directly affects their balance sheet. Major companies are incorporating climate risk into their strategies and sustainable investment and ESG metrics have become mainstream largely because extreme weather events are affecting everyone. More frequent and severe hurricanes, wildfires, heat waves, and floods are affecting people across political lines, and insurance companies are adjusting coverage and pricing based on climate risks, making it a financial issue rather than a political one. Recent polls also show growing bipartisan support for clean energy, especially as renewables become cheaper and create jobs in local communities across the country. Wind, solar, and battery storage projects are expanding in countless areas across the country, benefiting local economies and creating jobs. Therefore, many states, regardless of political leaning, are adopting clean-energy policies because they just make more economic sense. Even if, for the sake of argument, someone were to take the skeptical position that climate change was not real or that there were no environmental benefits to these clean-energy financing programs, the fact remains that, separate and apart from any environmental perspective, these clean-energy financing programs provide numerous shortand long-term economic benefits for the participants. Accordingly, the question becomes, why would any prudent CRE investor not use these clean-energy financing tools, if just for the economic benefits, and if there is any chance, these programs also have environmental benefits, wouldn’t that be an added bonus? In sum, these clean-energy financing tools are used by prudent CRE investors across the ideological and political spectrum because the financial benefits are seen as savvy financial tools instead of the environmental benefits being seen as political statements.