Question 1

What is C-PACE financing?

Accepted Answer

Commercial Property Assessed Clean Energy (C-PACE) is a specialized financing program for commercial real estate. It provides long-term, fixed-rate funding for energy, water, and resiliency upgrades. Unlike a typical commercial property loan, repayment is made as a special assessment on the property's regular tax bill, similar to an assessment for a new sewer line or other local improvement.

Question 2

How does C-PACE work?

Accepted Answer

C-PACE programs are public-private partnerships. Private capital providers fund the projects, and the local government collects the repayment through the property tax system. This assessment is tied to the property itself, meaning if the property is sold, the new owner takes over the payments. It's a unique form of loan for property investment that focuses on improving building performance and sustainability.

Question 3

What does it mean that C-PACE is a "non-ad valorem special assessment"?

Accepted Answer

This means the assessment is not based on the value of the property ("ad valorem"), but on the cost of the financed improvements. It is a "special assessment" because it is levied on a specific property to pay for a specific public benefit—in this case, the energy or resiliency upgrades. It is generally collected in the same way as other property taxes.

Question 4

Is C-PACE a hard money loan?

Accepted Answer

No, C-PACE is very different from the products offered by hard money lenders. While both can be used for real estate, hard money loans are typically short-term (1-3 years), have higher interest rates, and are often used for transitional properties. In contrast, C-PACE offers long-term (20-30 years), fixed-rate, fully-amortizing financing. If you're comparing C-PACE to a hard money commercial loan, you'll find C-PACE has more favorable terms and is non-recourse.

Question 5

Is C-PACE financing considered debt?

Accepted Answer

Yes, for all practical purposes, C-PACE is considered debt. Both property owners and commercial real estate lenders treat it as a financial obligation that must be repaid. It is included in underwriting calculations like the Debt Service Coverage Ratio (DSCR) when evaluating a property's finances.

Question 6

Is C-PACE available in my state?

Accepted Answer

C-PACE legislation has been enabled in over 30 states and the District of Columbia, with active programs in most of them. Because programs are adopted at the local level, availability and specific rules can vary significantly even within a state.

Question 7

How large is the C-PACE market?

Accepted Answer

The C-PACE market has seen significant growth. As of 2024, there have been over 2,300 projects completed, representing over $9 billion in total financing activity. In 2024 alone, there were nearly 250 projects financed for over $2.5 billion, according to PACENation, the industry association for PACE financing.

Question 8

How does C-PACE differ from a traditional construction loan?

Accepted Answer

C-PACE differs significantly from a standard construction loan. Traditional construction financing usually has a short term (3-5 years), variable interest rates, and must be refinanced into a permanent commercial real estate loan. C-PACE offers up to 30-year, fixed-rate financing that doesn't need to be refinanced. This provides long-term stability that traditional construction lenders don't offer for the construction phase of a project.

Question 9

What are the typical interest rates and terms for C-PACE financing?

Accepted Answer

C-PACE financing offers fixed interest rates for terms of 20 to 30 years, designed to align with the useful life of the improvements. The financing is always self-amortizing, meaning the principal balance is zero at the end of the term.

Question 10

Can I pay off a C-PACE assessment early? Is there a penalty?

Accepted Answer

Yes, prepayment is generally allowed. However, C-PACE financing often includes "call protection" or a prepayment penalty, particularly in the early years of the term. This is a common feature that protects the capital provider's return on investment.

Question 11

Can C-PACE financing have an interest-only period?

Accepted Answer

Yes, C-PACE financing can often be structured with an interest-only period, sometimes for up to five years. This can help a project's cash flow during a construction or stabilization period. The interest due during this period can often be capitalized, meaning it is rolled into the total financing amount.

Question 12

Can I use C-PACE financing as an operating capital loan?

Accepted Answer

In a way, yes. Many programs allow for retroactive financing, where you can get cash back for recently completed eligible projects. This cash-out can function like an operating capital loan, providing liquidity to the property owner for other business needs without the short terms associated with typical business credit lending.

Question 13

What types of commercial properties qualify for C-PACE financing?

Accepted Answer

Most commercial property types are eligible, including office buildings, retail centers, hotels, industrial and manufacturing facilities, multifamily properties (typically 5+ units), healthcare and assisted living facilities, and self-storage buildings. In some locations, properties owned by non-profits or those on a ground lease may also be eligible.

Question 14

What improvements can be financed through C-PACE?

Accepted Answer

Eligible improvements cover a wide range of sustainability and resiliency measures, including high-efficiency HVAC systems, LED lighting, roofing, insulation, windows, solar panels, water conservation fixtures, and seismic or flood-proofing upgrades.

Question 15

What are "soft costs" and does C-PACE cover them?

Accepted Answer

Yes, C-PACE financing covers both "hard costs" (e.g., equipment) and "soft costs." Soft costs are indirect project expenses and can include things like engineering and design fees, energy audits, permitting fees, and other related expenses.

Question 16

How much of my project can C-PACE finance?

Accepted Answer

For retrofits, C-PACE can cover up to 100% of costs, but it's typically limited to 25-35% of the property's value. For new builds, it can replace more expensive capital by funding 25-40% of the vertical construction cost, making it an attractive component to use alongside a senior construction loan.

Question 17

What does the C-PACE application and closing process typically involve?

Accepted Answer

The process generally follows these steps: 1. Pre-Qualification: The C-PACE provider confirms the property is in an eligible jurisdiction and meets basic criteria. 2. Energy/Engineering Analysis: A third-party engineer identifies eligible improvements and validates the project's scope and costs. 3. Lender Consent: The property owner obtains formal consent from their existing mortgage lender. 4. Application & Underwriting: A formal application is submitted to the C-PACE program administrator and capital provider for underwriting. 5. Closing: Once approved, legal documents are signed, and the C-PACE assessment is recorded against the property.

Question 18

Who manages the money during a construction project?

Accepted Answer

For construction projects, the C-PACE capital provider controls the disbursement of funds. Money is typically paid out in draws as construction milestones are met and costs are incurred, similar to a traditional construction loan process.

Question 19

Who are the key parties involved in a C-PACE transaction?

Accepted Answer

A transaction involves several parties: the property owner, the C-PACE capital provider (the lender), the local government's program administrator, and any senior commercial real estate lenders who must provide consent.

Question 20

Who provides C-PACE financing?

Accepted Answer

C-PACE financing is not a government grant or loan; the capital is provided entirely by private funding sources. The landscape of C-PACE lenders is diverse and growing. The majority of financing comes from specialty firms that focus exclusively on C-PACE and operate throughout the country. In addition, many local and regional banks and credit unions offer C-PACE financing in their states, often as part of their commercial real estate loan portfolios. More recently, major national banks have started to enter the market, recognizing the security and growth potential of C-PACE as an asset class.

Question 21

Why would senior mortgage lenders agree to C-PACE?

Accepted Answer

Commercial lenders for real estate often consent to C-PACE for several reasons. The funded improvements can increase the value and net operating income (NOI) of their collateral. Furthermore, the risk is mitigated because the financing is non-recourse to the borrower and non-accelerable, meaning the senior lender isn't exposed to a sudden demand for the full C-PACE amount in a default scenario.

Question 22

Do I need consent from my existing mortgage lender?

Accepted Answer

Yes. If you have an existing commercial real estate loan or other mortgage on the property, you must get formal, written consent from the lender before the C-PACE assessment can be recorded.

Question 23

Can the entire C-PACE loan be called due if I default?

Accepted Answer

No. This is a critical distinction from other forms of credit lending. C-PACE financing is non-accelerable. In the event of a default, only the past-due payments are owed, not the entire outstanding balance of the loan. This protects both the owner and the senior lender.

Question 24

What happens to the C-PACE assessment in a foreclosure?

Accepted Answer

In a foreclosure by the senior mortgage lender, the C-PACE assessment is not extinguished. Only the delinquent C-PACE payments must be paid to clear the senior lien position. The remaining, not-yet-due portion of the assessment stays with the property and becomes the responsibility of the new owner.

Question 25

Can I use C-PACE retroactively?

Accepted Answer

Yes, many states allow for retroactive or "look-back" financing. This enables property owners to use C-PACE to recapitalize their property by getting cash back for eligible projects completed within the last one to three years.

Question 26

What happens to the C-PACE assessment if I sell the property?

Accepted Answer

The C-PACE assessment is tied to the property and automatically transfers to the new owner upon sale. The new owner assumes the obligation to make the assessment payments along with their regular property taxes.

Question 27

Can I pass C-PACE costs through to my tenants?

Accepted Answer

Yes, depending on the structure of the leases (e.g., triple-net or NNN leases), C-PACE payments may be passed through to tenants or recaptured through a tax escalation clause, similar to how regular property taxes are handled.

Question 28

Can I get C-PACE financing if my property has a CMBS loan?

Accepted Answer

This has historically been difficult, as standard CMBS (Commercial Mortgage-Backed Security) loan documents often prohibit C-PACE. However, the market is evolving, and some recent CMBS loan documents have begun to allow for C-PACE financing, typically with requirements for approval from the lender and rating agencies.

What is
C-PACE?

Watch our intro video:

Why Use C-PACE for CRE Development Projects?

Long-term financing

Fixed rates

Non-recourse funding

Transferable with property

Improved cash flow

Capital preservation

What Types of Buildings Can Use C-PACE?

Eligible Projects and Improvements

Benefits for Commercial Property Developers

Increased project capital

Reduced operating costs

Enhanced ESG compliance

Lower operating capital needs

Competitive advantage

Optimize Your Capital Stack

The C-PACE Financing Process

Project Application

Lender Underwriting

Project Approval

Implementation

Repayment

C-PACE Financing Results

Frequently Asked Questions

The Basics

Financial Terms & Eligibility

The Process & Stakeholders

Specific Scenarios & What-Ifs

Next Steps: Explore Your C-PACE Options

What isC-PACE?