Similar to economic development tools designed to finance public improvements (PIDs, TIFs, MUDs), Commercial Property Assessed Clean Energy (C-PACE) is a new financing mechanism designed to fund capital-intensive efficiency improvements for privately-owned commercial real estate.
C-PACE promotes sustainable developments and efficiency upgrades while also providing a cost-effective source of capital that can, in practice, drive cash flow and increase the value of the underlying property.
How It Works
Like many public finance mechanisms, C-PACE financing is repaid via a special tax assessment on the property’s tax bill. C-PACE assessments, however, are 100% privately funded – no public or taxpayer money is involved.
In keeping with industry best practices, Petros will obtain written consent from all lenders with a secured interest in the property. Mortgage lenders’ acknowledgment and consent will include a description of the C-PACE financing and a certification from the mortgage lender that the financing does not create an event of default under the terms of the mortgage.
C-PACE Benefits for Lenders
In addition to improving collateral values and NOI, C-PACE financing has no acceleration rights or recourse to owners after development and the tax lien is limited to unpaid assessments only. These and other reasons are why more than 170 lenders and counting have consented to C-PACE.
Other Benefits of C-PACE for Lenders
- Retrofit projects improve collateral value by addressing deferred maintenance, upgrading critical building components and reducing ongoing utility bills
- Utility cost savings generated by retrofit projects often outweigh the special tax assessment, resulting in increased NOI, property value and debt service coverage ratios
- C-PACE assessments have the same security position as other property taxes, allowing mortgage lenders to maintain their first lien position
- C-PACE assessments cannot accelerate under any circumstance
- C-PACE tax lien amounts are limited to the amount of any unpaid tax assessment, not the full principal balance of the C-PACE assessment; the annual assessment is typically 1-3% of stabilized property value
- C-PACE assessments have no impact to mortgage lender’s rights, remedies, ability to foreclosure, or cure and the C-PACE lender does not have a right to vote on a plan of reorganization in a borrower bankruptcy
- Lower capital costs and reduced operational expenses provide borrowers additional cash flow, improving their ability to service debt
- Only C-PACE payments in arrears are subject to tax authority collection process
- Senior lenders may elect to escrow C-PACE tax assessment payments
- For construction and rehab projects, C-PACE interest during the construction period is fully capitalized in the assessment amount
- C-PACE proceeds are funded into an escrow account at closing and are fully available for the borrower to draw as costs are incurred in the construction of the C-PACE eligible improvements
Ready to learn more about how C-PACE financing compliments a mortgage?