Why More Banks Are Teaming With C-PACE
Commercial Property-Assessed Clean Energy has emerged as a key complementary financing tool for multifamily projects.
With traditional lending sources pulling back amid interest rate uncertainty, multifamily and senior housing owners and developers face funding challenges that have made Commercial Property-Assessed Clean Energy a strong alternative.
And while many banks have stepped up in signing off on C-PACE loans, some remain reticent when a deal comes forward, or is brought to them by a client-borrower. For borrowers with projects in the 40 states where C-PACE is approved, this innovative financing tool is emerging as a lifeline amid difficult finance conditions. C-PACE offers a proven alternative that funds a range of building improvements, at a cost well below typical mezzanine debt. Most any new multifamily project built to modern energy codes or any major renovation will qualify for C-PACE, and gives owners another option in replacing subordinate loans with a more effective solution.
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There are a number of features and benefits to C-PACE from a bank’s perspective, and for its client-borrowers:
- C-PACE is becoming more commonplace. Just as CMBS was once a “new” financing tool, C-PACE has now passed over $10 billion in total transactions across virtually every commercial real estate product type.
- Unlike other complementary or joint-financing options, C-PACE does not require inter-creditor agreements. That makes administration for banks more manageable.
- More administrative upsides: C-PACE loans can transfer upon sale of a property or be prepaid at any time.
- C-PACE is nonrecourse financing that cannot be accelerated, preserving the bank’s lead position in the event of loan defaults.
- To reduce other concerns, escrowing of PACE payments is recommended alongside escrow for insurance and taxes. This helps ensure that the PACE stays current and security position is maintained.
- A bank’s clients sometimes face funding gaps when a project gets underway but costs or other issues have stretched the original budget. C-PACE can fill those gaps to get things back on track. And it can help the bank maintain a healthy deposit-to-loan balance.
- Timing is flexible, too. C-PACE can be put to work at any time, from new construction to retroactive financing, up to three years after completion in many jurisdictions.
Just another tool in financing toolkits
C-PACE has grown in acceptance among hundreds of banks and borrowers, and deal sizes continue to grow as well. The typical seven-figure PACE loans for commercial real estate now often exceed $100 million, complementing banks and other lenders in the capital stack. For owners, developers and bankers, C-PACE can be the difference in getting projects large and small moving forward.
