Commercial Property Assessed Clean Energy Financing: C-PACE Structure, Documentation, and Project Approval

Description

C-PACE financing is one of the fastest-growing sources of capital for new construction, retrofit, and renovation projects throughout the country. C-PACE programs allow for long-term, fixed-rate financing of energy efficiency, renewable energy, and water conservation components of real estate projects, repaid through property tax assessments. It often replaces more expensive pieces of the construction capital stack, like mezzanine debt or preferred equity. But there are structuring and approval issues to consider first.

C-PACE financing has a unique lien position. It becomes part of the property tax bill, but in the event of a default in the payment of a C-PACE assessment obligation, only the past due portion of the C-PACE financing is senior to a mortgage lender's claim. A senior lender can foreclose on its mortgage interest in the property in the event of a default on the senior lender's debt in the same manner as if it was the sole lienholder. There is no intercreditor agreement, so the C-PACE lender does not have any right to prevent or impact the senior lender's foreclosure.

Currently, over 35 states have passed legislation enabling C-PACE financing and establishing decisionmaking bodies at the state and/or local level. In some states, a threshold requirement is that an environmental consultant determines that the operational savings achieved by the financed improvements over the term must outweigh the cost of the improvements. Depending on the jurisdiction and type of energy-efficient improvements installed, C-PACE projects increase a property's net operating income and valuation.

Listen as our authoritative panel examines the approval framework for C-PACE financing, and the structuring and documentation of C-PACE transactions.