C-PACE Financing: Alternative Financing in a Challenging Market

Commercial Property Assessed Clean Energy (C-PACE) financing is a specialized form of financing, which enables commercial real property owners to fund energy-efficient improvements, renewable energy improvements, and other qualifying improvements for renovations or ground up projects. It enables commercial real property owners to repay the financing for these improvements over an extended period through a voluntary assessment on their real property tax bill. Below is a brief overview of C-PACE financing.

History of C-PACE Financing

C-PACE financing originated as a local program in Berkeley, California in 2008 and has since gained traction across the United States. C-PACE programs are adopted at the state level through state legislation. Today, most states around the country, including Florida, Pennsylvania, New York, New Jersey, Maryland, Virginia, and Washington D.C., have passed statutes enabling their own C-PACE programs.

Uses for C-PACE Financing

Commercial property owners can use C-PACE financing for a wide array of qualifying improvements, which vary from state to state. For example, “qualifying improvements,” as they are known in Florida’s C-PACE statute, include energy conservation and efficiency improvements, renewable energy improvements, and wind resistance improvements. See § 163.08, Fla. Stat. These categories encompass improvements ranging from energy-efficient HVAC systems and electric vehicle charging equipment to new windows and roof reinforcements. Similarly, and as another example, “qualifying projects,” as they are known in Pennsylvania’s C-PACE statute, include clean energy, water conservation, and alternative energy projects. Such projects range from building retrofits that meet high-performance building standards to the installation of solar thermal equipment. 12 Pa. Cons. Stat. § 4302. While C-PACE programs in different states often overlap in their scope and criteria, it is important to review each state’s C-PACE program to determine which improvements and projects qualify for C-PACE financing. In the majority of states with C-PACE programs, the breadth of qualifying improvements means that most projects will include components that can be financed with a C-PACE loan. In addition, C-PACE financing programs include a lookback period of up to 3 years, which means C-PACE loans can be used to finance projects that are already complete.

How C-PACE Financing is Secured

C-PACE loans are secured by a lien on the property that functions similarly to a lien for property taxes or assessments. The property owner pays the C-PACE loan by paying assessments on its property tax bill. Like a property tax lien and unlike traditional mortgages, C-PACE loans do not accelerate when the property is sold. Instead, the repayment obligation passes to the subsequent owner.

Advantages of C-PACE Financing

C-PACE financing offers several advantages, including:

• Repayment terms of up to 30 years (varies with each state), resulting in lower payments and improved cash flow for the borrower.
• Energy cost savings generated by the improvements can help offset the loan repayment.
• Up to a 3-year lookback period (varies with each state) to finance completed qualifying improvements.
• The ability to transfer the loan to the new property owner upon sale without approval from the C-PACE lender or acceleration of the loan.

C-PACE financing provides commercial real property owners with a valuable and innovative tool for funding sustainable improvements and reducing energy consumption, while offering another financing option to add to the capital stack.