Where C-PACE Loans Work Best

Commercial real estate owners navigating the lending landscape can tell you that there are a slew of options available from private lenders. 

But Randy Eckers, chair of Akerman’s Real Estate Finance practice, says there is one possibility that many borrowers tend to overlook—Commercial Property Assessed Clean Energy (C-PACE) loans. With these loans, property owners can make energy efficient, water conservation and renewable energy upgrades to their assets.

C-PACE financing can be a strong option for new construction and retrofits to properties completed in the past. These loans can be used for any number of property types, including multifamily, retail, hospitality and any other property that needs a boost.

“C-PACE loans can be used to finance a variety of improvements on all sorts of projects,” Eckers says. “The easiest way to think about it is that you’re financing hard and soft costs for sustainable improvements at a property.”

These owners may be looking to refinance or pay down a portion of their existing loans. Generally, these fixed-rate loans offer interest rates in the 5% to 6% range, usually lower than private equity rescue capital. Additionally, they don’t require personal guarantees.

“These loans are pretty long term,” Eckers says. “They’re designed for the term to match the useful life of the equipment that’s being installed using the C-PACE loan. So it’s a 20- to 30-year term, and it will self-amortize. It just stays on the property. So the properties are really transferable. The loans are not personal in nature to the borrower. It’s like any other assessment that is on a property.”

C-PACE loans aren’t like Paycheck Protection Program (PPP) loans, which have a finite supply of funding.

“It’s funded with private capital, but the partnership with the public relates to the ability of those lenders to place an assessment on the real property tap trackers,” Eckers says. “It’s not public money.”

C-PACE loans can finance things like LED lighting, windows, solar panels or anything that creates water conservation or seismic improvements. C-PACE loans offer a look-back period, where owners can apply them to changes made in the past few years.

“If you’re talking about a new development of a project, roughly between 20% and 40% of the hard and soft costs can be financed using the C-PACE loan,” Eckers says.

C-PACE loans fit into the capital stack like a sewer or water assessment on your property. Eckers says the program is specific to the one property that is being upgraded with sustainable improvements.

“It gets put on the tax rolls of the property and the owner of the property gets billed just like sewer assessment or a tax, but it’s two times a year,” Eckers says. “What they’re paying is essentially the debt service on that C-PACE loan.”