ESG Demand Will Fuel C-PACE Financing

Commercial Property Assessed Clean Energy or C-PACE financing is positioned for massive growth, and could serve as a competitor to other financing sources like mezzanine and EB-5. The recent popularity of ESG investments as well as new adoption of the PACE program in New York City have shined a spotlight on the PACE program.

ESG interest has grown tremendously in the last 12 months, with several companies announcing new or increased sustainability targets. This trend will help boost demand and availability of C-PACE. “Capital is looking for viable ESG investments, and PACE is right down the middle of the fairway when it comes to ESG,” Thomas O’Connor, a partner at NYC real estate law firm Duval & Stachenfeld LLP, tells GlobeSt.com. “It is a sound investment; it is long-term; and it has a fixed rate. PACE financing acts like a tax assessment, and it has the same priorities as a tax assessment. In other words, the PACE payment comes before the mortgage loan payment. It makes it a very safe, sound investment. It is basically debt that gets paid before any other debt.”

Simultaneously, New York City is set to adopt the PACE program to support property owners in achieving clean energy goals in the city’s Climate Mobilization Act. “The Climate Mobilization Act is going to require any building that is 25,000 square feet or more to reduce their carbon emissions by 2024 and then every five years until carbon emissions are reduced by 80% by 2050. These are real standards that are out for 2024 and 2030. If you fail to meet those standards, there are fines,” says O’Connor.

New York City is a major hub for real estate investment, and adoption in New York City will no doubt drive growth of the PACE product. “The capital markets in the US are largely influenced by what happens in New York City,” says . O’Connor. PACE isn’t new to New York State, which adopted the program five years ago, but the New York City’s local tax authority had yet to adopt PACE until recently when it launched the Climate Mobilization Act. “That is a big factor for the growth of PACE,” adds O’Connor.

Finally, the demand for this financing has forced lenders to work with the PACE program, according to O’Connor. “In the last two years, more and more mortgage lenders have agreed to PACE. The very competition in the market will force lenders to agree to PACE loans,” he says. “I am very confident that the PACE market will continue to grow.”