7 C-PACE Financing Myths Debunked

1. It’s just a loan

One common misunderstanding is that CPACE financing is a traditional loan. In reality, it is not a loan but a financing mechanism that places a voluntary special assessment on the property owner’s tax bill.

2. It’s the same as PACE

People sometimes confuse CPACE with residential PACE programs. CPACE is specifically designed for commercial properties, while residential PACE programs are for homeowners. The eligibility criteria, financing terms, and program details can differ significantly.

3. Risk to the property owner

Some property owners fear that C-PACE may put their property at risk or impact their credit rating. In reality, C-PACE assessments stay with the property, so if the property changes ownership, the new owner assumes the responsibility for the remaining assessments. There is no impact on the owner’s credit.

4. Higher interest rates 

C-PACE financing can sometimes have high interest rates. The typical interest rate for C-PACE is 5.75–6.25%, 300–400 basis points less than the rate for private equity hurdles or mezzanine/gap financing.  The expenses related to C-PACE transactions are similar to those of traditional real estate lending programs.

While the interest rates may be higher than traditional bank loans, the long-term benefits in terms of energy savings often outweigh the higher cost. 

5. Limited eligibility and complex application process

Some property owners may mistakenly believe C-PACE is only available to large commercial properties or specific buildings. Eligibility can vary by state, but many commercial properties, including retail, industrial, office, and more, can qualify.

It’s sometimes thought that applying for C-PACE financing takes time and effort. While there is an application process, it’s not necessarily more complicated than traditional financing. It can often be streamlined with the help of experienced C-PACE providers.

6. C-PACE contradicts the collateral position of a senior lender.

The real estate tax special assessment, C-PACE, does not increase in value. Like real estate taxes, C-PACE does not increase in value if payments are not made.  The only percentage of the C-PACE loan that is past due needs to be paid. The assessment delinquency is resolved as soon as that payment is made.  Suppose a senior lender needs to offer a protective advance to cure the real estate tax delinquent, including PACE. In that case, it can quantify its incremental exposure by underwriting the yearly PACE assessment. 

A secured lender’s remedies and foreclosure rights are unaffected by C-PACE financing. Even if it is the only lienholder, the lender can still foreclose on its mortgage interest in the property. The senior lender’s foreclosure cannot be stopped, restricted, or affected in any other way by the C-PACE provider. As it could ordinarily be for property tax and insurance, a senior lender may request a monthly escrow of the yearly C-PACE assessment requirement as an extra risk mitigant.

7. Before the repair is finished, owners pay interest on C-PACE assessments, reducing cash flow.

C-PACE monies are sent to an escrow account after closing, from which they can be withdrawn as long as qualifying expenses are paid. PLG can assist in lowering payments by capitalizing one to three years’ worth of payments, stabilizing the project, and preventing debt from rising. Enhancements funded by C-PACE often lower risk and raise the collateral value for the senior lender. For C-PACE projects, an energy audit must be finished to verify that the project has a savings-to-investment ratio that lowers running expenses, raises net operating income, and increases property valuation.