Introduction to C-PACE Financing: Overview and Basics

Commercial Property Assessed Clean Energy (C-PACE) is an innovative financing mechanism that helps commercial, industrial, and multifamily property owners access long-term funding for energy efficiency, renewable energy, and water conservation projects. C-PACE financing is designed to support sustainability initiatives by allowing property improvements that reduce energy consumption and environmental impact, which in turn can significantly enhance property values and reduce operational costs.

What is C-PACE Financing?

C-PACE financing allows property owners to finance qualifying projects through a voluntary property tax assessment. This unique aspect of C-PACE financing ensures that the loan is attached to the property rather than the owner, which simplifies the transfer of repayment obligations if the property is sold. The duration of C-PACE loans can extend to the expected life of the improvement, often up to 20 or 30 years, which can make the annual savings on energy and water costs exceed the amount of the repayment*.

Key Benefits of C-PACE

1. Long-term Financing: C-PACE financing terms match the useful life of the improvements, which can be up to 20 or 30 years, thereby lowering annual payments and making projects immediately cash flow positive.

2. Transferable Loan: Since the loan is tied to the property tax bill, it transfers automatically to the next owner if the property is sold. This feature is particularly attractive as it reduces risk for the original owner while ensuring the sustainability benefits continue.

3. No Upfront Costs: In many cases, 100% of project costs, including soft costs, can be financed with no out-of-pocket expenses, allowing significant improvements without initial investment.

4. Potential Increase in Property Value: Investments in energy efficiency and renewable energy can increase property values, making C-PACE a lucrative option for property owners looking to enhance their assets.

5. Off-balance Sheet Financing: For some businesses, C-PACE loans can be treated as off-balance sheet financing, which may be advantageous from a financial reporting perspective.

How Does C-PACE Work?

The process typically involves an assessment of the property to determine eligible improvements, followed by project approval from a local C-PACE program. The financing is provided by private capital providers and repaid as an assessment on the property's tax bill. The assessment is fixed-rate and long-term, which provides security and predictability for both the property owner and the capital provider.

Eligible Projects

Eligible projects for C-PACE financing can vary by state and local program but generally include:

• Energy efficiency upgrades: HVAC systems, lighting, insulation, and more.

• Renewable energy installations: Solar panels, wind turbines, geothermal energy systems.

• Water conservation measures: Low-flow fixtures, irrigation systems, water-efficient landscaping.

• Resiliency improvements: Enhancements that help buildings withstand natural disasters, such as reinforced roofing or seismic retrofits.

Challenges and Considerations

While C-PACE offers numerous benefits, there are challenges and considerations that must be addressed:

• Mortgage Lender Consent: Property owners typically need consent from their mortgage lenders to take on C-PACE financing, as it creates a senior lien on the property tax bill.

• Regulatory Landscape: The regulatory environment for C-PACE is evolving, with different states and localities having distinct rules and eligibility criteria that must be navigated carefully.

Conclusion

C-PACE financing represents a significant opportunity for commercial property owners to invest in their properties without the financial burden typically associated with large-scale improvements. By providing access to long-term, low-cost capital, C-PACE enables property owners to reduce operational costs, increase property values, and contribute to environmental sustainability.

*For further details on the mechanisms and impacts of C-PACE financing, refer to PACENation, an industry-leading resource offering comprehensive information and updates on state-specific C-PACE programs and policies.