What Is C-PACE Financing and How Does It Work?

Commercial Property Assessed Clean Energy (C-PACE) financing is a unique mechanism designed to facilitate energy efficiency, renewable energy, and other eligible improvements in commercial properties. It offers a structured approach to funding building upgrades, promoting sustainability within the commercial real estate sector.

Understanding C-PACE

C-PACE is a program established by state and local governments, enabling property owners to finance qualifying improvements through a voluntary assessment on their property tax bill. This differs from a traditional loan because the obligation is tied to the property itself, rather than the individual or company that owns it. This characteristic means the financing can transfer with the property upon sale, ensuring the repayment responsibility shifts to the new owner.

The nature of C-PACE financing is non-recourse, which protects borrowers from personal liability, as the security rests solely with the property and its special assessment. Repayment terms are typically long, often extending up to 20-30 years, aligning with the useful life of the installed improvements. These extended terms, coupled with competitive fixed interest rates, differentiate C-PACE from conventional financing options.

How C-PACE Financing Operates

The operational mechanics of C-PACE financing involve a special assessment levied on the property’s tax bill, similar to other property taxes. This assessment is typically collected by the local government, which then remits the payments to the C-PACE capital provider. This structure provides a high level of security for the financing, making it attractive to private lenders.

A significant aspect of C-PACE is that the assessment remains with the property even if it is sold. This means the obligation is transferred to the new owner, rather than being a personal debt of the original property owner. This “runs with the land” feature ensures continuity of repayment and encourages long-term investments in property upgrades, as the benefits and costs are shared over the property’s lifespan and across ownership changes. The non-accelerating nature of C-PACE means that in the event of a default, only the delinquent payments can be collected, not the entire outstanding balance.

Qualifying Properties and Improvements

C-PACE financing is generally available for a broad range of property types, including commercial, industrial, agricultural, and multi-family residential properties with five or more units.

Eligible improvements for C-PACE financing primarily focus on energy efficiency, renewable energy, water conservation, and resiliency measures. Common energy efficiency upgrades include improvements to HVAC systems, LED lighting conversions, enhanced insulation, and updated windows. Renewable energy installations, such as solar panels and geothermal systems, are also frequently financed. Additionally, water conservation measures like low-flow fixtures and efficient irrigation systems, along with resiliency projects such as seismic retrofits and storm hardening, are often eligible. Specific eligibility criteria can vary by state and local program, with some programs requiring that improvements be permanently affixed to the property and have a useful life of at least 10 years.

Accessing C-PACE Financing

Securing C-PACE financing begins with identifying a project and assessing its potential for energy savings or other eligible benefits. Property owners typically engage with a C-PACE program administrator or a capital provider early in this process.

The program administrator oversees the application process and ensures compliance with program guidelines, while capital providers offer the actual financing. A comprehensive energy audit or engineering review is a standard requirement to quantify projected savings and confirm the project’s eligibility. This audit helps determine the “Savings-to-Investment Ratio” (SIR), which often must exceed one, indicating that the lifetime savings from the improvements will outweigh the total investment.

The application process involves submitting detailed documentation, which typically includes property information, project plans, contractor bids, and the results of the energy audit. Once the application is submitted, the program administrator reviews it for completeness and compliance. Underwriting is performed by the capital provider to determine the financing terms, which can include interest rates and fees.

After approval, the financing agreement is signed, and a special assessment is recorded against the property. Funds are then disbursed, often in stages during construction, or at closing for refinance projects. The entire closing process typically averages between 60 to 120 days.