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6 Reasons Why Senior Lenders Should Consent to C-PACE Financing 

Pexels/Andrea Piacquadio

In today’s tight capital environment, property owners are increasingly turning to alternative financing sources to fund new construction projects or refinance existing buildings. Commercial Property Assessed Clean Energy, or C-PACE financing, is a relatively untapped solution that can replace more expensive forms of debt and help reduce the weighted average cost of capital. 

Rising demand for alternative debt means it is more critical than ever for senior lenders to embrace C-PACE. Due to lien priority, C-PACE programs require the consent of mortgage holders prior to an assessment being levied against the property.  

Reasons why a mortgage holder should agree to C-PACE within a project’s capital stack include:  

  1. Non-Accelerating: C-PACE loans are non-recourse, and in the rare event of a default, only the past-due amount is owed. C-PACE assessment payments that are not yet levied can never accelerate. 
  1. Increased Value of Lender Collateral: C-PACE projects help fund high-performing buildings, thereby reducing operating expenses and boosting a property’s NOI. 
  1. Cash-Flow Positive: Savings achieved by the financed improvements typically outweigh the cost of the improvements themselves. Those savings can then be used to pay down debt on the improvements, often creating a cash-flow positive project. 
  1. Protected Foreclosure Rights: C-PACE does not require an intercreditor agreement with a senior lender. The mortgage holder can foreclose on its interest in a property in the same manner as if it was the sole lienholder on the property. 
  1. Mitigated Risk: Senior lenders may escrow the C-PACE assessments in the same manner as property tax and insurance escrow requirements. This mitigates risk associated with failure to pay the assessment once due. 
  1. Win More Deals: C-PACE provides more financing options for new or existing customers, which is especially valuable in a tight debt environment. 

Today, more than 250 banks nationwide have consented to the program, and that number is expected to grow as more mortgage holders realize the tool’s inherent value. For more information on becoming a consenting mortgage lender, schedule a meeting with Lone Star PACE. 

Sources: C-PACE Alliance, Nuveen Green Capital, BankDirector