The much-discussed wall of maturing loans is closing in, expanding the pool of borrowers looking to refinance and paving the way for a potential boost in demand for C-PACE financing.
A new report by Moody’s found that a growing segment of commercial real estate loans have been modified as borrowers grapple with interest rate cuts that are coming in lower and slower than expected. The continued elevated cost of debt has led many to work with lenders to extend the terms of their loans.
Once those extensions are up, many borrowers with maturing loans will likely attempt to recapitalize. Alternative financing sources like Commercial Property Assessed Clean Energy will be an attractive option for property owners who need to fill the gap left behind by senior lenders.
C-PACE is fixed-rate financing that can fund up to 25% of the capital stack and is cheaper than mezzanine debt or preferred equity. Rates typically align with senior debt, falling around 10-year treasuries plus 3%.
Unlike short-term debt fund capital, C-PACE amortizes over a period of 20-30 years, and in some cases the savings realized from sustainable upgrades outpace the annual payments themselves. The financing can also be used to recapitalize projects that were completed up to two years prior and exceed local code.
The disruption in the marketplace has been a tailwind for C-PACE, and demand isn’t expected to wane as interest rates come down. The last few years have been monumental in proving C-PACE as a legitimate funding mechanism, with more than 300 major financial institutions consenting to the product and thousands of developers adding it to their capital stack.
Furthermore, the groundswell of commitment to corporate sustainability will sustain C-PACE demand for the long-term, as it provides property owners with an inexpensive and simple way to incorporate energy and water-efficient upgrades.
For more information on the benefits C-PACE brings to the capital stack, schedule a meeting with our team today.