Why Should CRE Companies Take C-PACE Lenders?

Why should companies hire C-PACE lenders? Read below to know the reasons to go for C-PACE financing over CRE financing.

PACE is a financing tool that was first launched approximately a decade ago that enables owners and developers of residential and commercial property to receive low-cost, long-term finance for energy efficiency, renewable energy, and water conservation projects.

Without the use of C-PACE funding, work on the building would not have been able to provide outdoor terraces, a dining hall, a conference center, a fitness facility, a lounge, and bike storage. It was a terrific illustration of how C-PACE is one of the greatest methods for real estate owners to obtain affordable financing in order to close gaps in their capital stack or lower the cost of more expensive kinds of gap financing.

C-PACE lenders act in a more collaborative capacity than regular lenders because the initiative is so new. They assist borrowers as they navigate the C-PACE process, determining which improvements are eligible, offering the technical support required to underwrite the anticipated energy savings, and serving as a point of contact between the property owner and the regional C-PACE authority.

In fact, there aren't many reasons to leave this sort of financing off your list for commercial real estate borrowers where C-PACE is offered. C-PACE financing might potentially replace other forms of funding, most notably mezzanine, CRE financing, or even "stretch senior" debt because its terms are so advantageous. Leveraging C-PACE has the additional benefit of enabling developers to "do well by doing well" in addition to addressing the gap in a development's capital stack.

The initiative was already established by elected authorities to assist in achieving carbon reduction goals. Therefore, in order to avoid severe penalties, developers should pursue funding.

From the standpoint of the borrower, C-PACE financing is preferable to other types of financing for a number of reasons. One benefit is that it enables a property owner to borrow all of the physical and soft expenditures associated with making green renovations. Because C-PACE is set up similarly to a property tax, it is not dependent on the sponsor's credit and is only based on the asset's value and energy improvements, therefore neither corporate nor individual guarantees are necessary.

The C-PACE financing is fixed-rate, completely amortized throughout the improvements' useful lives, which are generally 20 to 30 years, and paid in a tax bill. It won't need to be refinanced after a few years, in contrast to other types of construction financing. In a market where interest rates are becoming more variable, C-fixed-rate PACE's structure has grown even more alluring.

In the past, several lenders resisted approving funding that came before their first-mortgage position. However, the financial benefits are so significant that an increasing number of lenders are at ease with it. Mortgage lenders that refuse to incorporate C-PACE loans into their capital stacks will find themselves at a clear competitive disadvantage as C-PACE financing becomes more established in the market.

Clearly, the loan benefits the C-PACE lender. Many lenders are now waiting to be licensed to originate C-PACE loans even though interest rates are not exorbitant and risk is quite low.

There is no question that this kind of financing will continue to expand quickly given how appealing it is to borrowers. And it would be negligent for any building owner who is now planning a refit and repositioning program for their buildings to ignore C-PACE financing as a component of their capital stack.