C-PACE Funding | Axcel Capital

Now Available in Pennsylvania!

C-PACE – An Attractive Financing Tool Promoting Energy Efficiency in CRE

What is C-PACE?

Commercial Property Assessed Clean Energy (C-PACE) is long-term financing that is secured by a voluntary parcel tax assessment. C-PACE funds can take the place of expensive JV Equity or Mezzanine financing, keeping overall carrying costs down. In addition, it provides 100% financing for the costs covered, is transferable in a sale and is non-recourse to the Sponsor!

Available in more than thirty states, including Pennsylvania, Delaware, New York and Florida, C-PACE is designed to help property owners finance new construction and property upgrades that improve the efficiency of buildings, reducing operating expenses and the property’s carbon footprint. C-PACE can be used in both new construction and rehab projects.

Proceeds from C-PACE financing can be utilized to finance infrastructure or property-level improvements which are permanently affixed to real property. Eligible items include efficiency measures (HVAC, LEDs, windows, water, and other energy efficiency items), renewable (solar), resiliency (seismic, flood, storm strengthening).

In some jurisdictions, an owner may seek reimbursement for qualified capital expenses.

How Do Owners Utilize C-PACE?

C-PACE provides property owners with a way to finance qualified capital improvements with an amortized payment matched to the useful life of the improvements. Design and engineering costs can also be included in the financed amount.

For property owners looking to complete energy efficiency improvements (or upgrades), the C-PACE assessment can provide for a direct increase in NOI via system upgrades that reduce utility and other operating expenses by an amount greater than the property tax increase attributable to the C-PACE payment.

Additionally, property owners are able to take advantage of accelerated depreciation and other tax benefits associated with capital upgrades.

Is C-PACE a loan?

No, C-PACE is not a loan. C-PACE is a type of financing called assessment financing which has historically been used nationwide to fund voter-approved measures, including street upgrades, school bonds, public safety improvements, and various other public infrastructure upgrades. C-PACE provides property owners with the ability to use the same mechanism, but to voluntarily upgrade their individual property.

What differentiates C-PACE from a loan?

C-PACE is non-accelerating, meaning the C-PACE capital provider can never call the unpaid balance due and payable. The property’s obligation is the current year’s assessment. C-PACE is non-recourse, with the ability to pay evaluated based on cash flow generated by a property. C-PACE provides for automatic transferability upon sale, with no additional due diligence or payoff required during a transfer of title. The assessment can also be prepaid at any time, without penalty.

Is this debt or equity?

Neither. It’s an assessment. Assessment payments are known in advance and recorded on real property records with a predetermined amortization schedule. The assessment is only an obligation in a particular given year, and can never be accelerated or called, based on any factor, including transfer of ownership or refinance of mortgage debt.

How are C-PACE assessments repaid?

For most states, C-PACE is billed as a line item on the property tax bill and is paid at the same time as property taxes.

What is needed from lenders?

If a loan is currently being underwritten, existing loan documentation would need to include language to permit the assessment financing. If a loan has already been approved, a simple, one-page acknowledgment of the financing is needed.

When underwriting loans with a C-PACE assessment in place, what happens?

Because C-PACE assessments are flat-rate, fixed-amount assessments, they can be easily incorporated into the T&I escrow process. C-PACE assessments are always recorded, so they are easily identified in title reports.

How are C-PACE funds disbursed?

Funds are disbursed according to predetermined payment schedules or progress milestones. Disbursements require appropriate documentation such as executed contracts, invoices, unconditional and conditional lien releases, payment applications and/or assignments.

How and when are C-PACE funds used?

Upon close of financing, funds are deposited into an escrow account, and requisitioned by the property owner.

How does this affect remedies under Loan Documents?

C-PACE does not affect any existing remedies under loan documents. Lenders are free to exercise any and all remedies provided for them in their existing loan documents. Additionally, most loan documents contain provisions which allow them to advance property taxes, if unpaid, and to capitalize them to the unpaid principal balance.

What types of Lenders have endorsed C-PACE Financing?

Commercial Banks, Credit Unions, SBA 504 and 7(a), Life Insurance Companies, CMBS, Secured Federal and State Historic Tax Credit Lenders, and Private Lenders.