The past couple of years have been challenging for borrowers in the commercial real estate lending environment. However, one bright spot that has emerged is C-PACE (Commercial Property Assessed Clean Energy) financing. In 2024, there has been a significant increase in awareness and lending volume for C-PACE. Connect CRE spoke with Ina Montejo from PACE Loan Group to learn more about how this type of financing works and why it’s gaining popularity.
Q: How have borrowers’ understanding and awareness of PACE financing changed since you started originating these loans?
A: There has been a significant growth in interest from borrowers, brokers, and lenders when it comes to C-PACE financing. While education on its intricacies is still crucial, many are recognizing the benefits it offers as a solution for various challenges within their capital stack – such as reducing costs or refinancing maturing debt.
Not only are more borrowers interested in this type of funding but also an increasing number of states are revising or adopting legislation related to C-PACE programs. This year alone, nearly twelve states/counties have either expanded or adopted their own program with expectations that this trend will continue annually.
Q: What advantages does PACE offer compared to other loan products when closing deals?
A: One advantage is that PACE provides non-recourse long-term fixed-rate funding secured by special assessments on the property – up to 35% based on stabilized value projections.
It stands out because unlike traditional loans which require regular payments plus interest over time; instead self-amortizes down until reaching $0 at maturity without any risk associated with fluctuating rates nor prepayment penalties beyond certain limits set forth by each state’s statute(s). Its extended term allows flexibility whether keeping assessment intact upon sale/stabilization vs paying off early like construction debt hedging options provide too!
Retroactive provisions allow recapture up-to three years depending upon locale making it a useful tool for refinancing maturing loans. For instance, borrowers can use PACE proceeds to pay down existing lenders and replenish interest reserves while negotiating loan modifications.
Q: What types of borrower situations do you typically encounter or are there various scenarios that the PACE Loan Group team handles?
A: Currently, most borrowers are using C-PACE to reduce costs by blending capital sources, refinance maturing debt or replace traditional A-notes.
Even with recent rate cuts in place; C-PACE remains an effective solution reducing cost of capital as well as replacing dollars otherwise provided solely by debt funds/pref equity/etcetera.
C-PACE also supplements mortgage financing acting as participant/A-Note making mortgage terms more competitive. As example if lender’s credit criteria allows funding at 70% LTC but has credit check limit effectively limiting them to 40% LTC – then PACE fills gap and acts their participant!
As mentioned earlier retroactive provisions allow banks/debt funds utilize recapture up-to three years after improvements completed within lookback period too!
Q: In 2024, C-PAC
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