C-PACE Financing Grows as Banks Warm Up, Regulations Improve
Anne Hill is Senior Vice President of Coral Gables, Florida-based Bayview PACE, a subsidiary of Bayview Asset Management.
It’s been a good year for Commercial Property-Assessed Clean Energy finance. C-PACE lending volume has jumped from $1.2 billion in 2022 to a record $2.5 billion last year, according to just-released numbers from the C-PACE Alliance.
There’s a lot behind the surge, including market factors and further acceptance of this fast-growing finance option for commercial real estate. While it is gaining popularity across all commercial property-types, one of the most-favored sectors in 2024 was hotel/hospitality.
Accelerated Adoption, More Flexible Uses
State-by-state adoption of CPACE gained further momentum last year. Several new states passed C-PACE program legislation to bring the total to 40 states including Washington, D.C. And enhancements to individual programs, such as in New York City, continue to fine-tune local regulations for easier implementation.
C-PACE is also much more flexible and adaptable than in its early years, and can take a larger role in the debt-stack than many project sponsors, investors and lenders realize. For example, Bayview recently funded a multifamily property in Los Angeles where half of the debt came from C-PACE and half from traditional construction financing. That’s most common in states where resiliency and water systems are part of C-PACE programs in addition to energy features, allowing for a higher loan-to-cost and attractive weighted-average cost of capital.
More Support From Bankers
Traditional banks have grown more supportive of partnering with C-PACE to help meet client needs. One reason C-PACE is gaining bank support is that it provides a strong alternative to loan participants and syndications. There’s no intercreditor agreements required, the use of C-PACE means there are more deposits for the bank, and use of C-PACE enables the borrower to package a larger funding package versus having to arrange multiple lending partners or syndication.
C-PACE is also a non-recourse financing that cannot be accelerated, so it preserves the bank’s lead position in the event of loan defaults. Pricing for PACE financing has fallen significantly and is in line, if not cheaper than, typical construction financing.
For deals that face tight conditions, C-PACE can fill gaps in the capital stack to get things back on track, keeping bank customers happy.
Combination Deals
Another recent development in C-PACE is combination-financing, where the PACE lender provides both the C-PACE and construction project financing. Since helping pioneer the concept by using PACE with in-house Bayview financing, we’ve closed about half a dozen such deals and issued several hundred million dollars of combined term sheets.
New York City Program Fully Viable
A major move forward for the important New York City property market was announced in 2024: C-PACE program guidelines now make virtually all commercial real estate eligible. What’s more, code requirements that previously limited application of C-PACE were expanded, so C-PACE can effectively be utilized for between 20-25 percent of total project financing, depending on the building’s needs.
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)
