Commercial Property Assessed Clean Energy Financing, or C-PACE Financing, is an innovative financing mechanism that enables commercial property owners to fund energy-efficient, renewable energy, and water conservation projects for their properties. Unlike traditional loans, repayment is made through a property tax assessment, which is typically spread out over a period of up to 30 years.
But how does this structure work, and why is it beneficial? This guide will break it down for commercial property owners, developers, and contractors looking to understand and utilize C-PACE financing for their projects.
How can C-PACE Financing be used?
C-PACE financing is designed to cover the upfront costs of improvements that enhance energy efficiency, reduce environmental impact, and increase property value. Common uses include funding for projects such as:
- Energy-efficient upgrades (e.g., HVAC systems, LED lighting, insulation)
- Renewable energy installations (e.g., solar panels, wind turbines)
- Water conservation measures (e.g., low-flow fixtures, irrigation systems)
- Building resiliency improvements (e.g., stormwater management or seismic retrofits)
The beauty of C-PACE financing is that it enables property owners to complete these valuable upgrades without requiring significant upfront capital.
Who are the main parties in a C-PACE Financing deal?
To grasp how C-PACE works, it is important to understand the following key parties involved in the structure:
- PACE Administrators: Third-party entities that oversee and ensure compliance with C-PACE program policies.
- Property Owners/Developers: These are the parties looking to make improvements to their property using C-PACE financing.
- Investors (Capital Providers): Investors or lenders that provide the upfront funding for eligible projects.
- Local Government or Municipality: The local government facilitates the legal framework for the property tax assessment repayment structure.
- Contractors and Vendors: Specialists who carry out energy-efficient upgrades or renewable energy installations funded by C-PACE.
This collaborative approach ensures transparency and benefits all parties involved, helping property owners achieve improvements while enabling investors to support eco-friendly initiatives.
What is a typical deal structure for C-PACE Financing?
A typical C-PACE financing deal begins when a property owner identifies eligible energy efficiency, renewable energy, or resiliency improvements for their commercial property. They then work with a C-PACE lender to secure financing, which is structured as a special property tax assessment and recorded against the property. The term usually ranges from 20-30 years.
Once in place, the property owner receives upfront capital from the C-PACE lender to fund the improvements. Repayment occurs through regular (typically annual or semi-annual) special assessment payments made to the tax collector, who then remits these payments to the C-PACE lender. The assessment has a senior lien position relative to existing mortgage debt and automatically transfers to any new owner if the property is sold.
The financing is designed so that energy savings from the improvements typically exceed the annual assessment payments, creating positive cash flow for the property owner. This assessment-based security structure provides unique benefits like non-recourse financing, non-acceleration of payments in default, and transferability upon property sale.
For example, a company, XYZ Inc. wants to add $500,000 worth of upgrades to their facility to make it more energy efficient. XYZ Inc. decided to fund 20% of their costs with outside equity at an 18% interest rate, raise senior debt at 8% to cover 60% of the project's costs, and apply for C-PACE financing at a lower interest rate of 7% rather than mezzanine financing at a rate of 16% to cover the remaining 20% of the project costs. By going with C-PACE financing rather than using mezzanine financing, XYZ Inc. is able to acquire the necessary funds for the project at a lower blended rate of 9.8% rather than a blended rate of 11.6%.
What is the application process for C-PACE Financing?
While processes vary by state or municipality, there are typically five main steps involved in securing C-PACE financing:
- Consultation and Eligibility Review: Connect with your local C-PACE program administrator to confirm your project qualifies for funding. Eligible projects generally focus on energy, water conservation, or resiliency.
- Project Proposal Development: Work with your contractor to define the scope of your project. This often includes cost estimation, energy modeling, and construction planning.
- Savings-to-Investment Ratio (SIR) Calculation: Energy savings from your project must outweigh the cost of financing. Programs often require a SIR higher than one. This ensures projects are financially viable and beneficial over time.
- Secure Capital: Once your project is approved, capital providers will fund the cost of the improvements upfront.
- Repayment via Property Taxes: The cost of the loan is added to your property tax bill as an assessment, meaning repayments are typically long-term and transferable to the new property owner if sold.
What are the benefits of C-PACE Financing?
1. Flexible Funding Without Upfront Costs
C-PACE allows property owners to complete energy-efficient and impactful upgrades without tying up large amounts of capital.
2. Fixed Rates
Thanks to the long repayment terms and energy cost savings, cash flow often remains positive even during the repayment period.
3. Transferable Loan
If the property is sold, the C-PACE assessment transfers to the new owner, ensuring repayment remains with the benefiting property.
4. Pre-payable Loan
Unlike traditional commercial loans that often include prepayment penalties, C-PACE financing typically allows borrowers to pay off their loans early without incurring additional fees or penalties.
5. Non-Recourse
C-PACE financing's non-recourse nature means that the loan is secured solely by the property and the special assessment, protecting borrowers from personal liability if the project encounters difficulties.
6. Non-Accelerating Loan
C-PACE financing's non-accelerating feature means that in the event of a default, only the delinquent payments can be collected, not the entire remaining loan balance.
7. Improved Property Value
Enhancements to energy efficiency and sustainability often increase property value and appeal.
8. Preferred to Senior Lenders
Senior lenders often favor C-PACE financing because it can help fund necessary building improvements that protect their collateral value, while the relatively small size of the C-PACE assessment compared to the overall property value (typically 10-20%) minimizes their risk exposure. Additionally, since C-PACE projects typically generate positive cash flow through energy savings that exceed assessment payments, this can enhance the property's net operating income and debt service coverage ratio, ultimately strengthening the senior lender's position.
What are some examples of projects that leverage C-PACE Financing?
YMCA in Connecticut
In 2015, the Meriden YMCA in Connecticut underwent an energy efficiency renovation that included the installation of a 60 kW Combined Heat and Power (CHP) system and lighting upgrades. The project was financed through C-PACE with a total cost of approximately $330,000. The improvements generate annual energy cost savings of about $34,450, while the annual C-PACE assessment payment is $27,321 over a 19-year term. This means the project creates positive cash flow from day one, with annual net savings of roughly $7,129 ($34,450 - $27,321).
Medical Office Building in Atlanta
Another successful implementation of C-PACE financing was when Peachtree Group, a prominent C-PACE lender in Atlanta, collaborated with program administrator Invest Atlanta to provide a $5 million retroactive C-PACE loan for a Class-A medical office building project near Piedmont Hospital and Shepard Center. The loan addressed construction cost overruns and funded energy-efficient improvements, including upgrades to the building envelope, windows, HVAC, lighting, and water fixtures. The loan terms were notably favorable, with a debt service coverage ratio of 5.91x in year two, a loan-to-value ratio of 10.8%, and a loan-to-cost ratio of 14.1%. This project was one of several C-PACE-financed initiatives in Atlanta, demonstrating how the program can successfully combine financial viability with sustainable development goals.
In what states is C-PACE Financing available?
As of 2024, C-PACE financing was available in approximately 38 states plus Washington DC, with active programs in around 29 of these states. The remaining states had passed enabling legislation but had not yet launched active programs. Notable states with established C-PACE programs included California, Colorado, Connecticut, Illinois, Maryland, Michigan, Minnesota, Missouri, New York, Ohio, Pennsylvania, Texas, and Virginia. Since the program's inception in 2008, C-PACE financing has facilitated over $4.5 billion in clean energy and energy efficiency investments across thousands of commercial properties. California and Connecticut have been among the most active states in terms of total financing volume.
How Ankura Can Help
Ankura’s team of experts specializes in navigating the complexities of innovative financing mechanisms like C-PACE. We provide comprehensive support to help you unlock the full potential of this program for your project. Our services include:
- Eligibility Assessment: Determining whether your project qualifies for C-PACE financing and identifying the best approach to maximize benefits.
- Financial Modeling: Developing tailored financial models to demonstrate savings-to-investment ratios and the economic impact of your upgrades.
- Application Support: Guiding you through the entire C-PACE application process, including working with program administrators and capital providers.
- Stakeholder Engagement: Facilitating communication with local governments, PACE administrators, and senior lenders to secure necessary approvals.
- End-to-End Project Management: From project scoping and contractor coordination to funding disbursement and repayment, we ensure your project runs smoothly.
With a deep understanding of the C-PACE landscape and a proven track record of success, Ankura is your trusted partner in making energy-efficient and sustainable improvements a reality. Contact us here for a free 30-minute consultation.
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© Copyright 2025. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
