What Is the C-PACE Loan Program?

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The commercial property-assessed clean energy (C-PACE) loan program is available to building owners who want to borrow money for energy efficiency, renewable energy, or other green projects.

This financing can help make your real estate much more valuable by implementing new designs that lower energy costs and make your property more attractive to potential tenants or buyers. It offers several benefits to owners who qualify for the program.

How Does the C-PACE Loan Program Work?

Only projects in locations with approved C-PACE programs are eligible for C-PACE financing. Any state or jurisdiction that has enabled PACE legislation may allow these types of loans. A quick check through the PACENation database can help you determine whether your jurisdiction provides C-PACE access.

Beginning the loan process involves first finding a PACE administrator. This individual or entity will manage the project and ensure adherence to program requirements.

The building owner will set out the improvements to the property they wish to make, and the PACE administrator will ensure that the changes to be made align with the program requirements.

Once the PACE administrator approves the project, the building owner can seek out funding through qualified loan providers in the C-PACE program. Providers will vary depending on the building’s location.

Some funding may come from various private financiers, while a single selected public or private financier that the PACE program has selected may handle other loans.

Repayment occurs by assessing the building owner’s property tax bill over 10 to 20 years. The originator may also place PACE liens on the property. The lien will be senior to most other types of debt, encouraging lenders to provide more funding for longer periods.

Should the building sell during the PACE repayment period, the lien securing the property becomes the new owner’s responsibility unless paid off before the transfer of title.

What Are the Advantages of C-PACE Loan Programs?

There are numerous advantages to obtaining a C-PACE loan. For starters, you’re engaging in a property improvement that can lead to a reduced carbon footprint and less reliance on outside energy sources for fuel.

You’ll also likely reduce the utility expenses associated with the property. In some cases, the reduction can cover the loan’s interest cost. Financial incentives obtained through the C-PACE loan program include:

Enhanced Cash Flows

Using a C-PACE loan can allow building owners to cover 100% of their project cost with long 10 to 20-year terms. Most lenders require shorter lending periods for commercial buildings, so this is a highly attractive option. In addition, annual payments may be less than the savings incurred by using the new improvements to the building.

Favorable Repayment Terms

Since the loan is repaid through the building’s assessed property value using the property tax bill, lenders have a greater level of security. This security allows them to offer lower interest rates and longer payment terms.

The program will cover the loan they provide through a lien on the building, which means the lender has collateral in the entire property.

Transferability of the Loan

If the building owner decides to sell the property, the loan goes with the building. It’s decoupled from the owner or their credit. This isolation is quite attractive to owners who may seek to improve the value of their property through energy-efficient projects and who want to sell it at an increased profit.

They won’t need to repay the loan with the sale proceeds, and the new owner will continue to pay the loan balance through the property tax assessments.

What Are the Disadvantages of a C-PACE Loan?

While there are several advantages to obtaining a C-PACE loan, a few drawbacks are also worth considering. These can include any of the below:

Limited Availability

The C-PACE loan program is only available to those states and jurisdictions that have passed PACE legislation.

Currently, owners can obtain it in 32 states and the District of Columbia. Those who seek to obtain a C-PACE loan must ensure that they adhere to the program’s guidelines before their loan is approved.

Mortgage Lender Approval Required

If the building has a current mortgage lender, the lender must consent to C-PACE before the loan can move forward. This approval can be a time-consuming and burdensome process.

Since a C-PACE loan will allow a lien on the building, mortgage lenders may object since it could hinder their ability to claim the building in the event of loan default.

Are You Searching for a Commercial Property Loan?

If you own a commercial building (or seek to purchase one) and need financing, consider Finance Lobby. Our platform matches investors and lenders according to the borrowing terms they require.

Learn more about how Finance Lobby can help you in your next building investment today. We’re here to help make financing your next big project a simple and enjoyable endeavor.

April 10, 2022

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