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Mortgage Lenders See Opportunity in C-PACE Financing

Building owners have long understood the advantages of low-cost, long-term financing through Commercial Property Assessed Clean Energy (C-PACE).  A common question from borrowers is – but how will my senior lender look a C-PACE?  C-PACE requires written consent from all secured lenders on the property because, like other property tax assessments, the claim for current and delinquent C-PACE payments is typically on par with regular property taxes. At first glance this structure seems difficult for lenders, yet hundreds of national, regional, and local lenders have consented to C-PACE, and the industry is growing exponentially.  Demand for C-PACE has only increased in recent months as traditional lending sources have pulled back in response to Covid-19 and lenders are recognizing C-PACE as a valuable tool to capitalize new, ongoing, or recently completed construction projects.  For projects grappling with Covid’s impact, C-PACE can offer immediate liquidity that is structured to benefit both the sponsor and the senior lender, notably through senior debt service reserves or partial paydowns.

Why do senior lenders consent to C-PACE financing?

  1. C-PACE Assessments Do Not Accelerate – only current & past due C-PACE payments can be enforced through a tax lien and are senior to a mortgage lender’s claim; the full principal balance can never be called due, unlike a traditional mortgage.
  1. C-PACE Does Not Restrict a Senior Lender’s Foreclosure Rights – the senior lender can foreclose on the property in the same manner as if it were the sole financing on the property; there is no “workout” with mezzanine debt or equity providers.
  2. Escrow the C-PACE Assessments – senior lender may require borrower to escrow annual C-PACE payments on a monthly basis, similar to property tax and insurance escrows, to mitigate risk of non-payment.
  3. C-PACE Capitalized Interest – interest can be capitalized for up to 24 months (longer for select projects) to push the first payment beyond project completion or stabilization.
  4. Ample C-PACE Cure Period – mortgage lender receives notice & cure rights with ample time to bring the C-PACE current given that a tax lien foreclosure/sale typically takes 12-24+ months.
  5. C-PACE OpEx Savings May Increase Property Value – many states require that a third-party engineer verify that the monetary savings from C-PACE funded improvements exceed the cost of the financing, supporting a higher property NOI and valuation.
  6. C-PACE Wins Deals & Build Relationships – the combination of a traditional mortgage and C-PACE typically offers the lowest blended cost of capital to borrowers, allowing senior lenders to fund more projects and offer a differentiated product to the market without having to build out C-PACE expertise or compete on pricing alone.


The need for C-PACE financing is more acute than ever before in the industry’s 10-year history.  Importantly, many C-PACE programs permit “look-back” financing of eligible improvements or developments completed within the last 1-3 years.  C-PACE can offer immediate liquidity to fund cost overruns, pay down debt, and replenish operating and debt service reserves, benefitting both the borrowers and the existing lenders.  C-PACE interest can be capitalized for up to 24 months (longer for select projects), delaying any impact on debt service coverage.


A $100M hotel development is initially capitalized with $30M of equity and $70M of construction financing charging 5.5% interest-only. The project faces $5M of cost overruns and operating reserve shortfalls. The property’s projected as-stabilized value was originally $123M but has been revised downward to $107M. C-PACE can fund $21.4M (20% LTV) to cover:

  • $5.0M of cost overruns and operating reserves
  • $6.0M paydown of the senior loan
  • $7.7M of senior debt service reserves to cover 24 months
  • $2.7M of C-PACE capitalized interest reserve to cover 24 months

In this example, C-PACE brings the project back in balance and funds costs and reserves to stabilize the project.  The senior lender’s LTV based on the revised $107M valuation is 59.8%.  Had the senior lender chosen to accrue interest for two years rather than bring C-PACE into the project, its LTV based on the $107M valuation would have been significantly higher at 72.6%. Had the sponsor used “traditional” rescue capital (often 10%+ rates), they would face eroded equity, higher debt service, or both.

Many lenders structured short-term forbearance began in March and April 2020, and lenders are now facing difficult decisions around foreclosure and potential Chapter 11 bankruptcy filings by borrowers.  The C-PACE liquidity offering outlined above offers a win-win solution to lenders and borrowers to avoid costly litigation and bridge properties through near-term uncertainty.


Laura Laumont is Greenworks Lending’s Vice President of Principal Transactions. For additional questions about lender consent and C-PACE financing, email Laura at