C-PACE: A bank’s low-risk, passive partner in the cap stack

While the Federal Reserve has started issuing rate cuts, rates still aren’t where they used to be, which means that some banks are still holding back on lending. Tightened credit limits reduce a bank’s competitive advantage in the current mortgage lending environment, especially when owners and developers are looking to simplify their capital stacks and can’t fill out their mortgage debt with one provider.

C-PACE financing, which is long-term, fixed-rate, non-recourse financing, can act as a participant or A-Note, filling in the financing gap when a bank’s credit envelope restricts their lending limit. The bank’s last dollar of exposure would not change in this scenario, as they would still dictate the terms of the maximum Loan to Cost (LTC) / Loan to Value (LTV).

See below for a sample scenario:

Another scenario in which C-PACE can work alongside banks in today’s market is through Retroactive C-PACE. Retroactive PACE can refinance eligible improvements previously completed in the last one to three years, infusing vital liquidity into projects to pay down mortgage loans, fund operating reserves, and, in some cases, repatriate equity. The use of PACE funds is negotiated between the mortgage lender, C-PACE lender, and the owner, and the mortgage lender always has to consent to PACE, so the bank maintains control when working with this creative financing tool.

With these scenarios in mind, banks consent to C-PACE to:

• Reduce mortgage lender exposure to certain deals

• Increased mortgage lender deal capacity

• Eliminate need for a participant bank

• Pay down/pay off existing construction loans