How C-PACE Complements Capital Stacks for Hospitality Development

How C-PACE Complements Capital Stacks for Hospitality Developments

As financing structures become more complex and construction costs remain high, creative capital stacks are essential to getting hospitality deals across the finish line. One tool increasingly gaining traction is Commercial Property Assessed Clean Energy (C-PACE) financing – not as a standalone solution, but as a complementary layer to USDA loans, EB-5 equity or debt, and senior bank debt.

At PACE Loan Group, we’ve seen firsthand how flexible, thoughtfully structured C-PACE can unlock additional leverage, reduce equity requirements, and make projects pencil.

The Power of Leverage

On a select-service hotel development in the Midwest, C-PACE financing allowed us to increase the loan-to-cost ratio beyond what a conventional bank would support. Our 16% allocation of total capital replaced higher-cost equity and gave the sponsor room to execute without overextending investor capital on the Dual Brand Marriott in Columbus, Nebraska. Without C-PACE, the sponsor would have been limited to sub-55% loan-to-cost. For an extended-stay branded hotel property, we are under application with C-PACE allowing additional leverage to low 70% LTC.

In another project – a dual-branded hotel development in the Pacific Northwest – we partnered with USDA financing to reach 80% LTC. This site, just outside Seattle, qualified under USDA rural development guidelines, which target towns up to 50,000 people. Many of these markets might not associate “rural” with popular mountain towns, for example, but these high-tourism destinations fit the bill and offer compelling investment returns.

Aligning with EB-5

We’re also exploring deals that blend C-PACE with EB-5 capital. For a branded select-service hotel in the West Coast, EB-5 equity complements our financing. While EB-5 traditionally targets rural or high-unemployment areas, it’s increasingly being deployed in transitional urban markets as well. Combining EB-5 with C-PACE helps satisfy both job creation requirements and capital stack needs, offering a win-win for developers and investors alike.

Flexibility That Sets Us Apart

One persistent critique of C-PACE financing is its impact on future refinancing, particularly when paired with inflexible prepayment structures. We don’t disagree – many providers lock borrowers into terms that hinder long-term planning.

What sets PACE Loan Group apart is our ability to tailor terms around project needs. For example, we can align prepayment penalties with USDA milestones, making our capital stack more harmonious with government timelines. We also structure deals with capitalized interest in tranches instead of requiring it all upfront – another major pain point in the market.

Other C-PACE providers simply can’t match this flexibility. Their capital sources often lack the agility required to compete. Our structure lets us behave more like an advisor than a lender, helping borrowers navigate complexities with a custom approach.

Real-World Results

Our approach works. In previous loans like the Home2 Suites new construction projects in Vacaville or Pittsburg, California, we supported developers with bank-backed senior debt and C-PACE capital that fit seamlessly together. While these didn’t offer the lowest rate, in these cases, we provided a viable path forward when equity was tight and timing was critical.

Let’s face it: in today’s lending environment, deposit relationships still drive the best bank terms. But for developers without deep deposit relationships – or those building in unconventional markets – C-PACE can be the difference between stalling out and breaking ground.

The Bottom Line

C-PACE isn’t a silver bullet. But when used strategically alongside USDA loans, EB-5 capital, and conventional debt, it becomes a powerful tool for hospitality developers aiming to maximize leverage and minimize risk. With the right partner, C-PACE is no longer the “last money in” – it’s smart money that makes your whole capital stack work better.