April 2, 2025
Is C-PACE Multifamily Borrowers’ New Ace?
Its versatility in the capital stack makes it a reliable option for owners
At a time when capital for multifamily development is still costly and sometimes hard to come by, Commercial Property Assessed Clean Energy financing offers an attractive option that suits a variety of situations.
The financing, which provides a means to capitalize energy efficiency, water conservation, resiliency and other upgrades, is being used for everything, from a fully electrified, $316 million mixed-use project in Los Angeles to roofing upgrades at senior housing communities in Northern Virginia.
Bolstered by institutional investor interest, nationwide legislative wins and ubiquitous sustainability initiatives, C-PACE financing reached a record $9.7 billion in investment in 2024, a 33 percent year-over-year increase. This figure is projected to increase, as 40 states have passed C-PACE legislation, with some states further broadening their lending terms and eligible improvements in recent months.
The key to sustaining this momentum is increasing awareness for all parties involved—from lenders to developers to lawmakers—and showcasing the vehicle as a risk-averse way to fund sustainability improvements. This is where the attention of most C-PACE lenders lies.
Checking lots of boxes
Amid the challenges of the current financing environment, C-PACE stands out by virtue of its flexibility. The funds are a breath of fresh air for forward-thinking developers, as well as owners of existing properties looking to reduce long-term operating costs.
“With traditional lenders tightening their terms and requiring higher equity contributions, C-PACE provides a cost-effective alternative,” said Laura Rappaport, co-founder & CEO of North Bridge. Currently, C-PACE loans offer interest rates ranging from 5.75 to 6.25 percent, often at 300 to 400 basis points less than the cost of private equity for comparable projects.
Multinational private equity investors are taking notice of this capital stack stability and accessibility, too. In September 2024, North Bridge closed on a $1 billion commitment from Carlyle dedicated to C-PACE loans.
Where CMBS, bridge and traditional bank construction are often interest only and amortize for terms ranging from months to several years, C-PACE lends itself to being both accessible and flexible. “The idea to incorporate a piece of the capital stack with a 30-year term as opposed to a 36-month term allows developers to hedge their payoff exposure,” said Rafi Golberstein, founder & CEO of PACE Loan Group.
Adopting this mindset, some owners and developers use C-PACE as a capital stack-saving measure. “(We’re) a kind of solution to provide fresh capital, be that to pay down or pay off expensive mezzanine debt, or come in to provide—in lieu of a capital call—additional working capital or even recapitalizations.” noted Ethan Elser, an executive vice president at PACE Equity.
Crenshaw Lofts, a 185-unit affordable development in a Los Angeles Opportunity Zone, secured $12 million in C-PACE Financing from PACE Equity. The loan supplied 12 percent of the project’s capital stack, which at the time was not covered by other equity or construction financing.
C-PACE not only fills gaps but it also punches well above its weight when it comes to servicing debt. According to Sal Tarsia, managing partner at Castle Green Finance, many energy efficiency and resilience components are already included in development budgets, both of which dovetail with “lower-cost, long-term financing and nonrecourse terms, spreading costs over a longer period of time.”
Moreover, since it’s repaid through property tax assessments, the obligations are more easily transferable to subsequent property owners or debt servicers. That feature may be particularly attractive, as $957 billion of commercial mortgages mature this year.
C-PACE is also a cost reducer within the capital stack, by virtue of its ability to blend effectively with other construction loans. According to industry sources, C-PACE can provide up to 40 percent of a stabilized property’s value, while 35 to 45 percent of construction costs end up being eligible.
Last August, a joint venture of Lendlease and Aware Super closed on $316 million in construction financing for Habitat, a mixed-use project in Culver City, Calif., with 260 multifamily units and 253,000 square feet of creative office space. Counterpointe Sustainable Real Estate provided $165 million in C-PACE financing for the project, providing debt at a considerable discount compared to conventional construction financing.
When the capital stack includes both C-PACE and a construction loan, “You can write bigger tickets because the companies clearly want the asset class,” said Eric Alini, CounterpointeSRE’s CEO.
It’s telling that financing for a single project may now eclipse the total C-PACE volume across the country only a decade ago. “Based on the fact that a lot of institutional players are entering the market, we see larger and larger projects,” observed Mansoor Ghori, CEO of Petros PACE Finance.
Legislative Love
The elevated demand and increasingly favorable terms for C-PACE are no accident. State and local legislators have played a significant role in expanding the financing tool’s uses. In the last year alone, the funding become available in four new states: North Carolina, New Jersey, Idaho and Hawaii.
C-PACE terms also now lend themselves to more flexibility. This year, Texas legislators increased loan-to-value caps 5 percent, raising the amounts available to developers and property owners. In March 2024, Minnesota, one of the first states to authorize C-PACE, approved a 30 percent loan-to-value ratio for 30 years.
The pool of eligible items has deepened, as well. California, New York, Oklahoma, Tennessee and Washington all allow financing for resilience measures including seismic, wind, stormwater and fire prevention and mitigation.
Ethan Elser, executive vice president at PACE Equity, chalks many of these measures up to increasingly stringent building codes, such as New York City’s Local Law 97, which requires buildings larger than 25,000 square feet to cut emissions 40 percent by 2030. According to a July 2024 report from JLL, more than 30 cities plan to have some form of carbon emissions standard in place by 2026. At present, these standards encompass 25 percent of all buildings in the continental U.S.
Policies such as those in Michigan, Texas, Minnesota and Florida “allow PACE to be a greater solution to achieving higher codes and performance standard requirements,” said Elser. “Codes are increasing, and what is nice is that our ability to provide a solution and mitigant to that is increasing alongside some of these legislative changes.”
What's getting funded
C-PACE’s versatility extends well beyond the capital stack to a broad array of sustainable improvements. The area with the biggest bang for the buck is the building envelope. “It covers so much, and it’s efficient and above code,” said Golberstein.
In January, Kaeding Development and Inland Real Estate closed on a $15.8 million C-PACE loan from PACE Loan Group. The capital is funding the conversion of the Ecolab office building in St. Paul, Minn., to a 174-unit multifamily community. In the cost-intensive conversion process, the financing covered the building envelope, in addition to HVAC, plumbing and mechanical systems.
But even hiring a local supplier or contractor may qualify a project for C-PACE. “It’s about reducing the carbon footprint, and that extends beyond using a high-efficiency HVAC system,” pointed out Golberstein.
C-PACE’s loan structure makes it effective to fund construction, according to Jared Schlosser, executive vice president & head of C-PACE and credit at Peachtree Group. “It creates an opportunity post-certificate of occupancy to have long-term financing if you want to keep it in, but it’s also repayable.”
Upgrades and additions that provide solid returns include HVAC, lighting, insulation, windows, plumbing, solar panels and air purification systems. These improvements cut carbon emissions and operating costs. Developers typically “use our funds to pay for these upgrades which, if they are building materially above code, will lead to lower utility costs for a project,” said Arran Cooper, director of market development & strategy at Nuveen Green Capital.
Other uses don’t involve energy at all. Properties along fault lines in California often qualify for financing to implement earthquake mitigation, while East Coast developments may secure financing for hurricane and flood resilience. “The insurance community likes C-PACE, particularly how it’s structured,” according to Alini.
Water efficiency and conservation can also count as a resilience measures, especially in drought-prone states. Glenn Silva, chief operating officer at Lone Star PACE, reports that water conservation is among the most frequently funded sustainability measures, bolstered by the recent lifting of the loan-to-value cap. “It’s not a buzzword anymore,” Silva said. “It’s here to stay because we need water, especially for multifamily.”
Outside of its relatively niche use cases, C-PACE financing is not without its challenges. Chief among these is perception. Lenders, as well as developers, are sometimes unfamiliar with it. “The progress of education and awareness among first mortgage lenders, particularly banks, has been slower as there are still certain irrational fears about the C-PACE product,” commented Tarsia.
To alleviate these concerns, the C-PACE industry needs to work with all stakeholders. According to Tarsia, “The growth of the industry has three legs of a stool: awareness among the brokers and end users of the product, education among first mortgage lenders, and continued growth in geographic eligibility.”
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