While Minnesota created one of the first C-PACE programs in the country when it passed legislation in 2010, our state has fallen behind neighboring states, and nationally, in modernizing this financing tool.  C-PACE has adapted nationally to be a source of commercial real estate finance that makes buildings more energy-efficient, water-efficient, incorporate renewable energy, and incorporate resiliency measures.  C-PACE is a rare bipartisan solution, overwhelmingly using private capital (instead of taxpayer dollars) to fund C-PACE projects. PACE Loan Group is the only national direct C-PACE lender based in Minnesota.  Based on our expertise locally and nationally, we have been working on upgrades to the MN C-PACE statute to continue to solidify Minnesota as a leader in C-PACE financing. 

Minnesota’s statute currently allows for 20-year C-PACE loans with a cap of 20% loan-to-value (LTV). In most other states, the statute allows up to 30-year C-PACE loans and up to 30% LTV.  In this high interest-rate environment, borrowers need longer duration on their loans to renovate existing buildings – 30-year loans have lower payments than 20-year loans.  In this tight credit market, borrowers do not have access to as much capital for their commercial real estate developments.  C-PACE loans help these borrowers fund their construction projects to get them to the finish line.  C-PACE loans are also being used as “rescue capital” to give credit to energy efficient buildings that are experiencing loan maturities to refinance and live to fight another day while the market stabilizes.

PLG is the private lender that has also financed the most C-PACE projects in Minnesota, but because of the 20-year term and 20% LTV restrictions, we experienced a notable decline in the last year.  PLG financed 21 C-PACE projects in Minnesota in each of 2021 and 2022, but only three in 2023. In nearby Midwestern states of Michigan, Wisconsin, and Illinois, we have seen a noticeable increase in demand for C-PACE financing without these restrictions. With current interest rates hovering around 8 percent, C-PACE financing is bringing the cost of capital down for developers and is helping existing buildings achieve operating efficiency. With no taxpayer money and little government administrative burden, C-PACE is the least intrusive public private partnership.

C-PACE financing is also much more broad than people think.  Yes, C-PACE financing can pay for solar and geothermal installations, but C-PACE most traditionally finances expensive mechanical, electrical, and plumbing line items (such as windows, elevators, low-flow sinks, roofing and HVAC) on the construction budget, since generally developers are developing above code. 

When I talk about C-PACE, I focus on what C-PACE is: long-term, fixed-interest capital to improve existing commercial building stock and to build better buildings. It serves the market where a traditional lender will not –for example, financing office projects, injecting rescue capital to help property owners refinance projects, or offering critical gap financing less expensively than any other option.

One of the considerations regarding C-PACE from the CRE industry is that it is hard to understand and deals take too long.  As a direct C-PACE lender, PACE Loan Group has its own balance sheet and understands the potential barriers and how to navigate them.  Leave the hard part to us. It’s true that the senior lender needs to approve the use of C-PACE, but we are equipped to address their pain points and supplement the capital stack where possible.

I’m pleased that Minnesota is considering changes that move the C-PACE legislation from version 2.0 to version 3.0, providing more commercial property owners with an effective, efficient way to finance more sustainable buildings. As the chair of the Board of the Minnesota Climate Innovation Finance Authority, I’m also pleased that Minnesota is working to stay ahead of the curve on reducing climate change impacts by encouraging more efficiency in building energy and water use. It’s a triple bottom line win.

Bali Kumar joined PLG in 2021 as the Chief Operating Officer and became chair of the MNCIFA in 2023. Prior to joining PLG, he served as the CEO of Lean & Green Michigan, the C-PACE program in Michigan, and developed the Michigan PACE program into one of the nation's strongest PACE programs.