Property Assessed Clean Energy (“PACE”) (also sometimes referred to as C-PACE) financing is a little-known financing tool now available to commercial property owners in more than 35 states, including New York, New Jersey, and Washington D.C. PACE financing is a flexible, long-term financing option provided to property owners for existing and proposed renewable energy and energy efficiency projects. More specifically, all types of commercial real estate assets may be eligible for PACE financing including hotels, senior housing, student housing, office, retail, industrial, and certain types of multifamily properties.
PACE loans are a unique financing option that enable property owners – of both new constructions and existing buildings – to obtain funds from pre-qualified private lenders for certain energy efficient building improvements known as “qualified improvements.” Common examples of qualified improvements include, but are not limited to, new HVAC equipment and systems, lighting, doors and windows, insulation, and solar panels.
In contrast to traditional financing options, PACE loans allow eligible property owners to obtain 100% financing for the cost of qualified improvements at competitive long-term fixed interest rates, without a personal guaranty, and such loans fully amortize over the average useful life of the installed qualified improvements, which typically ranges between 20 to 30 years. Importantly, because PACE loans are secured by a special real estate assessment on the property, such loans are repaid as part of a building’s real estate tax payment and are fully assumable by any subsequent building owner.
While PACE financing has been an attractive financing option for eligible borrowers from its inception, mortgage lenders were initially hesitant about such loans because the special real estate tax assessment of the PACE financing is superior to any other debt (i.e. mortgage) on the property. However, as PACE financing has gained popularity throughout the country and lenders have become increasingly familiar with this financing option, more institutional lenders have begun accepting PACE financing.
As states and cities around the nation, including New York City,[1] continue to pass legislation aimed at tackling the effects of climate change, PACE loans not only afford property owners with a unique and affordable financing tool to comply with such legislation, but also allow property owners to realize long-term savings in energy costs.
[1] For more information on the climate change legislation enacted in New York City, please take a look at one of our previous blogs on the Climate Mobilization Act: https://www.csrealconblog.com/2019/12/articles/construction/new-york-city-building-owners-what-does-greennewdeal4ny-mean-for-you/
