What Is C-PACE Financing? A Guide for Commercial Property Owners

What is C-PACE Financing?

C-PACE financing is a financing mechanism for energy related real estate projects. C-PACE stands for Commercial Property Assessed Clean Energy. C-PACE loans are given out by C-PACE capital providers and can be used to finance 100% of project costs. Unlike traditional sources of financing, the repayment of the loan is paid back through a special tax assessment, and collected alongside property taxes.

C-PACE can be used for any kind of electrification project, HVAC, insulation, windows, LED lighting, heat pumps, battery storage, water conservation improvements, and other projects. The requirements and uses of C-PACE financing is split between new construction and existing buildings.

The PACE financing program was established in 2008 in Berkeley, California. It was created as a pilot government program by city officials to let property owners finance clean energy projects and solar upgrades through voluntary property tax assessments. Originally, it started out on residential single family homes, and proved to be very successful. A year later, the program expanded to include commercial projects and C-PACE was created.

Today, the C-PACE program has grown to over 40 states nationwide. In 2024, the total origination volume for C-PACE financing market hit $2.6B, up 116% since 2022 at $1.2B. Additionally, the average deal size has also increase sharply. With average origination amounts near $11M in 2024 compared to $6M in 2022.

Source: C-PACE Alliance — C-PACE Program Volume

Due to rising interest rates, volatility, and energy shocks, finding new more creative financing is in demand for energy projects. In the past few years, the industry has matured and grown from a niche area of sustainability financing into a core part of commercial real estate lending. As the industry becomes more aware of C-PACE options, it is now a mainstream choice for many projects.

How does C-PACE Financing work?

1. A property owner wants to finance an energy related project. This can be new construction, or an existing building.

2. Capital provider will size the loan and provide the capital to the contractor.

3. The local municipality will then conduct a senior assessment on the property for the tax record.

4. Repayment of the loan will be paid through property taxes. The payment received by the municipality is then remitted back to the capital provider.

Benefits of C-PACE:

100% financed

C-PACE lending can cover the entire project cost.

No prepayment required

Owners are not required to prepay if they refinance or transfer the property to a new owner.

Defer first payment up to two years

The first payment can be deferred for up to two years via interest capitalization.

C-PACE may qualify for off-balance sheet treatment

No acceleration clauses and may be treated off the balance sheet.

Approval is property based, not owner based

Credit approval for C-PACE is dependent on the property specifics, not the owner. Financing requires no personal guarantee and has no technical default provisions.

Transferable upon sale

C-PACE financing is tied to the property itself, not the owner.

Non-recourse

C-PACE does not require personal guarantees and is non recourse.

Requirements:

• Buildings must be commercial or multifamily. Multifamily buildings must have three or more units. Commercial buildings can be: office, multifamily, hotels, mixed use, retail, warehouse, self-storage, healthcare, industrial, institutions.
• The owner must have approved lender consent. For owners with an existing mortgage, C-PACE financing requires consent from an existing lender or trust deed.
• Property must be assessed at at least $1M.
• New construction projects must meet certain sustainability requirements according to their municipality.
• Building energy audit and commissioning plan is required. This is typically coordinated by the capital provider.
• If not fully electric, the costs are determined by modeling energy savings or design certification.

Underwriting Process:

Underwriting for C-PACE depends on appraisal and environmental reports, property financials, lender consent, organizational and tax documents, and other property specific documents. Approval for C-PACE is not dependent on the owner and is solely based on the property.

How Forsa can help:

Forsa works as a third party to property owners to help understand if C-PACE lending is right for you and connect you with verified capital providers. From the initial process to final project, Forsa helps source & identify a range of funding and creative financing solutions to make energy projects affordable, valuable, and easy.

If you're interested in how your project can benefit from C-PACE financing, talk to us today and we'll be happy to connect.

Frequently Asked Questions:

What does C-PACE stand for?

Commercial Property Assessed Clean Energy.

Who funds C-PACE?

C-PACE loans are provided by commercial banks and private capital providers. C-PACE is structured as a public-private partnership with a government.

Can C-PACE be used for new construction?

Yes. C-PACE can be used for new construction/development projects. This area has seen rapid growth in the past few years as developers look for more creative options to fund projects in a higher rate environment.

What are the risks associated?

C-PACE loans carry super priority lien status, as it attaches to the property as a special tax assessment. C-PACE also requires lender consent. Some lenders may decline to approve it if they are concerned about the additional assessment taking priority over their loan.

How does C-PACE differ from traditional financing?

Unlike traditional financing, C-PACE is paid through a special tax assessment. C-PACE offers long repayment terms, can finance 100% of project costs, and is tied to the property rather than the owner.

Which states have C-PACE?

C-PACE is available in Alabama, Alaska, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Utah, Vermont, Virginia, Washington, and Washington, D.C.