How C-PACE Becomes More Appealing For Capital Stacks Amid High Interest Rates

Amid increased market volatility and rising interest rates, commercial real estate investors and owners are looking for alternative and flexible strategies to gain access to capital.

One option people have been increasingly exploring is Commercial Property Assessed Clean Energy, or C-PACE, financing. This is a state-by-state financing tool for building owners that build or renovate at or above code, improving energy and water efficiency and building resiliency. It offers a low-interest, long-term fixed repayment plan of up to 30 years that can help fill the gaps in the capital stack while reducing mortgage debt or reliance on more expensive mezzanine debt or equity infusions.  

Minnesota-based PACE Loan Group, a national C-PACE direct lender, is dedicated to showing clients the full scope of what this financing tool offers and how it can be a creative solution to completing commercial real estate projects, PLG CEO Rafi Golberstein said.

“From the start to the close of the project, we’re here to guide our clients on the best C-PACE financing option for their needs,” Golberstein said. 

Bisnow spoke with Golberstein about C-PACE trends he is noticing across the nation, particularly in New York City, how PLG educates its clients on the process, and what to look for in the future.

Bisnow: What changes are you seeing in C-PACE financing nationwide?

Golberstein: There is a large legislative push at the state level to update and expand the boundaries of what C-PACE is and what it can do. On the West Coast, we've started to see the adoption of what people refer to as C-PACER, adding an “R” on the end, which stands for “resiliency.” The concept is adding resiliency into the statutes, which provides funds for making buildings more resistant to climate change and natural disasters. 

Nationally, we're seeing retroactive PACE, where people are using PACE as a source of liquidity for projects that are struggling to refinance out of their current debt positions. And so we're coming in regularly to infuse liquidity to help pay down mortgage lenders and create scenarios where the banks or debt funds will extend their positions. 

Bisnow: What is different about New York City? What changes would you like to see in its C-PACE program? 

Golberstein: The program that exists today is largely dysfunctional because it prohibits ground-up construction deals. NYC should look at the success across the country, and it has to adopt industry best practices, which allow ground-up as well as renovation construction costs to be financed through C-PACE. Once we see NYC open up, I think the C-PACE industry can quadruple in size, just by how large the deals are in the city. 

Another part of the problem in NYC is that there are a lot of cooks in the kitchen. While its Department of Finance has already updated its program ordinance to allow for ground-up construction deals, we're waiting on other state and city agencies, such as the New York State Energy Research and Development Authority. It’s taken a long time for the city to agree with stakeholders on the best C-PACE practices and how that impacts the NYC C-PACE program.

Bisnow: What are some suggestions you have to make this process easier?

Golberstein: I think NYC should look more toward nationwide best practices for how to deploy C-PACE and select a single governmental stakeholder to opine on the program rather than two or three. They can look to other cities on how they run the program and follow suit. 

The current program also has restrictive savings-to-investment ratio requirements which investors may look at to see if the project is cash flow positive. We hope that the rules are flexible enough that landlords, owners and developers are able to access C-PACE financing.

Bisnow: How is PLG educating its clients on C-PACE benefits? 

Golberstein: Our approach since 2017 is educating, executing and getting in front of people to show them how C-PACE works practically and transparently in this nuanced industry. 

We have our own permanent capital and balance sheets to show and prove our clout over the past seven years. When a client sees how easy it is to close a C-PACE loan and how much it benefits their overall cost of capital, they quickly become advocates. 

I think getting a C-PACE loan today is easier than it's ever been. When we were first talking to mortgage brokers in the early years, C-PACE was like speaking rocket science to them. It's matured dramatically over the years, and the market is demanding this more and actively soliciting PACE bids.

Bisnow: With many states upgrading their C-PACE programs, how should PLG’s home state of Minnesota pivot to meet the current landscape?

Golberstein: Minnesota was one of the earliest adopters of PACE in 2010. But our statute has not kept up with the current terms like other states. Virtually every new state that's coming online has 30-year terms and loan-to-value of 30% to 35%. We’re stuck with 20-year terms and 20% LTV, hindering the growth here.  

At PLG, we’ve been a major sponsor of a bill running through the Minnesota Legislature right now to amend our statute to make Minnesota more in line with best practices nationwide to allow for 30-year terms and 30% LTV. We’re optimistic that the Minnesota statute will get signed into law in May, helping Minnesota get back to being a PACE powerhouse.

Bisnow: What advice do you have for people still hesitant about using C-PACE? 

Golberstein: People should understand whether they are dealing with a C-PACE lender or broker. Since we’re a lender, we control the transaction and minimize hiccups. Many of those who have bad experiences with PACE brokers are more hesitant to choose this option. 

We know how the process works and won't hide things like fees or other costs. We’re a portfolio company of AB CarVal, a $16B subsidiary of AllianceBernstein, which means we have institutionally backed capital that can get these deals done. 

For those worried about risk, we can ease them into the process and build trust. An example of this is a client we had in Minnesota who did a PACE loan of $700K as their first try. We were able to build trust, and the next deal we did was for $12M.  

Bisnow: What do you see for the future of C-PACE financing and how it can help people get more funding for their capital stacks? 

Golberstein: The future of C-PACE continues to be bright. From places like Idaho, Georgia, Hawaii and New Mexico, we’re seeing a coast-to-coast rollout of C-PACE.  

It provides a creative solution to capital stack needs. It doesn't matter if it's a small or large deal, just as long as clients feel satisfied. 

Aside from our headquarters in Minneapolis, we have locations in Chicago, San Diego and our newly opened NYC office. We’ll continue planting our flags to be prepared for the growth across the country and to help our customers nationwide. 

This article was produced in collaboration between Studio B and PACE Loan Group. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.