Introduced in Berkeley, CA two decades ago with the creation of a “sustainable energy financing district,” PACE (Property Assessed Clean Energy) financing has spread to cities and states across the U.S. and has carried over into commercial real estate. In fact, C-PACE financing has become a widely recognized option for borrowers. Connect CRE spoke with Andrew Freter, director of originations at PACE Equity Group, for insights into what’s driving C-PACE’s acceptance and adoption.
Q: C-PACE financing is becoming a go-to source of capital for borrowers. What are some of the factors that have driven this, in terms of both current finance market conditions and the value proposition of C-PACE?
A: I’d say three big factors are driving C-PACE’s growth right now. First, there’s still a healthy amount of real estate activity in the market, but banks are facing more scrutiny from regulators. That’s leading many bank lenders to either reduce leverage or shorten their loan terms, which can make projects harder to finance.
Second, interest rates are playing a huge role. No matter where rates are, C-PACE offers access to long-term, low-cost capital—but in today’s higher-rate environment, it stands out even more. The fact that it’s long-term financing at a very competitive fixed rate really adds to its appeal. The ability for a project to lock in low-cost rates for 20-30 years without refinance risk gives a lot of project owners the stability they are looking for.
From a value standpoint, the advantages are just as strong, maybe even stronger, in this market. When rates go up, equity investors expect higher returns. By using C-PACE in place of preferred equity, or mezzanine debt, you can bring down the overall cost of capital on a project and boost returns.
Third and finally, the growing awareness and utilization of C-PACE recapitalizations has become a driving force. As the ability to recapitalize a project using C-PACE has grown, more developers have utilized recap in significant ways. From covering cost overruns, funding interest reserves, to reshuffling a capital stack, developers and sponsors have found C-PACE to be a flexible tool that goes beyond development projects alone.
The real estate industry as a whole is shifting toward building properties to be more efficient. That’s not just about doing the right thing for the environment; it lowers operating costs and attracts tenants. I recently met with a developer who focuses on affordable workforce housing, and he told me that the old mindset—that in affordable housing, tenants didn’t prioritize efficiency—is gone. These days, it’s something everyone cares about.
Q: One of the hallmarks of C-PACE is its versatility. While it can help make development projects pencil out, it has also become a vehicle for refinancing existing properties. How is a refi via C-PACE structured?
A: That’s true—C-PACE isn’t just for new projects anymore. While it’s always been a great way to complete a capital stack, we’re now seeing more refinance deals.
There are a lot of ways to structure a C-PACE refi. We’ve used it to partially pay down senior debt and restructure the capital stack, fund interest reserves, help properties reach stabilization, and cover cost overruns. There truly are a myriad of ways that a C-PACE refi can help, and our team is ready to have those conversations.
One of my favorite use cases for C-PACE refi has been refinancing with the goal of extending a loan to allow more time for a project to reach stabilization. In this scenario, C-PACE refi can refinance a portion of senior debt, or, in some cases, all of the senior debt. Using C-PACE in this way allows for a pending maturity on a still stabilizing property to become less of an issue with more breathing room for lease up to stabilization.
Q: While C-PACE has increased its visibility among borrowers, it is also growing in acceptance among senior lenders. What has influenced their thinking?
A: Senior lenders are definitely more accepting of C-PACE. In the big picture, it’s still a young product compared to traditional mortgages that have been around for centuries. Like with anything new, lenders are cautious at first.
With that said, as C-PACE has grown, senior lenders have switched from being skeptical of C-PACE to seeing it as an asset to get deals done. Senior lenders see C-PACE as an accretive tool to help them win deals and differentiate themselves. Additionally, many senior lenders have started viewing C-PACE as a way to assist and grow their book of business. Perhaps a deal is too large for a senior lender to do alone, or the deal needs some additional funding to get completed – many senior lenders are turning to C-PACE to get deals done while keeping their important relationships.
I just had an interesting conversation with a mid-sized bank on this exact topic. They wanted to discuss C-PACE more in depth as a tool in lieu of using loan participations. The conversation ended with the bank feeling that C-PACE was a way to get large deals done without giving another bank a peek into their clients.
Q: What’s behind the growing momentum with larger C-PACE assets?
A: It’s been exciting to see. I think it’s tied to the same trend we’re seeing with lender acceptance—more people understand what C-PACE can do.
Early on, many people thought of it as a nice add-on to pay for efficiency upgrades. But now the market realizes it’s much more than that. It’s a powerful financing tool that works just as well for big, complex projects as it does for smaller ones. That shift in thinking is opening the door to larger and more impactful deals. The core features of C-PACE, such as the long-term fixed rate, lower cost of capital, and non-recourse, make just as much sense in large projects.
With this said, we are seeing more institutional borrowers utilize C-PACE as the powerful tool it is. With the institutional players moving in, deals have gotten larger. At PACE Equity, this is really something that excites us. As a balance sheet lender with strong committed capital, we have the ability to fund these deals and write larger checks!
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