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C-PACE Loans Hit Record High Amid Capital Market Slowdown

With over $2 billion originated since 2015, C-PACE loans have hit record highs in 2023, offering a resilient financing option amidst capital market slowdown.
March 7, 2024
C-PACE loans are an alternative lending source
  • C-PACE funding has become increasingly attractive to real estate investors and developers during a time of extreme capital market volatility.
  • Due to Fed rate increases, PACE loan rates are lower or on par with those from formerly go-to construction lenders.
  • The market for this funding mechanism is poised to grow fast as more major banks seek to become approved providers.
Key Takeaways

Real estate investors and developers are turning to Commercial Property Assessed Clean Energy (C-PACE) funding more than ever. Commercial Property Executive reports that at the end of 2023, more than $2 billion in C-PACE loans had been originated since 2015, with about $1 billion in 2023 alone.

A rapid pace: The funding mechanism’s growth is expected to continue. Nuveen Green Capital is one of the nation’s most active C-PACE lenders, and they say average loan sizes have increased nearly three-fold recently.

  • Loan sizes are growing primarily because projects are larger, and lenders can fill bigger pieces of borrower construction budgets because they can raise capital faster.

What is C-PACE? C-PACE is a sustainable financing mechanism enabled by state policy that offers long-term, fixed-rate, non-recourse loans for up to 30 years for all aspects of construction that boost energy or water efficiency. Assessments are attached to the parcel of real estate instead of the property and don’t require a sponsor for collateral.

  • C-PACE debt is collected on property tax bills. This enables some owners to pass on the financing cost as common area maintenance charges to tenants who are benefiting from efficiency improvements.

Why it matters: C-PACE loans are becoming more popular among real estate investors and developers for several reasons. Market volatility has created gaps in capital stacks, making PACE more attractive. Deals have steadily increased in step with Federal Reserve rate increases.

  • PACE rates are now lower or on par with many formerly go-to lenders for construction loans. In some cases, PACE loans range from 7.5% to 8% compared to bank construction financing at 10% to 15%, per Commercial Loan Direct.

What’s next: C-PACE loans are poised to keep expanding. These loans have no size cap, which is partially why amounts are reaching record highs. The PACE lending market is also multiplying. Roughly 300 national, regional, and local mortgage lenders across the U.S. offer PACE financing, and more are looking to do so soon.

Jordan Berger is the co-founder and editor at CRE Daily. He’s been covering capital markets, finance, and real estate for over a decade. His writing and work has appeared in WSJ, Forbes, Yahoo Finance and CNBC.
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