C-PACE (Commercial Property Assessed Clean Energy) is a means of financing energy efficiency upgrades, renewable energy installations and similar projects related to residential, commercial and industrial buildings. PACE programs pay for the capital costs of these green initiatives with repayment through increases in property taxes at a set incremental rate over a term of 5-25 years to amortize the cost of the project. The energy savings usually is in excess of the tax increment, which provides an incentive to the owner to participate. C-PACE programs are typically administered by government authorities that issue PACE bonds to provide project capital and use the tax increment to repay the bondholders.
C-PACE financing for existing CMBS loans can be difficult. Most CMBS loan documents prohibit C-PACE arrangements. However, with the growth in C-PACE programs to over 30 states, it is important for CMBS participants to find a mechanism to allow cash-flow accretive C-PACE project to be eligible for CMBS. An argument can be made that since real estate taxes are already escrowed in CMBS, adding a C-PACE tax escrow should not be difficult. If you are considering a CMBS conduit loan and perhaps a C-PACE project in the future, it is very important to disclose this information to ValueXpress to see if the loan can be structured to allow future C-PACE financing.