Frequently Asked Questions
Developer/Owner Q & A
Are there financial incentives for energy efficient buildings?
Yes. Renewable energy projects and green certified buildings qualify for our market-leading C-PACE rates. Your tax consultant can tell you about other local and federal incentives available for your project.
Does C-PACE financing require senior lender consent?
Yes. Prior to closing, existing mortgage holders on the property must consent to the C-PACE financing. This consent is not a subordination agreement or intercreditor agreement, it is simply ensuring all parties are aware of PACE Equity Finance’s participation in the project and how C-PACE financing works. Learn more.
Do I need to change my building design when I use C-PACE financing?
No. Most projects with modern building practices can qualify for some C-PACE financing without any changes to design. Exact requirements vary from state to state. PACE Equity Finance’s role is to qualify your project with our in-house engineering team. We will set a target amount based on our experience and guide you to meet the requirements. Our engineers may also provide you with suggested design changes to maximize the funding amount.
Is C-PACE government funding?
No. C-PACE financing is private capital funding. Financing decisions are made independently of any municipal entity. The local municipality will pass legislation to approve C-PACE financing and generally delegate the approval to an administrator of a special improvement district.
My project won’t have a property tax bill. Can I use C-PACE?
Yes. While C-PACE is not available for government or municipally owned buildings, non-profits and some other tax-exempt businesses can benefit from this financing. Instead of a standard property tax bill, a voluntary special tax assessment would be issued.
What happens when I sell a property with a C-PACE assessment?
C-PACE assessments “run with the land”. They are non-recourse to the borrower and may be transferred to the new property owner without any re-underwriting, assumption fees, or penalties.
Is C-PACE debt or equity?
Although our name is PACE Equity Finance, C-PACE is not equity. It is an assessment, underwritten as a debt service constraint. The repayment of the private capital is made through a long-term special tax assessment on the property.
Can I pass through C-PACE costs to my tenants or guests?
Yes. PACE Equity Finance pioneered the idea of passing costs through to tenants and guests who benefit from the building improvements. This means improved returns. Different asset classes have different ways to accomplish this. Contact us to discuss this option for your project.
Economic Development Organization Q & A
Commercial real estate development is a proxy for local business investment. You want to make sure obstacles for development are overcome. Capital availability, equity requirements, and cost of capital are the biggest obstacles to local project development. PACE Equity Finance helps these obstacles (and others) by providing gap financing that seamlessly pairs with almost any other form of capital such as TIF, NMTC, HTC, Opportunity Zones, Brownfields, ground leases and more. PACE Equity Finance has enabled $1 billion of project developments like the ones in your community. Many of these projects would have been delayed or canceled without PACE Equity Finance funding.
There is no cost to taxpayers or the community for PACE Equity Finance to participate in the project. Funding comes from our private capital and is repaid by the property owner via a long-term tax assessment, so no financial burden is placed on the community for PACE Equity Finance to be involved.
The C-PACE funding available from PACE Equity Finance pairs easily with other incentive programs. We want to partner with you to create attractive funding stacks that pull together federal, state, and local incentives and include PACE Equity Finance funding to “gap-fill” any funding shortfalls.
Simply put, we make finishing the capital stack easy while our funds reduce the costs of capital for your local businesses. Using PACE Equity Finance and its lower cost of capital means local businesses have more resources to hire and invest in growth.
Yes, PACE Equity Finance funding often completes a capital stack once other funding sources have been identified, including federal, state, and local incentives. Our funding can be used to fill the last needed capital for the capital stack. The funding is based on the measures that impact utility spending such as energy and water. Learn more about how our funding is calculated.
Yes. PACE Equity Finance works alongside other funding and is often used to “fill the gap” for a construction capital stack. It can cover as much as 100% of the funding needs for a renovation project.
Our team can help you host meetings or educational events, participate in webinars, work together on joint marketing campaigns, speak at events, and more. Schedule time with us to start the conversation.
Nu-Tek Biosciences, Austin, MN: This industrial property is a build-to-suit for Nu-Tek Biosciences — a biotech manufacturer of peptones and protein hydrolysates for biotech and wellness foods industries. High efficiency dryer and evaporator equipment are installed as part of the build-out. Our low-cost financing is an excellent solution for the capital stack since it reduces the WACC while leveraging the investments already being made.
Capital Stack Details
Construction Loan: $6.5 million
Tenant Equipment & Equity: $15.0 million
Developer Equity: $3.75 million
TIF: $2.5 million
EDO: $2.5 million
PACE Equity Finance: $3.0 million
Badger Packaging, West Bend, WI: Badger Packaging is a custom manufacturer of corrugated fiber board packaging and point of purchase displays. To pursue business growth and increase local jobs, they chose to invest in a new scrap recovery system, renovating their existing site and adding new space to handle business growth into biodegradable boxes. Rather than raising capital or opening a second expensive mortgage to fund the building & system updates, they chose PACE Equity Finance funding – a low cost alternative that delivered the capital they needed while supporting local business growth.
PACE Equity Finance funding: $1.4 million
Green Leaf Grocery, St. Louis County, MO: PACE Equity Finance funding provided the needed capital to get this project off the ground. The complex capital stack included New Market Tax Credits and a USDA-backed loan. This grocery store and gas station ended one of the most prominent Food Deserts in the County of St. Louis.
PACE Equity Finance funding: $2.7 million
Lenders Q & A
How does C-PACE financing benefit the senior lender?
Both the lender and PACE Equity Finance complete an underwriting of the property to ensure the project has adequate cash flow for its obligations. Senior lenders are required to consent to a PACE Equity Finance assessment.
For PACE Equity Finance to be involved, there must be an eligible improvement to the property, that typically reduces a building’s operating costs. After completion of the project, the building collateral value is boosted by lower long term operating costs.
By partnering with PACE Equity Finance consenting lenders can differentiate themselves in the market relative to competitors by offering more solutions to your clients. Consenting lenders gain a competitive advantage through being able to offer
What do I have to sign to approve PACE Equity Finance funding?
There are no SNDAs or intercreditor agreements. The only paperwork needed for the bank to sign is an acknowledgment and consent to the financing from PACE Equity Finance. Many lenders like the simplicity that they do not have to work through complicated intercreditor agreements to enforce their rights such as what is required with mezzanine financing.
How do banks underwrite C-PACE financing and mitigate risk?
C-PACE financing is a voluntary assessment financing obligation. It is not considered an operating expense and is underwritten as a debt service obligation. Due to its prepayable and voluntary nature, it is excluded from appraisals.
A best practice is to establish sufficient debt service reserves to cover all obligations through lease-up and stabilization. A detailed cash flow schedule should be prepared to provide transparency and comfort to all parties during this period. Once the property reaches breakeven cash flow, many lenders require monthly escrow of C-PACE payments, with disbursements made by the lender when due.
These measures ensure C-PACE payments are always supported by the property’s cash flow, materially reducing
lender risk.
How are energy savings used to determine financing?
An energy study is required to qualify for PACE Equity Finance funding. This study will quantify the utility and operating cost savings and other benefits of the improvements. The energy modeling evaluates energy savings over current utility expenses or will estimate savings based on an energy modeling comparison between a code standard base building as compared to the actual higher performance building specification.
What happens in the case of nonpayment?
There will be a delinquent property tax bill. In the event the assessment payments remain unpaid it typically takes multiple years before the local unit of government’s statutory collection and enforcement mechanisms permit a foreclosure action on a property with delinquent property tax payments. During this period, PACE Equity Finance sits in arrears and allows the lender to work through the issue with the sponsor.
Lenders are protected because in the event of a default, PACE Equity Finance has no mechanism to accelerate the outstanding principal balance, nor any additional foreclosure remedies that might require transfer of the interest in the property. PACE Equity Finance’s sole remedy relies on the local government’s statutory collection and enforcement process to run its course, which as stated above may take multiple years.
During this period the only payment obligation to PACE Equity Finance is to cure any past due assessments that remain uncollected, never any future payments or principal. In the case of an assessment payment delinquency, PACE Equity Finance asset management will contact the lender of record and provide notice of the delinquency to ensure they are aware of outstanding payment and the impacts if it is not brought current within a reasonable timeframe. The lender then has flexibility to catch up obligations, whether that is forcing the borrower, calling a default, or making a tax advance payment.