A Guide to C-PACE
CHAPTER FOUR:
Underwriting Principles
How C-PACE is Underwritten
Each project is underwritten with important key considerations to ensure the maximum amount of funding and the most favorable financing terms. Unlike many commercial real estate loans, C-PACE is a public/private partnership that requires the fulfillment of requirements set forward by the local C-PACE program (known as program guidelines) as well as the underwriting standards of the private capital provider.
C-PACE program guidelines vary from state-to-state and administrator-to-administrator. Common variations include differences in eligible improvements, lookback period for refinancing, maximum terms, LTV, energy savings requirements, SIR requirements, and more. PACE Equity Finance has worked with each set of guidelines since their inception, and even written several, becoming experts in their implementation.
The following are standard requirements for PACE Equity Finance financing. It is not an exhaustive list and is subject to vary to meet project particulars.
Appraisal
Total Amount Financed by PACE Equity Finance will not exceed 15%-20%, as supported by an appraisal that meets PACE Equity Finance requirements.
Financial Analysis
Property financials must demonstrate a satisfactory Debt Service Coverage Ratio of 1.15x or greater, based on as-stabilized NOI, per appraisal.
Development and Major Renovation Projects
For projects which are major building renovations, gut-rehab, and ground-up new construction:
- Equity Requirement: A minimum of 10% cash equity. Cash equity may include land contribution, cash contributed, pre-development expenses incurred, and other equity sources.
- Prior to the first PACE Equity Finance disbursement, confirmation that all proceeds to complete the project are to be funded in escrow, except for the construction loan. The construction loan shall be closed and available for disbursement. There shall be a general contractor and GMP contract for the entire project, which shall be reviewed during underwriting.
- Capitalized interest shall be funded through the estimated construction period.
- A construction completion guarantee by the sponsor or equity investor(s) is required. There shall be satisfactory liquid assets to complete the project in PACE Equity Finance’s sole discretion.
Energy Study
PACE Equity Finance’s in-house Engineering and Building Optimization Team will prepare an Energy Study, describing improvements to be financed, costs, and projected energy savings calculations, and useful life of the improvements to be funded. PACE Equity Finance performs the energy audit and, based on this analysis, can provide design and cost guidance to help you meet requirements if the current design falls short.
Lender Consent
Any lender who holds or will hold a mortgage on the property has to provide an approval of PACE Equity Finance’s financing via a document called a Lender’s Consent. Lenders who have not worked with PACE Equity Finance in the past may have questions and concerns about our structure. PACE Equity Finance will educate any lender about how we work, as this is key to obtaining consent. This will include the proper sizing and structuring of our funding across the capital stack, intercreditor concerns, and underwriting of our funding.
Property Owner
Is in good standing. The building/property must be current on all property taxes and mortgage payments. A current title report must reveal that the title is not subject to power of attorney, easements, or subordination agreements restricting the authority of the property owner(s) to agree to the assessment.
C-PACE is underwritten as a debt service constraint, with funding amounts determined by the scope of eligible improvements in a construction budget. While exact financing parameters vary from state to state (many states have multiple program guidelines), the following terms apply to all C-PACE financing.
- Provides 100% financing for eligible improvement costs—typically covering 30-50% of hard costs—up to 35% loan-to-value (LTV)
- Repaid through a fixed rate non-accelerating property tax assessment of up to 30 years (some states have slightly shorter amortization periods)
- Used for retrofits, redevelopments, new construction, and recapitalization
- Fixed-rate, non-recourse, long-term, low-cost capital
- Capitalized interest covers the construction / lease-up period
C-PACE Financing Parameters
Term
Up to 30 years
Amortization
Fully amortized over the term
Interest Rate
Fixed rate over the term; spread over 10-year UST
LTV
Up to 35% of property value
Capitalized Interest
No payments during the construction period
Eligible Projects
Renovation, Redevelopment, Refinance, New Construction, Renewable Energy
Recourse
Non-recourse, completion guarantee (except for refinancing)
Prepayment
Prepayable at any time, subject to step-down prepayment premium. No lockout
Debt Service Coverage Ratio
1.10 – 1.30 @ stabilization
Funding Timing
Construction, Mid-Construction, up to 3 years after Construction (local guideline-dependent)
Property Types
Multifamily, Senior Housing, Industrial, Hospitality, Retail, Office, Storage