As economic development becomes increasingly sophisticated, so do the strategies developers tap to finance their projects. One promising trend gaining momentum is the strategic layering of Commercial Property Assessed Clean Energy (C-PACE) financing with other public and private incentive programs. When blended with tools like Opportunity Zones, New Markets Tax Credits (NMTCs), and federal or state tax historic credits, C-PACE can serve as a cornerstone of a robust and innovative capital stack while also supporting resource conservation and local sustainability goals.
The Power of C-PACE in Complex Capital Stacks
C-PACE financing allows commercial property owners to access long-term, fixed-rate capital for energy efficiency, water conservation and renewable energy improvements. It is repaid through a voluntary assessment on the property and is non-recourse, which means it doesn’t interfere with a developer’s credit or borrowing capacity and cannot be accelerated in the event of a default.
Because of its unique structure and favorable terms, C-PACE can replace higher-cost mezzanine debt or equity, significantly lowering the weighted average cost of capital. For projects already using tax credit equity or grants, adding C-PACE can fill capital gaps and improve project feasibility.
Combining with Opportunity Zones
The Opportunity Zone (OZ) program was designed to spur economic development in underserved communities by offering tax incentives to investors. Developers often face tight deadlines and underwriting challenges to meet the program’s criteria, but C-PACE can inject patient capital early in the process, helping developers meet financing milestones without diluting ownership or compromising project design.
Since both C-PACE and Opportunity Zone investments are tied to real estate improvements, they naturally complement one another. C-PACE’s long-term amortization (usually 20-30 years) aligns well with the holding period requirements of OZ investments, making it a smart addition to the financial tool belt.
Layering with NMTCs
New Markets Tax Credits (NMTCs) provide a federal tax incentive to investors who finance projects in low-income communities. While powerful, NMTC financing can be complex, involving multiple parties and strict compliance requirements. This can create gaps in funding or working capital shortfalls.
This is where C-PACE could be an accretive solution. As a non-dilutive source of capital that is secured by the property itself, C-PACE can seamlessly fit into NMTC-financed deals — whether as bridge financing, a source for construction draws or long-term capital for qualifying improvements. C-PACE also boosts the environmental and sustainability credentials of a project, which can help attract mission-driven lenders and investors.
Stacking with Tax Credits
Developers who rely on historic tax credits (HTCs) or renewable energy tax credits often face tight margins and heavy scrutiny on project feasibility. C-PACE financing can step in to support the sustainability components of these projects, such as HVAC upgrades, insulation and solar installations.
The Bottom Line
Blending C-PACE with other public and private financing mechanisms is becoming more attractive as interest rates fluctuate and capital markets remain tight. Developers who embrace this layered approach will be better positioned to complete high-impact projects with strong returns and public benefits, including resource conservation and fortification of the Texas power grid.