For years, Commercial Mortgage-Backed Securities (CMBS) lenders have approached C-PACE financing with caution — wary of its unique structure and senior lien status. But as the market matures and larger deals come online, that narrative is beginning to shift.
Ongoing challenges with senior lender consent and rating agency acceptance means the jury is still out on whether the CMBS market will be the next demand tailwind for C-PACE. However, some CMBS lenders are starting to recognize what many C-PACE proponents have long understood: that when properly structured, C-PACE can strengthen a deal rather than weaken it.
“C-PACE is such a perfect solution for so many properties,” said Ann Hambly, CRE , CEO and Founder of 1st Service Solutions, Inc., a Dallas-based commercial loan advisor. “To get a C-PACE loan approved on a CMBS loan, your loan documents must allow that or at least be silent on the subject. If you are getting a new CMBS loan, be sure you are allowed to add C-PACE financing!”
C-PACE (Commercial Property Assessed Clean Energy) financing provides long-term, fixed-rate capital for energy efficiency, water conservation and renewable energy improvements. Secured by a special property tax assessment, C-PACE is non-recourse, non-accelerating and fully transferable — characteristics that can mitigate risk rather than amplify it when layered appropriately within a capital stack.
Historically, CMBS lenders hesitated to consent to C-PACE due to concerns over lien priority and repayment in the event of a default. But over the past few years, several key trends have helped shift perceptions:
- Growing Deal Volume: The consistent increase in C-PACE transaction volume — including in top-tier and institutional projects — signals a more mainstream acceptance of the tool. Annual volume at Lone Star PACE has doubled each year since 2020, while the nationwide market posted a nearly 24% increase between 2023 and 2024.
- High-Quality Sponsors: Major sponsors are increasingly utilizing C-PACE as a cost-effective alternative to mezzanine debt or preferred equity, bolstering the credibility of the product. For example, highly esteemed DFW-based developer HALL Group tapped C-PACE to recapitalize energy-efficient improvements at its award-winning HALL Arts Hotel in 2024.
- Legal Clarity: Legal and structural frameworks around C-PACE have become more standardized, giving CMBS lenders greater confidence in how the financing will perform in practice.
- Cash Flow Benefits: Because C-PACE is repaid through a property assessment and often results in utility savings, it can improve a project’s debt service coverage ratio — a key metric for CMBS underwriters.
Recent examples show that CMBS players are beginning to accept C-PACE as part of a well-structured financing strategy. High-profile deals involving C-PACE in office-to-residential conversions, life sciences campuses and hospitality developments underscore its value in today’s capital-constrained environment.
As the broader real estate finance world searches for creative ways to fund energy-efficient, future-proof buildings, C-PACE is becoming harder to ignore. And for CMBS lenders, the warming trend suggests that the question is no longer if they’ll accept it, but how they’ll integrate it.
If you have a commercial project that could benefit from C-PACE financing, contact Lone Star PACE today.