C-PACE Gains Growing Relevance in CRE Capital Stack

Adoption of C-PACE financing within the commercial real estate capital stack is expected to increase in the coming months as capital providers embrace the program’s ability to modernize aging properties and boost values. 

As we enter the second half of 2024, CRE owners continue to grapple with elevated interest rates and a heightened cost of capital. Property values across the board are expected to drop 10% peak-to-trough over the next 18 months, Moody’s predicted in March, with office values expected to be the hardest hit at 26% by the end of 2025.   
 
Meanwhile, a growing number of owners with looming debt maturities are now looking to alternative financing mechanisms to bridge a capital gap. Nearly $2T of the $4.7T in U.S. CRE loans will expire over the next three years, according to the Mortgage Bankers Association. 

Commercial Property Assessed Clean Energy, or C-PACE, can be part of the solution. Under a C-PACE arrangement, private property owners in Texas access long-term, low-interest financing for building improvements that save energy and water. The debt is repaid as an assessment on the property. 

The benefits of C-PACE are twofold: The financing not only injects liquidity into properties and reduces the need for more expensive forms of debt, but it also helps owners underwrite energy-efficient and water-conservation improvements that may otherwise get left on the cutting room floor. Sustainable buildings are more likely to experience stronger tenant recruitment and retainment, thereby driving consistent NOI.

With billions of dollars of CRE loans scheduled to mature over the next few years, many property owners will have to find creative ways to recapitalize. Thankfully, C-PACE is here to help.  

For more information on how your project could benefit from C-PACE, drop Lone Star PACE a line at 214-256-3209 or info@lonestarpace.com.