Blog

Cost Effective, Experienced, and Community Focused

Using C-PACE Financing in Place of More Expensive Mezzanine Debt 

Pexels/Tara Winstead

When deciding what to pair with mortgage debt, developers may find themselves choosing between mezzanine financing and Commercial Property Assessed Clean Energy, or C-PACE, to reduce the weighted average cost of capital.  

C-PACE financing is an attractive alternative to a mezzanine loan because it reduces the project’s capital cost and offers longer-term solutions for a wide range of industries. The debt requires no down payment and is used to fund energy and water-conservation features that improve a building’s operating performance and property value.  

Unlike mezzanine debt, which has an average term of three years, C-PACE typically amortizes over a 20 to 30-year period. Mezzanine financing generally doesn’t amortize and can therefore lead to refinancing risk during more adverse market conditions. Despite the longer assessment term, most C-PACE financing allows for prepayment well before maturity, according to Morningstar DBRS. 

Landlords with certain lease agreements may pass through some of the improvement costs associated with C-PACE financing to tenants, as the assessment can be characterized as an additional property tax levied on the property.  

Also, C-PACE financing also tends to carry less interest than mezzanine debt, with interest rates starting at 7% versus the mezzanine range of between 10% and 14%. C-PACE deals are non-recourse because the security interest is on the property rather than the building or owner, and financing can be transferred to the new owner in the event of a sale, similar to an assumable loan.  

Since their inception, PACE programs nationwide have resulted in more than $15B in private investment and $30B of economic impact, according to PACE Nation. Demand for PACE financing has skyrocketed as senior lenders have reduced loan amounts and elevated interest rates have caused borrowing costs to surge, with nearly 360,000 projects completed to date.  

C-PACE can help address gaps in your capital stack. To discuss eligibility, contact one of our program administrators at Lone Star PACE by calling 214-256-3209 or emailing  info@lonestarpace.com.