In this episode of “In Conversation with Lone Star PACE,” we sit down with Joe Euphrat, Managing Principal at GreenRock Capital, to explore the evolving relationship between senior lenders and C-PACE financing, shedding light on why lender consent is required and how increasing familiarity with the mechanism is paving the way for broader acceptance.
Senior Lender Consent is a critical step in the C-PACE (Commercial Property Assessed Clean Energy) process. C-PACE is secured through a voluntary assessment on the property, akin to a property tax. Any existing lienholders on the property, including the senior lenders, must consent to the addition of C-PACE before an assessment can be placed. This requirement ensures the lender is fully aware of the new obligation and agrees to the modified structure of the capital stack.
Why is this step so important? The key concern for lenders has historically been the priority of payment. In the event of default, C-PACE assessments are senior to mortgage debt. However, C-PACE is non-accelerating, meaning that only the past-due amount is owed in a foreclosure scenario, not the full balance. This mitigates risk to the senior lender and differentiates C-PACE from traditional forms of debt.
Euphrat highlighted how C-PACE is accretive to the capital stack, particularly in new construction projects, where equity or other forms of debt can be expensive, and senior debt alone may not be sufficient to close the financing gap. With terms that can stretch up to 30 years and fixed interest rates, C-PACE offers long-term, low-cost capital for energy efficiency, water conservation and renewable energy improvements. These upgrades often lead to operational savings, improving the building’s net operating income and, by extension, the asset’s value — benefits that are shared by the senior lender.
Fortunately, dubious attitudes historically held by senior lenders are beginning to shift, Euphrat told Lone Star PACE. More education, real-world deal experience, improved transparency and a disruption in the capital markets have helped senior lenders grow more comfortable with the product.
“There is more understanding in the marketplace and rates that are more logical,” Euphrat said. “All of a sudden, a lot more senior lenders are coming around to understanding and being OK with C-PACE financing.”
For lenders, it’s becoming clear that rather than posing a threat, C-PACE can de-risk a project, fill capital gaps, and enable efficiency improvements that strengthen the underlying asset value.
As more successful projects are completed and more lenders gain experience, the role of C-PACE as a mainstream financing tool is likely to expand — with senior lender consent evolving from a hurdle to a standard part of the process. For more information on C-PACE financing and whether it can be accretive to your capital stack, schedule a meeting with Lone Star PACE today.