C-Pace Financing: Exploring the Benefits and Risks

April 01, 2024

With real estate market conditions continuing to remain in flux, many developers and operators of real estate have been left searching for new partners and capital providers to finance acquisitions and development. One option that is increasingly becoming more accessible is Commercial Property Assessed Clean Energy (C-Pace) financing. As C-Pace financing arrangements become more attractive to capital-seeking developers and operators, understanding the dynamics and potential ramifications is paramount.

While the accessibility of C-Pace financing continues to build, it appears that many in the real estate industry may be unaware of its existence. Indeed, C-Pace–enabling legislation is in place in almost 40 US states and has been around for several years (including in both New York and Massachusetts), but it seems C-Pace financing programs are only actively used in a smaller subset of states. C-Pace programs are beginning to affect the landscape of real estate financing, offering an innovative avenue to access additional capital in the form of property assessments.

This sort of financing mechanism allows owners and operators to finance energy-efficient improvements to their new or existing property by adding a voluntary assessment to their property tax bill. However, rightfully so, the use of C-Pace financing can raise concerns among certain lenders about potential lien and priority issues for a particular deal as the C-Pace assessment will have priority over any mortgage on the property.


C-Pace financing is offered by private lenders or capital providers to a borrower, and the assessment program for the financing is administered by the local government of the applicable jurisdiction. The local government must preapprove the lender or capital provider, after which approval it then works with the parties to facilitate and oversee the implementation of the financing. The amount of capital to be provided to a borrower is typically up to the value of the clean energy improvements (e.g., HVAC and mechanical upgrades, renewable energy improvements, resiliency upgrades).

The term can be up to 20 years, or more in some cases. Each lender and capital provider will use their own underwriting criteria to determine the financing terms, including the interest rate and fee to apply for each project. Unlike a traditional loan, however, the outstanding obligations (1) cannot be accelerated upon a default, even in the event of a missed payment, and (2) in most jurisdictions are nonrecourse to the borrower.

As part of the financing, a borrower and a C-Pace lender will enter into an arrangement akin to a loan agreement. The arrangement will provide for upfront capital at the closing, which will then be secured by a nonaccelerating assessment levied on the property by the applicable local government. The local government then assigns the lien and the right to collect the assessments to the C-Pace lender who then has the right to enforce the lien.

As noted, this lien has super priority and will be senior to other existing mortgage liens or encumbrances (other than liens for unpaid property taxes) even if they were recorded prior to the C-Pace assessment. In that regard, a borrower must notify and work with its existing mortgage holder to obtain written consent. Consequently, the C-Pace lender and mortgage lender may desire to enter into an intercreditor agreement. In the event the borrower then defaults on the C-Pace financing, only the unpaid assessment may be enforced and foreclosed upon.


C-Pace financing programs offer numerous benefits to borrowers as well as the private lenders and capital providers. This type of arrangement can lessen financial burden on borrowers by providing access to additional capital at closing. The nonrecourse financing model for C-Pace ensures borrowers are not personally liable for the debt. Moreover, the financing typically is not carried as debt on an owner’s balance sheet because the outstanding obligations are repaid through the voluntary assessment on the property.

For C-Pace financiers, this type of financing can improve cash flow through the payment of assessments and reduce credit risk for a particular borrower as the assessment remains on the property. In addition, local governments that administer the financing are benefitted because the borrower uses the financing to build eco-friendly energy-efficient improvements, which reduce energy consumption and carbon emissions and contribute to green initiatives.

There are many considerations for borrowers and lenders to keep in mind before entering into, or consenting to, a C-Pace financing arrangement. Each party should conduct an independent investigation and evaluation regarding a C-Pace investment. The introduction of C-Pace financing can make a deal potentially more complex and time-consuming and, as such, and the pros and cons should be weighed. And of course, since C-Pace liens run with a property, a buyer of commercial property must perform its own customary due diligence to determine if any C-Pace liens exist.

As C-Pace financing becomes more prevalent, seeking consent from senior lenders may become less of a daunting task as more senior lenders become familiar with, and have documents and provisions that will account for, the fact that the C-Pace lien is collateralized as an assessment on the property tax bill.

Importantly, existing senior lenders may find comfort in consenting to a C-Pace financing arrangement considering that during a foreclosure sale the only payment due to a C-Pace lender is the unpaid installment of the C-Pace assessment. Some existing mortgage lenders are requiring borrowers to escrow all or a portion of the C-Pace assessment obligation as a way to mitigate risk, which may impact a borrower’s evaluation of whether the C-Pace financing is desirable.


While C-Pace financing enables borrowers to obtain access to additional capital in order to construct energy-efficient improvements, challenges may surface in obtaining existing senior lien holder consent and during property transitions with respect to the outstanding assessments.

If C-Pace financing becomes more customary and a popular tool among developers, mortgage lenders may ultimately acquiesce to the structure based on the market conditions. In any event, it is critical for lenders and borrowers to consult legal counsel in the early stages of the energy-efficient project eligibility and financing process to identify and minimize possible concerns.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following:

Ryan W. Hanofee (Boston / New York)
Michael J. McCarthy (New York)
Heena Wozny (Boston)