C-PACE Loan — Definition & Capital-Stack Guide

Definition

**C-PACE** (Commercial Property Assessed Clean Energy) is a financing structure that funds qualifying improvements to commercial real estate — energy efficiency upgrades, renewable energy systems, water conservation, seismic retrofits, and resilience improvements — through a long-term special property tax assessment placed on the property by a municipal C-PACE program.

The sponsor receives capital at closing to fund the improvements. The capital is repaid as a special line item on the property tax bill over 20-30 years at a fixed rate. The assessment is recorded as a senior lien on the property in most states, and transfers automatically to the next owner at sale (the obligation runs with the property, not the borrower).

C-PACE is **non-recourse** — there is no personal guarantee and no acceleration risk separate from property tax delinquency.

How C-PACE Differs from a Conventional Commercial Mortgage

| Feature | C-PACE | Conventional CRE Mortgage | |---|---|---| | Security | Property tax assessment lien | Mortgage lien | | Term | 20-30 years fully amortizing | 5-10 year balloon | | Rate | Fixed for full term | Fixed for term, floats at refi | | Recourse | Non-recourse | Often bad-boy carve-outs or limited recourse | | Transfers on sale | Yes — runs with property | No — paid off at sale | | Senior to first mortgage | Yes (in most C-PACE states) | N/A | | Use of proceeds | Restricted to qualifying improvements | Flexible |

The 20-30 year fixed-rate amortization is the standout feature. It matches the useful life of the underlying improvements (HVAC, building envelope, solar PV) and stays in place through multiple ownership cycles. Conventional CRE debt has to refinance every 5-10 years at then-prevailing rates.

What Qualifies for C-PACE

Eligible improvements vary by state and program, but most C-PACE jurisdictions cover:

**Energy efficiency:** - HVAC system upgrades and replacements - Lighting retrofits (LED conversion, occupancy sensors) - Building envelope: windows, insulation, roofing - Building automation and controls - Cool roofs and high-albedo surfaces

**Renewable energy:** - Solar photovoltaic systems - Solar thermal - Geothermal heat pumps - Wind (rare in CRE) - Battery storage paired with renewables

**Water conservation:** - Low-flow fixtures - Greywater systems - Drought-tolerant landscaping - Stormwater management

**Resilience:** - Seismic retrofits (California, Pacific Northwest) - Hurricane-resistant glazing and roofing (Florida, Gulf Coast) - Flood mitigation - Hardening for wildfire (California)

Eligible property types include multifamily (5+ units in most states), office, industrial, retail, hospitality, mixed-use, and certain agricultural. New construction qualifies in some states with specific energy-performance certifications (LEED, ENERGY STAR, IRC 2018+).

Worked Example — Multifamily HVAC + Solar C-PACE

**Asset:** 150-unit multifamily, $30M stabilized value, $1,800,000 NOI, existing $19.5M CMBS mortgage at 6.5%.

**Improvement package:** Full HVAC system replacement ($2.0M) + 750-kW rooftop solar PV ($1.5M) + LED lighting + low-flow fixtures ($0.5M) = **$4,000,000 total**.

**C-PACE structure:** - Assessment amount: $4,000,000 (13% of property value — under typical 20-25% LTV cap) - Rate: 7.0% fixed - Term: 25 years fully amortizing - Annual assessment payment: ~$340,000

**Impact on operations:** - Annual energy savings (HVAC + LED + solar offset): ~$220,000 - Annual water savings: ~$30,000 - Total annual savings: ~$250,000 - Net annual cost after savings: $340,000 − $250,000 = **$90,000** - NOI impact: $1,800,000 − $90,000 = $1,710,000 - DSCR on existing CMBS: still healthy at 1.41x (was 1.47x)

**Why this works:** The sponsor unlocks $4M of long-term non-recourse capital to do upgrades that improve the asset's competitive position, while only impacting NOI by ~5%. The existing CMBS lender will typically consent because the LTV impact is moderate and the value-uplift from upgrades is positive. The assessment stays in place at the next sale, transferring to the buyer.

The Mortgagee-Consent Gating Item

By statute in most C-PACE states, the property-tax assessment securing C-PACE is **senior** to existing mortgage liens — same priority as regular property taxes. In a foreclosure scenario, the unpaid C-PACE assessment is paid before the mortgage lender recovers.

In practice, the statutory seniority matters less than the **mortgagee-consent requirement**. Every C-PACE program nationwide requires the existing first mortgage lender to provide written consent before the C-PACE assessment is recorded. Without consent, the C-PACE doesn't close.

**What existing lenders evaluate when reviewing a C-PACE consent request:**

1. **C-PACE size relative to property value** — typically capped at 20-30% of as-stabilized value 2. **Total leverage post-C-PACE** — first mortgage LTV + C-PACE LTV usually capped at 95-100% combined 3. **DSCR impact** — the C-PACE annual payment is added to debt service for DSCR calculation 4. **Value uplift from the improvements** — appraisals or engineering reports supporting NOI improvement 5. **Borrower financial standing** — net worth and liquidity

Most institutional first mortgage lenders (banks, life companies, agency multifamily lenders) routinely consent on well-structured C-PACE requests. CMBS servicer consent has historically been slower but is now standard practice. Bridge lenders and high-leverage debt funds are more variable.

Our capital advisors structure C-PACE alongside senior debt — placing the senior mortgage with a lender in our network that has a clear C-PACE consent policy, and sequencing the C-PACE application to land cleanly. When PeerSense places senior debt on a value-add deal with a planned C-PACE layer, the consent posture is mapped at the start of the placement, not negotiated after closing.