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CPACE Financing Frequently Asked Questions

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Jared Schlosser
EVP, Hotel Lending & Head of CPACE, Credit
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What is PACE financing (or CPACE)?

The most common question we get is what is a PACE loan – or as it is also known CPACE. CPACE stands for Commercial Property Assessed Clean Energy. CPACE is a type of commercial real estate loan that provides an attractive alternative to mezzanine or preferred equity financing for construction projects. CPACE loans are non-recourse and transferable.

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What is the difference between Pace vs. Mezzanine financing?

Mezzanine financing is typically used to expand established institutions. They are generally not utilized during the early stages of a company's founding. This type of financing bases funding on property equity. If the borrower defaults on the loan, the lender can convert to an equity interest after paying senior lenders. For borrowers, mezzanine loan interest is tax-deductible. 

CPACE funding can be used for new construction or major renovations. Loans are based on the total project value and can finance as much as 30% of the value of the building you are constructing or renovating. Repayment is done through property tax assessments and offers a fixed rate, which is different than mezzanine financing. Additionally, should you sell your property, your CPACE funding can be transferred to the new owner. Overall, CPACE offers fewer risks than traditional mezzanine funding.

We have also written this article on how CPACE differs from mezzanine financing and preferred equity.

What are the advantages and disadvantages of PACE Financing?

Many developers want to know what are the benefits of PACE loans.

There are many advantages to this type of financing, but three of the most impactful are:

  • Long-Term Financing: PACE funding generally has a long loan term, up to 35 years in some cases. 
  • No Down Payment: Because PACE financing can cover 100% of soft and hard costs for your energy-efficient project, there's no down payment or upfront costs. 
  • Loans Stay with the Property: The loan automatically transfers to the new owner if you sell your property. 

Learn more in this article on the benefits of CPACE financing.

What is the interest rate on CPACE?

CPACE interest rates vary based on many factors—the lender, your property, and your creditworthiness. So, the only way to know what interest rate you can get for a CPACE loan is to talk to your lender about your specific circumstances. 

However, by and large, interest for Property Assessed Clean Energy financing tends to be much lower, as it's designed to give property owners an affordable way to make energy-efficient upgrades to their buildings.

In addition, interest payments on your PACE funding are often tax-deductible. Therefore, you may be able to deduct part of your repayments for your PACE loans.

Click here for Peachtree's latest loan rates.

Can I refinance with a PACE loan? 

Retroactive PACE has helped many property owners refinance recent projects for more favorable loan details or to help with cash flow management. If you took out a different type of loan for a project, you may be able to use the funds from the CPACE loan to pay it off and take advantage of the many benefits of CPACE. If you used cash, you could retroactively finance your project to increase cash flow for your property. 

How do I pay off my PACE loan?

Please consult one of Peachtree Group's CPACE lenders.

Can PACE loans be subordinated?

Yes. CPACE loans are subordinate to a first-lien mortgage.

Are PACE loans tax-deductible?

Interest payments on your PACE funding are often tax deductible.

What is a PACE lien?

Please consult one of Peachtree Group's CPACE lenders.

What do lenders need to provide CPACE Funding?

Requirements and qualifications for CPACE financing vary based on your local program. You must get your lender's and the local CPACE program administrator's approvals to qualify. Your lender can help you determine what's required for your local program. However, it's also important to understand there are specific criteria administrators look for, including:

  • You hold the property with a clear title: no liens or unpaid property taxes
  • You must not have had any bankruptcies in the past five years
  • The savings from the project should be more than the cost of the PACE assessment
  • The value of the project should last longer than the terms of the loan
  • You file a clean Phase I environmental report with the program administrator