C-PACE Deals are Getting Bigger
Why the >$100 million Pace trend is accelerating and how CounterpointeSRE leads the way
C-PACE Deals Are Anchoring Capital Structures and Getting Bigger
Commercial Property Assessed Clean Energy (C-PACE) financing has been on a remarkable trajectory, with deal sizes steadily increasing over the past few years. While C-PACE was once considered a niche financing tool, deal sizes are breaking records and an increasing number of fundings are exceeding the $100 million mark.
CounterpointeSRE, a portfolio company of MassMutual, predominates the large PACE market with two of the largest-ever financings to date:
- A $256 million C-PACE funding to take-out a maturing construction loan of an office-to-residential conversion in San Francisco, and
- A $156 million C-PACE financing of a two-tower office and multifamily new build in Culver City.
As education and acceptance continues to rise, national and international real estate investors are incorporating this transformative and innovative financing into capital stacks, leading to a rapidly evolving large-scale PACE market for high quality assets.
Why Are C-PACE Deals Getting Larger?
Several key factors are driving this expansion, making C-PACE an attractive option for both small and large-scale projects:
1. Greater Acceptance by Mortgage Lenders
Mortgage lender’s increasing willingness to allow C-PACE into their capital stacks is due to the uniquely attractive features of the C-PACE structure:
- The entire PACE assessment is not senior to debt, only delinquent payments
- The assessment cannot be accelerated
- The senior lender’s normal controls are maintained
- The senior lender retains the right to cure delinquent PACE payments along with other property taxes
- Reduced development risk by delaying start of repayment until stabilization
- Reduced takeout risk with predictable fixed payment schedule
A growing number of mortgage lenders are reaching out and collaborating with C-PACE capital providers because C-PACE reduces financial strain on property cash flows and supports the stability of the senior loan, thus improving the overall capital stack.
2. Increased focus on Operating Efficiencies
As larger property owners focus on improving operating efficiencies, such as reducing utility costs, insurance premiums and capital improvement expenses, they are making long-term investments in energy infrastructure, insulation and weather resistance. These costs can often be 100% financed through C-PACE. Energy efficient buildings tend to achieve higher rents and prices per square foot than buildings with inefficient or obsolete systems.
3. Replacing Traditional Mortgage Structures
In the current rate environment, C-PACE financing is now being used to extinguish maturing mortgage debt. Counterpointe’s record-breaking C-PACE financing of the 706 Mission Four Seasons Residences in San Francisco, the largest such transaction to date in the country, illustrates how C-PACE can serve as a complete financing solution, eliminating the need for conventional debt financing in certain transactions. See the full case study here.
C-PACE providers have increasingly aligned with institutional investors, such as life insurance companies and pension funds, allowing them to directly invest in C-PACE rather than relying on secondary market securitization. This shift removes a potential barrier to larger transactions, as it reduces the complexity and time required to execute deals.
5. A Maturing Market with Strong Demand
C-PACE financing has emerged as an attractive asset class for both lenders and investors. The combination of available capital and a growing need for alternative financing solutions has created an environment where larger C-PACE transactions are not only possible, but increasingly common.
6. Full-Stack Financing Opportunities
CounterpointeSRE now offers full capital stack solutions, allowing developers to streamline their financing sources and decrease carrying costs. Our financings of $316 million full-stack for the Habitat complex in Culver City and $165 million for the Corbin District financing are prime examples of how C-PACE can be paired with a mortgage loan to provide a single-source of financing. See the full case studies here and here.
The Future of Large-Scale C-PACE Deals
“As the market continues to evolve, C-PACE is positioned to play an even greater role in commercial real estate financing.” Says Eric Alini, CEO of CounterpointeSRE. “With lenders becoming more educated and receptive, investors seeing strong returns, and providers offering creative, flexible structures, the trend toward larger C-PACE deals shows no signs of slowing down.”
Expect to see more record-breaking transactions as this financing tool cements its place in the capital markets.