Phase one of the Black Desert Resort project in Ivins, Utah, adjacent to Zion National Park, opened for a soft launch in October. This 630-acre development phase includes a resort hotel, spa, golf course, approximately 1,000 condominium units, and 190,000 square feet of commercial space, including retail shops and restaurants.

The sustainability-focused resort utilized Commercial Property Assessed Clean Energy (C-PACE) financing to fund high-efficiency HVAC systems, insulation, seismic reinforcement, and water conservation measures.

"We want to develop properties in an environmentally sustainable and community-responsible way that the community can be proud of," said Jon Day, Chief Financial Officer of Reef Capital Partners, the commercial real estate investment firm that owns the resort. "Irrigation systems and water storage facilities prioritize water conservation, which is especially important in a desert region like Utah. We used industry-leading technology and materials, and the C-PACE funds were a great help."

Managing Partner Patrick Manning cited other sustainable features of the resort: the project uses low-voltage power over Ethernet, "with lighting, security cameras, and door locks throughout the property operating on just 10 volts," he said. "C-PACE helped us achieve this and the water conservation measures. It's because of C-PACE that we were able to finance projects that banks were unwilling to lend for." Manning described the entire process as "smooth and hassle-free."

Petros PACE Finance, which provided $153 million in C-PACE financing for the resort, called the project "the largest single transaction in C-PACE history" when the deal closed in October 2022. Day said the resort secured financing with a 30-year term, a 7% interest rate, and a 25-year amortization period.

The mechanism "looks exactly like a property tax assessment. It doesn't have the restrictive covenants found in a typical mortgage, nor does it require additional collateral."

Mansoor Ghori
Founder and Chief Executive Officer of Petros PACE Finance

C-PACE is increasingly becoming a common way for commercial property owners and operators to finance sustainable improvements, including renovation and energy efficiency projects. In jurisdictions where the program is available, it is an attractive option for facilities seeking long-term financing with lower monthly payments, said Jennifer Nuckles, Chief Executive Officer of R-Zero.

Characteristics of C-PACE Financing

Through C-PACE, building owners and operators can typically obtain long-term, fixed-rate, non-recourse financing of up to 30 years for real estate projects that improve energy or water efficiency, including renovations, upgrades, and renewable energy installations. Interest rates can be as low as 7%, according to investment firm Peachtree Group. The firm says it has facilitated 91 C-PACE transactions totaling $925 million.

The financing offers other advantages. The mechanism "looks exactly like a property tax assessment. It doesn't have the restrictive covenants found in a typical mortgage, nor does it require additional collateral," said Mansoor Ghori, Founder and Chief Executive Officer of Petros PACE Finance. According to its website, the company has funded C-PACE transactions in 17 states and the District of Columbia. Ghori said a project can typically obtain C-PACE funds of up to about 30% of the building's value.

Also noteworthy, according to a report by Patrick Dolan and Anna Lee, partners at law firm Norton Rose Fulbright, repayment is tied to the building undergoing the efficiency improvements, not the property owner. The firm represented Petros in New York City's first C-PACE financing transaction. That $89 million deal, completed in 2021, funded energy efficiency upgrades for a building in the Wall Street area.

C-PACE financing "has evolved from a niche product into a fairly mainstream financing tool. It now reaches an institutional client base that didn't exist before, largely thanks to legislative expansion and educational resources," said Rafi Golberstein, Chief Executive Officer of PACE Loan Group, headquartered in Minneapolis. The company provides C-PACE financing nationwide.

State Progress and Obstacles

C-PACE financing must be authorized by state or local government through legislation, after which the program can be implemented in that jurisdiction. According to the PACENation website, Washington, D.C., and 40 states have passed PACE enabling legislation, while the District and more than 30 states have active C-PACE programs.

North Carolina is among the most recent states to approve C-PACE legislation, signing a bill in July, following legislation in Georgia and Idaho earlier last year.

Minnesota signed a bill in May extending the maximum term for C-PACE financing from 20 to 30 years and increasing the loan-to-value ratio from 20% to 30%. The amendments also expanded eligible PACE projects to include building resilience improvements and water conservation measures. Golberstein said the state's program can now finance energy projects, including fuel switching, and no longer requires qualified energy projects to reduce net energy consumption as long as greenhouse gas emissions are reduced.

Golberstein also said the law removed the requirement that projects be cost-effective. Testifying at a March meeting of the Minnesota House Climate and Energy Finance and Policy Committee, Golberstein said this requirement had hindered electrification and decarbonization projects in the state.

"C-PACE can provide a significant boost for projects that are difficult to finance or for borrowers with weaker equity positions—but established developers with strong balance sheets may not see the same benefits."

Chris Nevin
Midwest Regional Manager, Institutional Real Estate, First National Bank

Maryland requires an amortization period of no more than 20 years, which makes the mechanism less financially attractive in that state, said Chris Nevin, Midwest Regional Manager of Institutional Real Estate at First National Bank.

When considering C-PACE financing for a specific project, "the numbers have to work. C-PACE can provide a significant boost for projects that are difficult to finance or for borrowers with weaker equity positions—but established developers with strong balance sheets may not see the same benefits," Nevin said. "In fact, in some cases, it could actually add cost over the long term."

While states like Minnesota are making progress in expanding C-PACE, New York City faces a more challenging path. The city established its C-PACE program in 2019 under the Climate Mobilization Act, but according to PACE Loan Group, only three transactions have closed since 2021.

One obstacle is the requirement that all projects achieve a savings-to-investment ratio (SIR) of 1.0 or higher. This means "projected energy savings must equal or exceed the cost of the investment," and "projects must demonstrate that for every dollar of PACE funds requested, a dollar is saved," said Laura Rapaport, Founder and Chief Executive Officer of North Bridge. The firm provides C-PACE financing to institutional commercial real estate developers nationwide.

However, in August, the New York State Energy Research and Development Authority updated its statewide guidelines, eliminating the SIR requirement for certain projects, including new construction and major renovations eligible for C-PACE, retrofits that fully electrify buildings, and installations of HVAC, ventilation, or hot water systems that meet specific efficiency standards. These changes apply statewide; New York City's Accelerator PACE financing program also updated its guidelines in August to reflect these changes.

"The SIR requirement previously limited C-PACE adoption because many projects struggled to demonstrate immediate cost parity," Rapaport said. "With the SIR hurdle removed and the inclusion of new construction and major renovations, we expect C-PACE adoption in New York City to expand rapidly."

C-PACE and Multi-State Projects

Despite the appeal of C-PACE financing, its state-by-state implementation may give pause to building owners and developers managing multi-state portfolios. "Each state has its own tax laws," Golberstein said. If a company wants to use it for improvements on properties in multiple states, it must obtain financing separately in each state.

"When we think about larger real estate investment trusts or regional owners with portfolios spanning three or four states or markets, the key is to do a small pilot transaction first. If it works, then replicate it across the portfolio where applicable," Golberstein said.

Nuckles advises owners with large portfolios to conduct portfolio-level audits to identify properties with the greatest cost-saving potential. "I would tailor each C-PACE transaction to the specific needs of the properties within the portfolio. Improvements can also always be phased in," she said. "A hotel owner with four properties should start from a portfolio perspective and then drill down to the individual property level. It's possible for owners and operators to achieve savings that exceed costs in a given year."

Golberstein emphasized the similarities among state programs. "So, if you've done PACE in Tennessee, doing it in Nebraska would be surprisingly similar. There will be nuances, but overall the process is the same. So, the real question is whether your state is a PACE-eligible state," he said.

However, Jaime Del Álamo, Head of ESG Value and Risk for the Americas at JLL, sees more differences. "C-PACE operates more regionally, with conditions varying greatly by state—rules, vendor availability, and even eligibility criteria all differ," said Del Álamo, who is currently involved in several C-PACE financing transactions. "Individually, it's an excellent financing alternative, but I don't think it's mature enough yet for us to offer a single national solution to one owner and say, 'Okay, we can finance your X properties across the country with C-PACE,' because right now there are a lot of nuances in each market and even in market performance."

Nuckles pointed to the long-term benefits that C-PACE-funded retrofits can bring, including lower maintenance and operating costs as well as reduced energy consumption.

C-PACE "is adaptable and cost-effective," Nuckles said. "It represents an evolution in the real estate industry, taking significant strides toward a more sustainable future."