Unlocking capital for development: The power of C-PACE financing in a tight credit market

By Stephen Arrivello, PACE Equity LLC

Background on C-PACE Financing

Commercial Property Assessed Clean Energy (C-PACE) financing is increasingly being recognized as a critical tool for commercial real estate owners and developers navigating today’s challenging credit environment. With traditional financing sources tightening and interest rates rising, securing capital for construction and renovation projects has become more difficult. C-PACE provides an alternative source of long-term, low-cost financing, repaid through a special assessment on the property’s tax bill.

Adopted in most states and the District of Columbia, C-PACE helps developers secure much-needed capital while preserving liquidity and reducing reliance on costly mezzanine debt or equity. The financing is non-recourse, provides up to 100% of eligible project costs, and remains with the property upon sale or transfer, making it an attractive option for owners, investors, and lenders looking to complete projects in a constrained financial environment.

Value Proposition for Developers and Real Estate Investors

For commercial building owners, developers, and real estate advisors—including attorneys, architects, and finance professionals—C-PACE financing presents significant advantages:

Alternative Capital Source in a Tight Credit Market

C-PACE fills financing gaps created by cautious banks and expensive private lenders.

Reduces Need for Expensive Equity and Mezzanine Debt

With interest rates rising, C-PACE provides long-term, fixed-rate financing at lower costs than traditional secondary debt.

Improves Capital Stack Efficiency

Developers can layer C-PACE financing into their projects to lower their weighted average cost of capital (WACC).

Longer Repayment Terms with Fixed Rates

C-PACE terms extend up to 30 years, providing more manageable repayment structures compared to traditional loans.

Preserves Developer Liquidity

With C-PACE covering key project costs, developers can allocate capital to other critical needs instead of tying up funds in construction expenses.

Applications of C-PACE: New Construction, Renovations, and Redevelopments

C-PACE financing is particularly valuable for developers struggling to secure funding for various real estate projects:

New Construction – With banks pulling back on commercial real estate lending, developers are turning to C-PACE to finance a portion of hard and soft costs, reducing reliance on high-interest debt.

Major Renovations and Redevelopments – Property owners upgrading buildings or converting properties for new uses can utilize C-PACE to cover costs associated with structural improvements, building system replacements, and energy-efficient enhancements.

Capital Stack Optimization – Developers can use C-PACE to refinance existing obligations or replace expensive short-term loans, improving overall financial stability and project viability.

C-PACE in New Jersey: A Game-Changer for Project Financing

New Jersey recently launched its C-PACE program, creating new opportunities for developers seeking to finance projects amid rising borrowing costs. The program, which began accepting applications in late 2023, aligns with national best practices to ensure accessibility and efficiency.

With traditional lenders tightening their underwriting standards, New Jersey’s adoption of C-PACE allows developers to secure additional funding without stretching their balance sheets. In cities like Newark, Jersey City, and Camden, C-PACE is already helping to bridge financing gaps for commercial developments, ensuring projects stay on track despite challenging financial conditions.

Integrating C-PACE with Senior Debt: A Capital Stack Strategy

One of the most strategic applications of C-PACE is its ability to complement senior debt, mezzanine financing, and equity contributions. Lenders recognize C-PACE as a stabilizing force in the capital stack, reducing overall project risk. Since C-PACE assessments are structured as a tax obligation, they hold a priority lien but do not accelerate in case of default, making them lender-friendly.

For example, a developer constructing a $50 million mixed-use project may secure a $35 million senior loan but require additional funding for infrastructure, systems, and envelope improvements. Instead of turning to high-cost mezzanine debt, the developer can secure a $10 million C-PACE loan, freeing up cash flow and reducing overall borrowing costs. The remaining $5 million can be raised through equity, ensuring the project moves forward without excessive financial strain.

Conclusion

In an environment where securing construction financing has become increasingly difficult, C-PACE offers commercial real estate stakeholders—owners, developers, and financial advisors—a viable solution to keep projects funded and moving forward. As more states, including New Jersey, embrace this model, developers should consider integrating C-PACE into their capital strategies. Whether for new construction, major renovations, or repositioning assets, C-PACE enhances financial flexibility, lowers borrowing costs, and ensures project success, even in turbulent credit markets.

Stephen Arrivello is Managing Director at PACE Equity LLC, a nationwide C-PACE lender.