C-PACE: The Most Versatile Capital in the Stack

C-PACE financing is an agile financing option for commercial real estate capital stacks. Developers are relying on its ability to provide creative, flexible capital solutions within the stack. 

The commercial real estate sector is facing continued high interest rates, declining valuations, persistently high construction costs, and a looming maturity wall of nearly $1 trillion in debt coming due this year. Successfully capitalizing or recapitalizing a project has sponsors turning to a variety of sources with their own pitfalls but there is another option.

Over the past decade, C-PACE — shorthand for Commercial Property Assessed Clean Energy — has funded more than $10 billion across thousands of projects, with more than $2.5 billion completed in 2024 alone. The steady increase in both deal size and volume reflects a market that increasingly views C-PACE as a mainstream method to solve capital stack challenges.

“C-PACE is a way to solve challenges,” said Ethan Elser, executive vice president at PACE Equity. “If a project needs more leverage or a blend of lower-cost capital compared to a stretch senior, C-PACE can fill that need at a lower cost than mezzanine debt or equity, while allowing the senior lender to maintain their client relationship and execute the deal. C-PACE can make the economics feasible in today’s market, something every sponsor is contending with.”

In the early days, the product was originally viewed as a way to cover modest energy or efficiency upgrades. Today, C-PACE has evolved as a powerful “multi-tool” which can be used creatively across a variety of scenarios, including large developments and recapitalizations. 

“As the market has matured, sponsors are increasingly understanding that the same advantages that make C-PACE valuable in smaller projects — increased leverage, the nonrecourse structure, and a lower cost of capital — are just as compelling in larger ones,” Elser said. “That shift in thinking has opened the door to bigger, more impactful deals, and it’s why we’ve launched a solution to meet the demands of projects needing more than $50 million of C-PACE financing.”

The power of C-PACE for larger assets 

Recently, PACE Equity funded $63.3 million mid-construction for a luxury hospitality and mixed-use development in Deer Valley, Utah – the Stelle Lodge and Resort. The financing was more than 40 percent LTC and provided capital to complete the project without additional equity from the sponsor. The funding took advantage of PACE Equity’s signature CIRRUS C-PACE program, offering reduced financing rates for high-performance buildings.

PACE Equity recently launched a new financing solution designed specifically for the needs of larger developments and recapitalizations, such as those looking for $50 million or more. With fixed interest rates, payment deferrals for up to four years, and the flexibility developers need to complete construction, stabilize assets, and execute business plans, PACE Equity’s solution can fund at pre-construction, during construction, or up to 3 years after certificate of occupancy. The funds can be deployed not only as development capital but also to recapitalize assets – paying down or paying off debt or mezz, replenishing or increasing reserves, or extending the runway to stabilization or exit.

Key features: 

Flexible prepayment and exit strategy: The product is structured with a tight exit on the prepayment side, aiming for a 0 percent prepayment penalty after five years, with only limited penalties after three to four years.

Attractive pricing: The new solution offers significantly lower pricing compared to other potential financing options, such as bridge loans, which can have spreads as high as 13 percent.

Deferred payments: The financing can defer payments for three to four years, a highly attractive feature that allows developers to finish their business plan without immediate debt service obligations.

This new offering provides developers with the flexibility they need to navigate the current market without paying a premium spread or exit cost.  

What’s ahead for C-PACE 

The growth of C-PACE transaction sizes, combined with expanding institutional adoption, signals that C-PACE is now a permanent and powerful fixture in commercial real estate finance. Smart sponsors recognize its versatility as a way to reduce overall WACC, improve returns, and solve for refinancing scenarios. For their part, lenders recognize C-PACE as a tool to win business and strengthen assets. With a history of industry “firsts” and a proven record of innovation, PACE Equity is positioned at the forefront of the evolution to larger transactions making C-PACE the most versatile capital in the stack. With the flexibility sponsors need, C-PACE will continue to expand its role in the capital markets for years to come.