#pace financing

Excerpt from this New York Times story:

Developers grappling with the cost of new laws enacted to combat climate change are taking advantage a little-known finance tool to help pay for green-building requirements.

The model for the loans, known as Property Assessed Clean Energy, was created in 2008 to fund improvements that create environmentally sustainable and resilient properties. Now, developers are turning to PACE loans to help create more energy-efficient buildings and meet tougher environmental standards.

In Omaha, for instance, the Capitol District, a $205 million mixed-use entertainment development, has become the latest milestone in a long-running effort to revitalize the downtown area. The project’s developer, Shamrock Development, tapped a PACE program to pay for LED lighting, heat pumps, low-flow water fixtures, and other building materials and equipment to enhance energy and water efficiency.

When commercial property owners in the Tar Heel State look to upgrade their facilities, they often find themselves at a crossroads: should they utilize a standard mortgage or explore the specialized benefits of C pace in North Carolina? Deciding between C-PACE in North Carolina and traditional commercial lending requires a deep understanding of how each affects a balance sheet, property value, and long-term cash flow. While traditional loans are the familiar path, C-PACE offers a unique assessment-based structure that is rapidly transforming the landscape of commercial real estate development and renovation across the state.

What is C-PACE and How Does It Differ from Traditional Loans?

Commercial Property Assessed Clean Energy (C-PACE) is a financing mechanism that allows property owners to fund 100% of the upfront costs for energy efficiency, water conservation, and renewable energy projects. Unlike a traditional bank loan, C-PACE is not a personal or corporate debt; rather, it is a voluntary tax assessment tied directly to the property.

Key Differences at a Glance:

Security: Traditional loans are secured by the business or owner’s credit; C-PACE is secured by a land record (similar to a sewer assessment).

Term Length: Traditional loans typically cap at 7-10 years; C-PACE terms can extend up to 20-30 years, matching the useful life of the equipment.

Transferability: If the property is sold, the C-PACE assessment automatically transfers to the new owner, whereas traditional loans must usually be paid off or refinanced upon sale.

Is C-PACE More Affordable Than a Traditional Commercial Bank Loan?

One of the most common questions from developers is whether C-PACE is "cheaper." The answer lies in the Weighted Average Cost of Capital (WACC). While a senior bank loan might have a lower interest rate (e.g., 5-7%) compared to C-PACE (e.g., 6-9%), C-PACE covers 100% of the project cost.

In many capital stacks, C-PACE replaces high-interest mezzanine debt or expensive equity. By swapping out 15% interest equity for 8% C-PACE financing, the overall cost of the project decreases significantly. Furthermore, because the repayment is spread over 25 years, the annual debt service is often lower than the energy savings generated by the upgrades, creating an immediate positive cash flow.

How Does C-PACE Affect Property Value Compared to Standard Financing?

Traditional financing is often viewed as a liability that can limit future borrowing capacity. In contrast, C-PACE is often viewed as a value-add. Because the upgrades—such as high-efficiency HVAC, LED lighting, or solar arrays—reduce operating expenses (OpEx), the Net Operating Income (NOI) of the property increases.

In commercial real estate, a higher NOI directly correlates to a higher property valuation. Additionally, because C-PACE is non-recourse, it does not sit on the owner's personal credit line, preserving borrowing power for other business ventures.

Why Should Developers Choose C-PACE for New Construction?

Are you wondering how to fill a "funding gap" in your next project? In North Carolina, developers are increasingly using C-PACE to replace more expensive components of their capital stack.

No Out-of-Pocket Costs: Fund the entire "green" portion of a build without depleting cash reserves.

Long-term Stability: Fixed interest rates for 20+ years protect against market volatility.

Tenant Pass-Through: In many triple-net (NNN) leases, the C-PACE assessment can be passed through to tenants who are benefiting from the lower utility bills, something that is difficult to achieve with a traditional mortgage.

What are the Limitations of Traditional Commercial Loans?

Traditional loans often require significant "skin in the game," usually demanding 20-30% down. They also come with restrictive covenants and may require a balloon payment after five years. For projects focused on sustainability, a traditional lender may not fully value the long-term energy savings in their underwriting process, leading to lower loan-to-value (LTV) ratios.

Is C-PACE the Right Choice for Your North Carolina Property?

The choice depends on your exit strategy. If you plan to hold the property for more than five years and want to maximize energy efficiency without increasing your personal debt load, C-PACE is often the superior option. However, if you are looking for a short-term "bridge" and don't have significant efficiency upgrades planned, a traditional line of credit might suffice.

For those specifically looking at the benefits of C pace in North Carolina, it is vital to consult with a provider who understands the local legislative nuances. By leveraging C-PACE in North Carolina, you can modernize your infrastructure while ensuring your capital remains liquid for other growth opportunities.

Frequently Asked Questions (FAQ)

What is the primary difference between C-PACE and a commercial loan?

C-PACE is a property tax assessment with terms up to 30 years, while a traditional commercial loan is a private debt obligation usually lasting 5 to 10 years. C-PACE is tied to the property, not the owner.

Can I use C-PACE for a property I already own?

Yes. C-PACE can be used for "retrofits" of existing buildings or even "retroactive financing" for projects completed within the last few years (depending on local NC regulations), allowing owners to recoup capital spent on efficiency.

Does my bank have to agree to C-PACE financing?

Yes. Since the C-PACE assessment takes a senior position to the mortgage (similar to property taxes), the existing mortgage holder must provide "Lender Consent." Most banks agree because the improvements increase the collateral's value and the property’s cash flow.

Is C-PACE debt or equity?

C-PACE is technically a "super-senior" lien, but in the eyes of an accountant, it often functions as an off-balance-sheet financing tool since it is an assessment rather than a corporate loan.

How do I apply for C-PACE in North Carolina?

Commercial property owners across the state are increasingly using C pace in Virginia to fund building upgrades that reduce operating costs, improve performance, and support sustainability goals. One of the most common questions owners ask is what types of projects actually qualify. From major mechanical upgrades to renewable energy systems, PACE financing covers a wide range of improvements—making it easier to plan comprehensive, future-ready projects centered on PACE eligible improvements and green energy building upgrades.

Understanding PACE Financing Eligibility

PACE (Property Assessed Clean Energy) financing is designed to support projects that deliver measurable energy savings, water efficiency, renewable energy generation, or building resilience. Rather than focusing on cosmetic renovations, PACE prioritizes upgrades that improve long-term building performance.

General eligibility requirements include:

Improvements must be permanently affixed to the property

Projects must reduce energy or water use, or improve resilience

Useful life of the improvement must align with repayment terms

Savings are typically documented through engineering analysis

This framework allows owners to invest in impactful upgrades without large upfront capital.

HVAC and Mechanical System Upgrades

HVAC systems are among the most common and highest-impact PACE eligible improvements because they account for a large share of building energy use.

Qualifying HVAC and mechanical upgrades include:

High-efficiency chillers and boilers

Heat pump and VRF systems

Rooftop unit replacements

Energy recovery ventilation (ERV) systems

Variable speed drives for fans and pumps

Building automation and controls

These upgrades reduce energy consumption, improve occupant comfort, and lower maintenance costs.

Lighting and Electrical Efficiency Improvements

Lighting upgrades are often paired with HVAC improvements to maximize savings and improve building functionality.

PACE-eligible lighting and electrical projects include:

LED lighting retrofits

Occupancy and daylight sensors

Advanced lighting control systems

Electrical system upgrades tied to efficiency improvements

Modern lighting systems reduce electricity use while enhancing indoor environments.

Building Envelope Improvements

A poorly performing envelope increases heating and cooling demand year-round. PACE financing supports envelope upgrades that reduce energy loss and protect the building structure.

Common envelope improvements include:

Roof replacement with added insulation

High-performance windows and glazing

Wall insulation upgrades

Air sealing and weatherization

Cool roofs and reflective coatings

These improvements stabilize indoor temperatures, extend equipment life, and reduce operating expenses.

Renewable Energy and Green Power Systems

Renewable energy is a core component of green energy building upgrades, and PACE financing makes these systems more accessible.

Renewable energy projects that qualify include:

Solar photovoltaic (PV) systems

Solar thermal water heating

Geothermal heating and cooling systems

Energy storage when paired with eligible systems

On-site generation reduces reliance on grid power and supports long-term energy cost stability.

Water Efficiency Improvements

Water costs are rising across many commercial sectors. PACE supports water-saving upgrades that lower utility expenses and reduce strain on local resources.

Eligible water efficiency improvements include:

Low-flow plumbing fixtures

Cooling tower optimization

Efficient irrigation systems

Water reuse and recovery technologies

These upgrades complement energy projects and improve overall building efficiency.

Resilience and Building Performance Upgrades

In addition to efficiency and renewables, PACE financing supports improvements that enhance building resilience and durability.

Qualifying resilience projects may include:

Seismic strengthening

Flood mitigation measures

Storm-resistant roofing and structural upgrades

Electrical system hardening

Backup power when tied to eligible improvements

These upgrades protect assets and reduce long-term risk.

Bundling Multiple Improvements for Maximum Impact

One of the biggest advantages of PACE financing is the ability to bundle multiple eligible upgrades into a single project.

Benefits of bundling include:

Greater overall energy and cost savings

Improved project economics

Ability to pursue deeper retrofits

Simplified financing and repayment

Bundled projects often deliver stronger returns than single-measure upgrades.

Why PACE Is a Strong Fit for Virginia Properties

Virginia’s diverse commercial real estate market—spanning office, industrial, hospitality, retail, healthcare, and mixed-use properties—makes it well-suited for PACE financing. Rising energy costs, aging building stock, and growing sustainability expectations are driving owners to seek long-term solutions.

PACE allows owners to modernize buildings without disrupting cash flow or existing financing, making it a practical tool for long-term ownership strategies.

Plan Your Upgrade Strategy With C-PACE in Virginia

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