Decarbonize NY - C-PACE Financing: What New York Property Owners Should Know
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sustainability professionals in their pursuit of a greener New York.
Commercial Property Assessed Clean Energy (C-PACE) financing allows owners to fund eligible energy-related improvements over the long term without relying solely on a conventional mortgage or unsecured debt. In New York City, the program was authorized by Local Law 96 in 2019 and is run by the Mayor's Office of Climate and Environmental Justice, with the New York City Energy Efficiency Corporation (NYCEEC) serving as program administrator through NYC Accelerator. Outside the City, a separate statewide program, Open C-PACE, is administered by the Energy Improvement Corporation in participating municipalities. This article addresses only the New York City program.
A note on terminology. New York City's rules and program documents describe the financing as a "PACE loan" made by a "PACE lender" and repaid through a "PACE charge". The industry, and the statewide program, generally refer to the funder as a capital provider and to the charge as a benefit assessment, reflecting the fact that the obligation is structured as an assessment on the property rather than a conventional loan. We'll use the City’s terms in this article.
How the Financing Works
A PACE lender, qualified by NYCEEC, advances funds for eligible project costs. The owner repays the financing through a PACE charge that the Department of Finance adds to the property tax bill, collects on the building's regular tax schedule and remits to the PACE lender. The charge is listed separately on the bill.
The PACE charge is secured by a lien on the property that has the same priority as real property taxes: it is subordinate to the City's own tax and assessment liens, but senior to any mortgage. Beyond lien priority, these are the salient characteristics of this type of financing:
- The repayment term may run as long as the weighted average useful life of the financed improvements (excluding the construction period), which for major mechanical and envelope work is commonly 20 to 30 years.
- The rate is fixed, though the program permits a single one-time adjustment.
- The financing cannot be accelerated. If a payment is missed, only the delinquent installment becomes a lien, which accrues interest at the rate applicable to delinquent property taxes, and the PACE lender, not the City, is responsible for enforcement.
- The obligation runs with the land, so a purchaser assumes the remaining installments and the owner need not pay off the financing to sell.
Subject to the limits described below, C-PACE may cover up to 100% of eligible hard and soft costs, with no equity contribution required.
Eligible Properties
Any property in the five boroughs is eligible, other than residential buildings with fewer than three units. Commercial, industrial and office properties qualify, as do properties owned by tax-exempt organizations, including religious institutions. Condominiums may participate either through a sponsor or owner holding three or more units or through the condominium association on a building-wide basis, and cooperatives may borrow at the corporate level. The property, and its owner, must be current on City taxes, water and sewer charges and any civil penalties at closing.
Eligibility is not limited to existing buildings. New construction and major renovation projects qualify, generally provided that the result is an all-electric building. Adaptive-reuse projects that convert an existing building to a new use have become eligible under the 2026 guideline revisions discussed below.
Ground-leased properties are eligible, subject to certain conditions. The lessee may be the borrower if the lease covers the entire tax lot, runs at least as long as the financing term, and is recorded or eligible for recording. The fee owner must consent to the PACE charge in writing, and it must be free of outstanding City charges.
Eligible Improvements and Costs
Qualifying energy-efficiency improvements include building-envelope work, heating and cooling systems (including heat pumps), domestic hot water, electrical service upgrades, energy-recovery ventilation, EV charging and, as discussed below, use of building materials with reduced embodied carbon. Qualifying renewable-energy systems include solar, battery storage and fuel cells. Ancillary work necessary to complete an eligible measure, such as roof repairs beneath a solar array, may be financed, as may health-and-safety work encountered along the way, such as asbestos, lead or mold abatement. Related soft costs, including audits, engineering and closing costs, are generally eligible, and completed work may be financed retroactively if it was finished within three years before the financing agreement is signed.
Retrofit projects generally must be cost-effective, meaning the projected savings over the useful life of the improvements must at least equal their cost. Since 2024, avoided Local Law 97 penalties count as savings for this purpose, which materially improves the arithmetic for buildings over their emissions caps. A retrofit that fully electrifies the building is pre-qualified and exempt from the cost-effectiveness test altogether. A qualified engineering firm must certify the cost and savings projections.
Financing Limits
For retrofits of existing buildings, the financing is capped at 100% of eligible project costs. For new construction, major renovation and adaptive-reuse projects, the cap is 35% of the property's stabilized value, as established by an accredited appraisal no more than two years old, plus financing costs and capitalized interest. New construction and major renovations generally must result in an all-electric building. Both caps are discussed further below.
What Changed in 2026
Two sets of changes this year make the program considerably more useful, particularly for larger and more complex projects.
Revised Program Guidelines (June 26, 2026). The June revision of the Program Guidelines made three changes of particular significance:
- Embodied carbon. Reducing embodied carbon, meaning the emissions associated with producing and installing a building's materials, is now treated as a qualifying energy-efficiency improvement for new construction, major renovation and adaptive-reuse projects. In practice this means that low-carbon concrete and structural steel meeting the program's emissions limits may be financed, as may timber used in mass-timber buildings. A certified third party must document the reduction against the applicable baseline.
- Adaptive reuse. Adaptive reuse, defined as a change-of-use project that retains at least half of the existing structure and building enclosure, is now expressly eligible. In addition, a portion of the acquisition cost of the building being converted may be financed where the project cost exceeds the building's basis or appraised value. That portion may not exceed the percentage reduction in embodied carbon achieved by reusing the structure. Office-to-residential conversions are the obvious beneficiaries.
- New financing caps. The same revision replaced the former cost-based limit for new construction and major renovation with the 35% stabilized-value cap described above, which also applies to adaptive reuse. Within that cap, low-carbon materials may account for no more than half of the financing, and acquisition cost and low-carbon materials together may account for no more than 65%.
Installment Disbursement (effective August 8, 2026). A Department of Finance rule amendment now allows proceeds to be disbursed in installments as construction progresses, rather than requiring the full amount to be treated as disbursed at closing. Interest therefore accrues only on funds actually advanced. The capital provider must provide a repayment schedule based on anticipated disbursement dates at closing and, before the first payment date, an amended schedule reflecting actual disbursements. For a project with an 18- or 24-month construction period, the savings can be significant.
Required Consents
Because the PACE charge primes the mortgage, every mortgage holder must consent on the program's form before closing, confirming among other things that the PACE charge will not trigger a default under the mortgage. (For a cooperative, only the cooperative corporation's mortgage holders need to consent.) If the building is located on property covered by a ground lease, the ground lessor must also consent in writing on the program's form, as noted above. Mortgage lenders commonly condition consent on escrows or reserves for the PACE installments, covenants to comply with program requirements, and cross-default provisions, and some will require that the combined mortgage and PACE debt stay within a loan-to-value limit. The borrower must also update its Department of Finance property records so that the mortgage lender and, if relevant, the ground lessor receive notices of delinquent charges.
Practical Considerations
C-PACE is often the least expensive long-term capital available for the electrification, envelope and system upgrades that Local Law 97 compliance requires, and the ability to finance 100% of costs over the useful life of the equipment can turn a retrofit from a capital-budget problem into a cash-flow-neutral or cash-flow-positive one. It is not, however, a quick close. Technical certification, mortgage lender consent and program approval each take time, and the financing must be sized alongside the existing mortgage and any construction loan. Owners should also review their leases before closing, since whether the PACE charge can be passed through to tenants depends on how each lease treats taxes and assessments, a subject we will address separately in the next issue.
Owners considering a retrofit, conversion or ground-up project in New York City should involve their mortgage lender, a qualified PACE lender, NYCEEC and counsel early in the planning process. Please contact a member of our team if you would like to discuss whether C-PACE is a good fit for your building.
On the Horizon
Items to Watch - Another C-PACE Expansion Is Pending - A.5404-C/S.1335-C has passed both houses of the State Legislature, but has not yet been enacted. The bill would amend the State enabling statute to give express statutory authority for the low-carbon building components that New York City’s June guideline revisions already treat as eligible, add resiliency and water improvements as eligible measures statewide, and replace the current cost-based limits with a 35%-of-appraised-value cap and a 90% combined-debt limit for all commercial projects, including retrofits, which the City could not do by guideline alone. Unlike the City’s June revisions, which are in effect now, none of this is available until the Governor signs the bill, its operative provisions take effect 120 days later, and NYSERDA publishes implementing guidelines.
Program Available – New Heat-Pump Incentives for Multifamily Development – Launched September 25, 2026, NYSERDA’s New Efficient Homes New York: Heat Pump Incentive offers initial incentives of $6,000 per dwelling unit for air-source heat pumps and $15,000 for ground-source systems, subject to a cap of 35% of installed equipment costs. To qualify, residential projects must be under 50,000 square feet and satisfy the program’s affordability and electrification requirements. This incentive applies to new construction, adaptive reuse and substantial renovations.
Legislative Watch – J-51 Expansion Moves to the Mayor’s Desk – On September 24, 2026, the Council approved Int. 1015-A, which would increase the maximum J-51 property-tax abatement from 70% to 100% of HPD-certified reasonable rehabilitation costs, with benefits available over as many as 20 years. The bill awaits mayoral action and provides for a January 1, 2027 effective date. For landlords planning LL97 upgrades, the potential tax savings come with conditions: certain landlords would have to waive major capital improvement rent increases for the work receiving benefits and comply with continuing rent-regulation requirements. Landlords should confirm eligibility and weigh the anticipated tax savings against any rent-recovery rights they would surrender.
Upcoming Deadline – February 1 Matters for LL97 Filing Extensions – Owners preparing their May 1, 2027 LL97 reports should keep an earlier date in mind. Under DOB’s rules, an owner seeking an extension because its Registered Design Professional could not complete the report on time must support the request with a contract executed no later than February 1 of the filing year, together with an affidavit signed by both parties. Waiting until spring to retain the professional could therefore foreclose this ground for an extension.
Contact
Please do not hesitate to reach out to us if you have any questions regarding these developments. Contact Michael J. Clain, Partner, Benjamin M. Ellis, Special Counsel, or William C. Ladd, Associate.
Disclaimers
In some jurisdictions, this material may be deemed as attorney advertising. Past results do not guarantee future outcomes. Possession of this material does not constitute an attorney/client relationship. This information is provided for your convenience and does not constitute legal advice. It is prepared for the general information of our clients and other interested persons and it may include links to websites other than the Windels Marx website. This information should not be acted upon in any particular situation without first consulting with an attorney and obtaining legal advice based on your specific facts and circumstances.
