New York City's C-PACE Program is About to Launch

Tuesday, April 6, 2021

By Michael J. Clain (Partner), Mallary A. Lerner (Associate) and Emily Wilk (Researcher)

New York City is about to launch its long-awaited commercial property assessed clean energy (“C-PACE”) program, which allows commercial property owners to use assessment financing, an alternative financing mechanism that has historically been used to fund voter-approved measures such as school bonds and public infrastructure upgrades, to finance property improvements that increase energy efficiency and the use of renewable energy. The program is made available just in time to help finance the estimated $20 billion in retrofits required to meet the massive reduction in building-generated greenhouse gas emissions mandated in New York City by 2030.


C-PACE financing may be offered only by pre-qualified capital providers. Any financial institution may pre-qualify for the program in accordance with guidelines established by the program administrator, the New York City Energy Efficiency Corporation.
C-PACE financing will be available only to owners of commercial or multifamily residential buildings. Office buildings, industrial properties, multifamily residential buildings (including co-ops), tax exempt non-profit and religious facilities and healthcare facilities will be eligible to participate in the program. Buildings that are subject to ground leases and new construction projects will not be eligible initially, but the New York City Council is considering amendments that would expand the program to include them.
C-PACE financing will be available only for energy efficiency improvements and the installation of renewable energy systems. Energy efficiency improvements that may be financed through the program include any renovation or retrofitting of a building to reduce energy consumption, such as window and door replacement, insulation and heating and cooling system upgrades. Renewable energy systems that may be financed through the program include any system for the generation of electric or thermal energy by means of solar, wind, geothermal, anaerobic digester or fuel cell technologies, or any other renewable energy technology approved by the New York State Energy Research and Development Authority. Soft costs such as energy audits and feasibility studies, and indirect costs such as capitalized interest and reserves are also eligible for financing through the program.


Disbursement. C-PACE funds will be disbursed in full at closing into a dedicated disbursement account. Drawdowns from the disbursement account will be subject to any conditions precedent specified in the financing agreement.   
Term. Loan maturities may not exceed the weighted average useful life of the energy-saving equipment installed, often 20 to 30 years.
Interest Rate. The program does not regulate interest rates. Typical C-PACE financing rates in other markets have been in the high 4% to 6% range.
Collection. Payments due on C-PACE financings will appear as a separate line item on the property tax bill of the benefited property.  New York City will collect the payments in the same manner it collects property taxes and will remit them to the lender either directly or through the program administrator.
Security. C-PACE financings will be secured by an interest in the benefited property (called a “benefit assessment lien”) that is senior to all other liens except New York City taxes, assessments and charges. Borrowers will be required to obtain written consent from any existing mortgage lender in order to obtain C-PACE financings. Mortgage lenders are typically willing to consent to C-PACE financing on properties in their portfolio for the reasons outlined below.
Mortgage Recording Taxes. Benefit assessment liens are exempt from mortgage recording taxes, which could materially reduce closing costs.
Recourse. C-PACE financings will be non-recourse to the property owner. The lender’s recourse will be limited to the benefited property, as described below.
Transferability. C-PACE financing is an assessment on the benefited property, not an obligation of the property owner. If the property is sold, the assessment stays with the property and becomes the responsibility of the new owner.
Default. If a property owner fails to pay any amount due to the lender, the unpaid amount will become a lien on the benefited property that is akin to a New York City tax lien. The lender may choose to enforce the lien on its own or allow New York City to collect it in the same manner it collects overdue municipal charges. The lender will not be permitted to accelerate the outstanding principal balance of the financing.


Property Owners. C-PACE financing offers several benefits to the property owner over any combination of equipment loans, vendor financing and lines of credit it may otherwise employ to finance energy improvements:

  • It provides up to 100% financing;
  • It is non-recourse to the owner;
  • It provides long-term financing (as long as 20 to 30 years);
  • It is transferable with the property, ensuring that the owner only pays for the energy savings it receives; and
  • Payments on C-PACE financings can be passed through to commercial tenants on many leases, helping the owner recover its investment in improved tenant spaces.

Senior Mortgagees. From the point of view of a mortgage lender, C-PACE financing closely resembles a mezzanine loan. Like the typical mezz loan, C-PACE financing is not a debt of the property owner and does not interfere with the mortgage lender’s ability to exercise its remedies against the property. In addition:

  • C-PACE loans cannot be accelerated, providing additional comfort to the mortgage lender that it won’t be forced to take enforcement action in the event of a default; and
  • Mortgage lenders can protect against defaults on C-PACE loans by requiring escrows or reserves, as they would for tax payments and insurance premiums.

Capital Providers.  From the point of view of the capital provider, a C-PACE financing behaves mostly like a high quality, long-term fixed rate bond.

  • C-PACE financings are well suited for inclusion in investment portfolios of pension funds, insurance companies and other institutional investors.
  • C-PACE financings are typically originated by relatively small, specialized financial institutions that have the necessary technical and regulatory expertise but lack the capital needed to be long-term investors. Few commercial banks have sought to pre-qualify as capital providers.
  • Commercial and investment banks have typically provided a bridge between originators and long-term investors, by offering warehousing facilities and purchasing and securitizing whole loan portfolios.

We’d be pleased to help you evaluate this alternative financing mechanism and determine if it is a good fit for your institution.


We will continue to monitor developments in New York City’s C-PACE program
and provide additional details as they become available.
In the meantime, please feel free to contact us if you have any questions.


Learn more about our Renewable Energy & Sustainability Practice Group


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