Lender Misconceptions about C-PACE
Protecting All Stakeholders
Retroactive C-PACE can offer immediate partial repayment of a senior loan. By doing so it can immediately improve all key lender metrics including LTV, DSCR, and Debt Yield.
In addition to meaningful repayment of principal, C-PACE can offer replenishment of senior lender reserves. Since C-PACE capitalizes up to two years of its own interest, the first payment may not even be due until after the term of the in-place loan has expired.
So why wouldn’t a lender consent to C-PACE? It’s usually a misunderstanding of what C-PACE means for them.
Misconception 1: “Priming”
The most common lender misconception is that C-PACE “primes” the first-mortgage claim on the property.
Proceeds from capital events pay off first-mortgage lenders first, not C-PACE
The only senior claim that C-PACE has on a property is the annual tax assessment payment
C-PACE is not a loan, it is tax assessment financing
Unlike real estate taxes, C-PACE payments are fixed for the entire 25+ year term
The assessment runs with the property and need not be repaid even in the event of sale or first-mortgage foreclosure
C-PACE repayment never accelerates for any reason
Misconception 2: “Next Lender”
Lenders that are new to C-PACE may incorrectly believe that it impairs property sale or refinancing options.
C-PACE can be prepaid at any time to accommodate a new loan when more proceeds or cost effective financing options are available
Because C-PACE is financing and can be prepaid, it is not an operating expense and does not impair the property’s valuation
C-PACE improves every key metric in the lender’s toolkit
Misconception 3: “Too ComplicatEd”
Lenders worry that C-PACE will complicate their ordinary business. To the contrary, C-PACE financing doesn’t impact lender documentation, and in most cases requires only a simple 1-page consent form.
C-PACE doesn’t interfere with lender rights and remedies, so lender documents should remain largely unaffected
For complex transactions, law firms like Duval and Stachenfeld have years of experience representing lenders in navigating these issues and can help all parties in structuring around complex issues
To learn more about C-PACE, prequalify your property, and to discuss de-risking a loan with C-PACE, contact TEC Partners today.