Why C-PACE financing is gaining ground for commercial property retrofits

Faced with rising costs, regulatory changes, and evolving tenant demands, commercial property owners are increasingly turning to a newer financing model to fund costly energy upgrades. Commercial property-assessed clean energy, or C-PACE, has emerged as a strategic financial lever to aid commercial property owners in financing critical retrofits to meet these mounting pressures and take advantage of tax incentives.

The reasons for its popularity are hardly surprising. Beyond sustainability and compliance benefits, this type of financing is helping boost property value, reduce operational costs, and increase competitiveness in a tightening commercial real estate market. Understanding C-PACE’s history and structure can help deliver long-term financial and operational advantages for commercial property owners.

Regulatory and economic forces create demand for energy financing

Stricter government regulations, tax incentives, and rising energy costs have intensified the push for sustainable building upgrades. State and local governments are enforcing tighter building and energy codes that make retrofitting older buildings a priority. One local law in NYC imposes fines on commercial buildings exceeding emissions limits, which the Real Estate Board of New York estimates could lead to $900 million annually in cumulative fines by 2030 for non-compliant properties¹.

As a result of these compounding factors, C-PACE financing has substantially risen in popularity as an affordable means to fund building retrofit projects. As of 2024, more than $9.7 billion in C-PACE financing had been invested across 3,581 commercial projects, up from $2.1 billion the year prior².

C-PACE financing structure and how it works

C-PACE is a financing structure that allows commercial property owners to fund energy-efficient upgrades, renewable energy installations, and water conservation measures through a special tax assessment on their property. This public-private partnership uses private capital to fund improvements, with property owners repaying this through fixed-rate financing via an assessment on their property tax bill, typically over 20-30 years.

Financing through C-PACE can cover 100% of both direct and indirect costs of qualifying projects, reducing the need for equity investment or mezzanine financing. The long-term structure also allows owners to offset the cost of a project over a much longer period.

The C-PACE structure differs from traditional financing options in that it is tied to the property itself, not the owner, and is non-recourse debt. If the owner sells the property during the life of the C-PACE financing, the repayment obligation transfers to the new owner.

Using C-PACE financing for retrofit projects

C-PACE financing is an excellent fit for retrofitting existing buildings. With project capital costs spread over a longer repayment term, the cost savings from qualifying upgrades offset repayment.

Qualifying retrofit projects for C-PACE financing include energy efficiency improvements, water conservation upgrades, and resiliency measures. These projects typically align with decarbonization and enhanced efficiency goals, but they also address aging infrastructure concerns in existing commercial properties.

Examples of qualifying projects include:

• Solar photovoltaic panels and inverters
• Central HVAC upgrades
• Building envelope upgrades
• Gray water systems
• Radiant barriers
• Energy-efficient piping and duct insulation
• Seismic upgrades (state specific)
• Hurricane protection (state specific)

There are limiting factors to accessing C-PACE beyond non-qualifying upgrades. This financing structure must be authorized by state legislation. While it is only available in states with enabling legislation and municipalities with active programs, more jurisdictions have begun adopting it. Currently, C-PACE is available in 40 states and Washington D.C.

Operational and financial advantages of C-PACE financing

The unique financing structure of C-PACE incentivizes building owners to think and act like long-term investors. Building owners can realize near-immediate benefits by tying financing to the property and long-term benefits by way of higher asset values.

1. Capital Preservation: Property owners can avoid significant upfront investment into retrofitting projects that carry a high ROI. The extended term with long-term fixed interest rates offers predictability to payments.
2. Energy Savings and Reduced Utility Bills: Adding efficiencies, such as replacing fluorescent lighting with LED lighting, immediately lowers operating expenses through lower utility bills and improves net operating income.
3. Lower Maintenance and Upkeep Costs: Financing newer, high-efficiency systems reduces the need for frequent repairs, lowering maintenance costs over the life of the building.
4. Long-Term Value Preservation: Retrofit projects like efficient HVAC systems or renewable energy installations enhance a building’s infrastructure longevity. Addressing deferred maintenance and improving long-term asset quality can help prevent depreciation from outdated systems.
5. Risk Mitigation: Financing retrofit projects proactively allows property owners to better meet mandates to avoid penalties or future regulation or insurance-driven upgrades. Taking a proactive approach can also help future-proof properties against upcoming regulations, such as stricter emissions standards.
6. Resiliency Against Weather-Related Disasters: Resiliency measures to help protect against extreme weather events help avoid costly repairs or disruption. These improvements could also help property owners become more favorable risks to insurance carriers for lower costs and more favorable underwriting.

The top questions to ask yourself before considering C-PACE options

C-PACE for retrofit upgrades is popular for a reason – the flexibility, security, and cost-savings nature of this financing enables property owners to build resiliency and raise property values. Get started by assessing whether your projects are eligible and align with your goals. Consider the following questions:

1. What are your building’s needs? Identify areas where energy efficiency or resiliency improvements are needed most. An energy audit or building performance review can help pinpoint opportunities that could generate the greatest savings.
2. Is C-PACE available for you? Since it’s only available in states with enabling legislation, confirm that your property is in an area where C-PACE is authorized.
3. What are your goals? Outlining the project scope, including timelines, expected costs, and projected savings can help determine the financing amount and structured repayments.

Leveraging C-PACE financing to optimize the financial and operational benefits isn’t necessarily challenging for property owners, but having support can help. To learn more about C-PACE and retrofit upgrade eligibility and begin the process of securing financing for your project, reach out to our team.