Discussion on C-PACE Financing for Multifamily Properties with EcoSmart Solution’s Lucas Nagy

Discussion on C-PACE Financing for Multifamily Properties with EcoSmart Solution’s Lucas Nagy
Discussion on C-PACE Financing for Multifamily Properties with EcoSmart Solution’s Lucas Nagy

### C-PACE Use for Multifamily: Q&A with EcoSmart Solution’s Lucas Nagy

The Commercial Property Assessed Clean Energy (C-PACE) financing tool was introduced in California in 2008 through the passage of Assembly Bill 811. Since then, many other states have enacted their own C-PACE legislation. Today, C-PACE financing is available in 33 states, with five more having approved enabling legislation.

**Connect CRE** recently spoke with **Lucas Nagy**, vice president of structured finance at EcoSmart Solution, a subsidiary of Taurus Investment Holdings’ energy platform, to discuss the relationship between C-PACE financing and multifamily construction and improvements.

### Understanding C-PACE Financing for Multifamily Projects

**Connect CRE**: How does C-PACE differ from other types of financing, such as banking, private funds, or mezzanine loans?

**Lucas Nagy**: Unlike typical property-secured debt, C-PACE is a property assessment financing tool. Because property assessments run with the land, principal repayments are non-accelerating. These characteristics provide accounting and transactional flexibility for multifamily property owners.

C-PACE is particularly beneficial for multifamily projects because it can provide 100% project financing with amortization and rate terms similar to mortgage financing—without requiring a refinance of the senior mortgage. Additionally, C-PACE financing can be used for new construction projects in most states. It enhances project leverage and offers repayment structuring options that improve proforma equity returns, such as a 10-year interest-only period followed by 20-year amortization.

### What Projects Does C-PACE Cover?

**Connect CRE**: What types of projects does C-PACE financing typically support?

**Lucas Nagy**: In most states, C-PACE financing is approved for energy efficiency upgrades, renewable energy projects, building modernization, and climate resiliency improvements. For instance, in California, C-PACE funding can be used for measures that enhance wildfire and earthquake resiliency, as well as sustainability upgrades such as water-use reductions, geothermal exchange for HVAC, and onsite solar power generation.

### Challenges of C-PACE Financing

**Connect CRE**: What challenges do borrowers face when using C-PACE financing?

**Lucas Nagy**: The biggest hurdle is that most states require senior lender consent for voluntary property tax assessments. However, many lenders approve the financing once they recognize that C-PACE-funded improvements enhance their collateral value. The positive news is that the number of C-PACE-approving lenders continues to grow. Additionally, C-PACE financing becomes a viable solution for projects with costs exceeding $2 million.

### Key Considerations for Multifamily Developers

**Connect CRE**: What else should property owners and developers keep in mind?

**Lucas Nagy**: First, for any multifamily energy efficiency or solar project where the annual cost of the C-PACE assessment is lower than the energy savings it generates, property NOI increases. This enhancement in NOI can lead to a higher property valuation—so delaying these improvements could mean leaving money on the table.

Second, while C-PACE is designed as long-term financing, it can be refinanced in most states. In high-interest rate environments, negotiating more favorable prepayment terms after 36 months can be a strategic move.

*An earlier version of this article was published on ApartmentBuildings.com.*

About the Publisher:
Steve Griffin is based in sunny Palm Harbor, Florida. He’s an accountant by profession and the owner of GRIFFIN Tax and REVVED Up Accounting. In addition, Steve founded Madison Avenue Technology. With a strong passion for commercial real estate, he’s also dedicated to keeping you up to date with the latest industry news.

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