What Is CPACE Financing in Commercial Real Estate?

The commercial property-assessed clean energy (CPACE) financing program funds improvements to commercial buildings to improve energy efficiency and resiliency.

Commercial property-assessed clean energy (CPACE) financing enables property owners to financially back energy efficiency and renewable energy upgrades. Financial backers may include government-sponsored programs and private investors.

Among the many benefits of CPACE for commercial real estate investors are a smaller energy bill, a reduced carbon footprint, and increased property value. CPACE is available only in select states with enacted legislation and programs.

What Is CPACE Financing?

The commercial property-assessed clean energy (CPACE) financing program funds improvements to commercial buildings to improve energy efficiency and resiliency. Approved in more than thirty states, CPACE is effective for property owners who want to improve the energy efficiency of their buildings.

These projects can reduce the owner’s operating costs and are amortized over the long term at fixed rates. The mortgage lender and the CPACE administrator must approve the project, and the contractor will install the energy efficiency upgrade.

After completion, the CPACE payments are typically repaid through property assessments and based on the property’s value, extending over the life of the upgraded property. You can also use it with tax credits and incremental tax financing.

Commercial properties can use CPACE financing to reduce energy costs and improve operational efficiency. This financing model could offset the energy bills of hotel properties and other kinds of commercial real estate.

How Does CPACE Financing Work?

CPACE is a financing option for commercial property owners looking to invest in energy efficiency or renewable energy upgrades. A CPACE program is structured as a cooperative arrangement between property owners, lenders, and an energy special improvement district (ESID).

In most cases, the ESID authority coordinates with the property owner and disburses funding as costs are incurred. A CPACE financing transaction is structured similarly to a construction loan, with proceeds deposited in an escrow account.

Here is a brief overview of how it works:

  1. Commercial property owners work with energy service providers to identify eligible energy efficiency or renewable energy upgrades.
  2. Once the project is approved, the property owner and provider enter a contract.
  3. The provider pays for the project upfront and installs the necessary equipment.
  4. Property owners repay the provider over time through their property taxes. Because CPACE financing is tied to the property, it stays with it even if it changes hands during repayment.
  5. The repayment period is typically between 10 to 20 years but can be longer depending on the type of project and other factors.


You can use CPACE financing for various projects, including solar panel installation, HVAC upgrades, and insulation improvements. In addition to reducing energy costs, CPACE financing can help property owners modernize or repair historic buildings.

It’s an effective way to make energy efficiency and renewable energy upgrades without having to front all the costs. Plus, commercial property owners can often get lower interest rates than they would with traditional financing options.

What Are the Benefits of a CPACE Financing Program?

CPACE financing for commercial properties has become a popular long-term option for property owners. The program offers financial backing for up to 100 percent of eligible improvements. And because the loan is repaid through property taxes, it does not put additional strain on cash flow.

This financing program helps commercial properties meet sustainability goals and increase property values. Property owners can make comprehensive retrofits without incurring out-of-pocket costs, which increases the property’s value. CPACE financing may also improve indoor air quality and make buildings more resilient to disasters.

Through the CPACE financing program, property owners can lower their carbon footprint by implementing energy efficiency, renewable energy, and water conservation measures. One example of a commercial property that benefited from CPACE financing is the historic Pier 1 building in San Francisco.

In 2012, Prologis, Inc., a global warehouse and distribution firm, took advantage of the commercial PACE financing option to improve the building’s energy performance. The project is expected to reduce electricity consumption by up to 32 percent, saving the company $98,000 in utilities each year.

What Are the Drawbacks of CPACE Financing?

There are a few potential drawbacks to using CPACE financing for commercial real estate projects. First, CPACE financing is a lien on the property, which could make it more difficult to refinance or sell the property in the future.

Since CPACE loan payments are made through an assessment of the property tax bill, they may not be eligible for specific tax incentives or deductions. Plus, CPACE financing is unavailable in all jurisdictions, so you’ll need to check with your state or local government to see if it’s viable.

In addition, CPACE loans are typically only available for projects that meet particular green building or energy efficiency standards. Unfortunately, not all sustainability projects will qualify for this type of financing.

How Does CPACE Financing Compare to a Traditional Commercial Loan?

Commercial property owners turn to CPACE programs to finance energy efficiency and renewable energy upgrades. CPACE financing differs from traditional commercial loans in a few key ways.

CPACE financing is structured as a long-term loan, with terms typically ranging from 10 to 20 years. This allows property owners to spread the cost of the upgrades over a more extended period, making the upgrades more affordable.

CPACE loans are repaid through a special assessment of the property taxes. This means loans are attached to the property, not the borrower. As a result, borrowers can pass their CPACE loans on to future owners if they sell the property before replaying the loan. This makes it easier for property owners to obtain CPACE financing, as they will not need to provide personal guarantees or collateral.

How To Apply for CPACE Financing

When you’re ready to finance your commercial real estate project with a CPACE program, you must submit a loan application. The application will ask for information about your project, including the property address, estimated cost of improvements, and expected completion date.

You’ll also need to provide financial information about yourself and your business, such as tax returns, balance sheets, and income statements. Once your application is complete, the lender will review it and determine if you qualify for CPACE financing.

If you qualify, the next step is to negotiate the terms of your loan with the lender. This includes agreeing on an interest rate, repayment schedule, and other loan conditions. Once you’ve reached an agreement, you’ll sign a contract and begin making payments on the loan.

CPACE financing can help you get the funding you need to complete your commercial real estate project. By following these steps, you can ensure that your application is complete and accurate to have the best chance of getting approved for financing.

Key Takeaways About CPACE Financing

CPACE financing allows property owners to improve the energy efficiency of their buildings and reduce the cost of operating them. It is a voluntary option offered in select states where property owners repay the financing through a special assessment of the property’s real estate tax bill.

CPACE financing offers many advantages for building owners, which include the following:

  • Affordable financing: CPACE loans are typically low-interest, long-term loans that make energy improvements more affordable than traditional forms of financing.
  • Increased property value: Energy-efficient buildings are typically worth more than similar buildings that are not energy-efficient. This means that CPACE financing can help increase the value of your property.
  • Reduced operating costs: By making your building more energy efficient, you can save money on your monthly utility bills. These savings could also help offset the cost of the loan payments.


You can use this financing form for various energy upgrades, including solar panels, HVAC system replacements, and water conservation. CPACE financing may help commercial property owners save money on their energy bills while reducing their carbon footprint.

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