C-PACE Financing: An Increasingly Essential Component of the Commercial Real Estate Capital Stack

As the commercial real estate (CRE) lending market adjusts to tighter credit conditions, Commercial Property Assessed Clean Energy, commonly known as “C-PACE,” has emerged as an increasingly prevalent component of the CRE capital stack. Cumulative originations reached a record ~$13 billion in 2025, and 40 states now have active programs. As C-PACE increasingly fills gaps left by retreating traditional lenders, often replacing otherwise unavailable mezzanine debt or preferred equity, borrowers and lenders alike must understand its structural mechanics, lien priority implications, and transactional complexities.

Understanding C-PACE

C-PACE enables commercial property owners to fund qualified energy efficiency, renewable energy, and resiliency improvements through a voluntary special assessment on their property tax bill. Unlike traditional mezzanine debt or preferred equity, the C-PACE lien is senior to the mortgage lien and subordinate only to property taxes, giving it a fundamentally different and structurally superior position in the capital stack. States designate these upgrades as a public benefit, allowing property owners to secure fixed-rate financing with repayment terms typically ranging from 20 to 30 years, but C-PACE is often prepayable so property owners have the flexibility to use it like short-term construction financing. The obligation runs with the land rather than with the borrower, transferring to subsequent property owners upon sale. This structural seniority is a critical feature that distinguishes C-PACE from other forms of mezzanine or subordinate financing and is a point that requires careful consideration by senior lenders in any transaction where C-PACE is part of the capital stack.

Why Choose C-PACE?

Higher interest rates have made traditional CRE lenders more selective, and the Federal Reserve's Senior Loan Officer Survey has reported tightening standards for all CRE loan types through 2025 and into 2026, particularly for construction and land development. C-PACE has emerged as an attractive alternative because it can offer lower costs than many other capital sources, may not require the same equity contributions, and is often one of the few options available when banks pull back. 

The market data reflects this momentum: In 2015, there were only two active C-PACE programs in the country; today, 40 states have active programs, and originations have grown at a double-digit annual pace driven by sponsor demand for accretive capital. Institutional allocation in particular has accelerated, led by life insurance companies drawn to the 20-to-30-year duration match, with pensions and family offices increasingly participating via securitized vehicles.

C-PACE in the Hospitality Sector

The hospitality sector presents an especially compelling use case for C-PACE, as hotels, resorts, and similar properties involve substantial expenditures on building systems like HVAC, lighting, water conservation, and energy management, which readily qualify for C-PACE funding. Most recently, the Mintz team represented Realberry in connection with the $298 million financing for the redevelopment of the historic Cal Neva Hotel into Lake Tahoe Proper Resort and Casino. The capital stack included $223 million in C-PACE financing from Nuveen Green Capital — the largest C-PACE financing in Nevada’s history and the first ever in Washoe County — funding energy and water efficiency measures as well as the building envelope, with a $75 million senior secured construction loan from Banc of California comprising the balance. The transaction required careful negotiation among the C-PACE lender, senior lender, and sponsor, as well as coordination with the title company, to address intercreditor arrangements, lien priority, consent requirements, equity requirements and guaranties, and construction draw logistics.

For more details on this transaction, see the full press release here.

Deal Mechanics and Intercreditor Considerations

C-PACE transactions typically include certain core transaction documents including a C-PACE assessment agreement (or financing agreement) between the property owner and the capital provider, a recorded notice of assessment, and an energy audit confirming that improvements qualify under the applicable state program. As the assessment carries priority over the mortgage lien, the senior lender's written consent — memorialized in a lender acknowledgment or intercreditor agreement addressing notice, cure, remedies, and enforcement limitations — is a prerequisite to closing. The closing itself requires coordination among the property owner, capital provider, program administrator, senior lender, and local taxing authorities. The assessment is ultimately placed on the property tax roll for repayment over the financing term. 

As C-PACE assessments are handled more akin to property tax liens, parties must consider how the assessment will be treated in foreclosure, which can vary by state as to what can be foreclosed upon and when.  For example, in several states, such as California and New York, the outstanding principal balance of the assessment cannot be accelerated and the foreclosure can only seek to recoup delinquent assessment installments. In construction-phase transactions, documentation must also address draw mechanics, completion guaranties, and coordination of the C-PACE and senior loan closing timelines. As a result, the Mintz team consistently sees the following intercreditor issues as recurring points of negotiation: 

• standstill and acceleration limitations; 

• allocation of insurance and condemnation proceeds; 

• cross-consent rights over loan modifications; 

• and treatment of the assessment in bankruptcy, where its tax-obligation characterization can diverge from senior lender expectations.

Key Takeaways

Practitioners should consider three threshold issues for C-PACE lenders. 

First, C-PACE enabling legislation varies materially by state, and counsel must ascertain the specific program requirements that are applicable in the situs state before structuring any C-PACE component. 

Second, the assessment's priority position requires thoughtful intercreditor arrangements and loan underwriting; additionally, as the assessment repayment obligation runs with the land, the transfer mechanism (including assumption of ancillary C-PACE financing documents) must be addressed in any purchase and sale agreement for property subject to a C-PACE assessment, even though due-on-sale or similar transfer restrictions are not generally included in C-PACE governing documents. 

Third, the C-PACE qualification of the improvements must be documented through energy audits or engineering reports, as failure to satisfy these requirements can jeopardize the assessment's validity and the capital provider's security.

For borrowers, C-PACE delivers long-term, fixed-rate capital that can reduce blended borrowing costs and equity requirements without encumbering the balance sheet. For mortgage lenders, the senior lien introduces intercreditor complexity, yet funds improvements that enhance collateral value, strengthening the senior loan's credit profile when properly documented.

C-PACE is positioned to continue its trajectory from alternative financing tool to mainstream capital stack component, driven by record origination volumes and broadening institutional adoption. Ultimately, the practitioners, borrowers, and lenders who invest in understanding its state-specific regulatory framework, unique lien structure, deal mechanics, and intercreditor dynamics will be best positioned to deploy it effectively in an increasingly competitive market. 

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