How Do Lenders Underwrite C-PACE?

When real estate pros are talking about what lenders are doing C-PACE , they're also wondering how the lender will look at it. 

From first-hand experience, I'll tell you that the construction and bridge lenders that are already doing deals with commercial PACE are looking at their takeout analysis. It's very similar to how they would look at the amount of mezzanine financing or preferred equity that they would allow combined a transaction.

Commercial pace is prepayable and some pace providers offer extremely flexible early prepayment that at the time of the construction loan maturity could be very minimal to get out. So a construction lender or a bridge lender really wants to make sure that they can exit that loan and exit that pace very comfortably in the permanent market as a takeout. 

It's a very common analysis that they already do and this is just something that gets added to the mix.

The stack:

So as an example, let's say you have $100 million project and you're looking for 80% financing... maybe pushing the envelope a little bit. In the past you might have gone to a bank and try to pair with mezzanine financing. And now you might be looking to do that with C-PACE. So let's say you get a bank that's able to do $60 million or 60% financing and you have the pace provider able to do 20% or $20 million, that senior lender is going to want to make sure that they could exit in that takeout at that combined $80 million level. 

The analysis:

The senior lender is going to take a hard look at the stabilized cashflow. 

They would want to make sure that they have an exit, that if it's a multifamily, uh, it's an agency exit or if it's other commercial property to CMBS exit that allows them to very easily and comfortably get out at that $80 million level, they'd like to see a permanent takeout, let's call it at $85 or $90 million. 

The pitch: 

That's what you want to present to a lender. Come to the table and show them that it is very easy to exit with PACE, certainly with us. Very minimal exit fees at year three or even a little bit before depending upon the asset. 

Of course PACE could stay on the property and it could run with it, but you really want to know that if you need to get out of it and a sale or refinance, it's going to be easy to do with minimal additional fees. 

The download:

Click here to download our “C-PACE vs Mezz” one-pager