FREE

Climate Goals of the Inflation Reduction Act May Spur Interest in C-PACE, Lender’s Consent in Focus as Market Grows

Momentum in the commercial property assessed clean energy (C-PACE) market has continued this year, with more states either enacting C-PACE legislation or expanding existing statutes to include additional uses. In addition, with the recent signing of the $737 billion Inflation Reduction Act of 2022 into law on August 16, the increased focus on achieving climate goals, such as reducing pollution and climate change resiliency, may accelerate interest in C-PACE as property owners explore other financing options to augment this aid and address these climate goals. C-PACE financing can be used to fund property improvements or upgrades that implement these policy initiatives.

As the sector has grown, new originators, including smaller shops, have entered this market. As a result, there has been increased focus on lender’s consent. Lender’s consent in C-PACE is important because the acknowledgement ensures that the financing— which is senior to the mortgage loan—will not create an event of default under the mortgage documents. In addition, the existence of lender’s consent also mitigates concerns the mortgagee might challenge the C-PACE program by claiming that it violates its constitutional rights or is invalid. DBRS Morningstar views the lender’s consent requirement as credit positive because it also helps imbue borrower discipline on commercial property owners.