Article Originally Featured in HotelBusiness.com
As the commercial real estate lending environment continues evolving in response to economic pressures and shifting borrower needs, CPACE (Commercial Property Assessed Clean Energy) financing is becoming more prominent, with projections of it surpassing $10 billion in cumulative investments this year. According to Peachtree Group, a leading hospitality and commercial real estate financier, CPACE originations for the firm are expected to increase by 15–25% this year, marking another strong year for this creative financing solution.
This projected growth is fueled by legislative momentum, borrower demand for capital flexibility and gaps in traditional lending. CPACE programs, long supported by energy efficiency and sustainability goals, are seeing broader market adoption.
As more states implement or expand CPACE legislation, borrowers will have increasing access to a financing option—currently available in 40 states and the District of Columbia—that offers long-term, fixed-rate, fully assumable debt, a rare combination in today’s higher-rate environment.
Banks' tightening of construction lending has created a gap in the capital stack, and CPACE is emerging as a critical tool to bridge that gap with flexible, borrower-friendly terms. Hotel developers, in particular, are leveraging CPACE to offset rising construction costs and inflationary pressures. Whether for ground-up development or major renovations, the program provides a cost-effective alternative that aligns with the longer lifecycle of hospitality assets. Importantly, firms like Peachtree Group are now bundling CPACE with senior loans to provide a seamless financing solution that simplifies deal structures and accelerates timelines.
An emerging trend gaining traction among hotel owners is the use of retroactive CPACE financing.
While CPACE is typically arranged before construction begins, retroactive CPACE allows eligible property owners to secure this funding after a project is completed—sometimes even years later. The allowable "look-back" period varies by state but generally ranges from two to three years. This form of financing is proving especially valuable for owners by providing lower-cost liquidity and enhancing cash flow on projects that were initially funded through traditional means.
A recent example is the Hilton Garden Inn in Davis, Calif., which underwent a renovation in 2019. Peachtree Group originated the retroactive CPACE financing, and the proceeds were used to pay down the senior loan and fund the buildout of a fitness studio attached to the hotel.
As awareness of retroactive CPACE grows, more borrowers are expected to revisit previously completed projects to unlock capital, improve balance sheets or reinvest in future developments.
In a macroeconomic environment still marked by persistent high interest rates and cautious bank lending, CPACE's fixed-rate, non-recourse nature stands out. As more stakeholders, including municipalities, developers, and capital providers, embrace CPACE's flexibility and stability, its role in reshaping commercial real estate finance will only deepen. For hotel developers and owners looking to navigate today's complex capital markets, CPACE isn't just an option, it's a strategic advantage.
Peachtree Group is a direct balance sheet lender focused on funding first mortgage bridge loans, mezzanine loans, preferred equity investments, and commercial property assessed clean energy (CPACE) financing. Jared Schlosser is responsible for Peachtree's hotel originations platform and its CPACE program.
En el entorno financiero actual, los patrocinadores buscan formas creativas de capitalizar las operaciones. Una de esas formas es Financiamiento de CPACE.
Jared Schlosser, vicepresidente ejecutivo de Peachtree Hotel y CPACE, conversó con Malcom Davies, presentador del podcast On the Edge, para hablar sobre cómo los patrocinadores pueden utilizar CPACE para todo, desde aprovechar las pilas de capital para el desarrollo hasta la recapitalización retroactiva de proyectos e incluso como fuente de capital de rescate.
En este episodio, comprenda mejor:
Para obtener más información sobre CPACE, visite nuestra Preguntas frecuentes sobre CPACE.
ATLANTA (Jan. 24, 2024) – In December, Peachtree Group achieved a significant milestone by securing $150 million in Commercial PACE (CPACE) financing, approaching $750 million completed since its inception in 2019. For the year, Peachtree Group completed 23 commercial property assessed clean energy financing transactions across the U.S. for a total of approximately $250 million in directly originated and balance-sheet funded CPACE financing.
Commercial real estate faces a tough 2024 as trillions of dollars in debt comes due and refinancing gets harder, compounded by banks tightened lending standards.
“In this challenging lending market, Commercial Property Assessed Clean Energy financing has emerged as a crucial source of liquidity. This financing option is becoming increasingly essential as owners grapple with looming debt maturities and limited refinancing opportunities,” said Jared Schlosser, Peachtree Group’s senior vice president, origination and head of PACE financing.
CPACE has grown relatively quickly and, in just over a decade, has hit a cumulative $5.2 billion in U.S. commercial real estate financings, according to PACENation, confirming the growing market adoption and acceptance of this innovative financing tool.
“CPACE has been a game-changer by offering a unique advantage over other forms of financing with its long-term, fixed-rate financing that lowers the project's cost of capital,” Schlosser said.
Peachtree Group is one of the most active hotel commercial real estate lenders in the U.S., ranking as the eighth-largest U.S. hotel lender by the Mortgage Bankers Association in their most recent rankings. Of the CPACE transactions completed this year, roughly 50% were in hospitality.
“CPACE financing aligns with the financial, environmental and guest experience goals of hotels, making it a popular choice for owners looking to improve energy efficiency, reduce costs and enhance their sustainability initiatives,” Schlosser said.
· The Thompson, Palm Springs, Calif.
· El Caminante, Dana Point, Calif.
· The Marriott Tribute Hotel, St. Augustine, Fla.
· Palihotel, San Francisco, Calif.
· DoubleTree by Hilton Youngstown Downtown, Youngstown, Ohio
· 950 3rd Street, Washington, DC(Multifamily)
· Reserve at Vinedo, Paso Robles, Calif. (Multifamily)
· Old City Hall, Tacoma, Wash. (Mixed-Use)
“This innovative financing mechanism empowers property owners across all sectors to embark on energy-efficient upgrades, renewable energy installations, and water conservation initiatives, all while minimizing their financial burden,” Schlosser said.
Peachtree Group is an investment firm driving growth with a diverse portfolio of commercial real estate assets and other ventures. We’ve executed hundreds of investments since inception with a focus on real estate acquisition, development, and lending. Today, we manage billions in equity, augmented by services designed to protect, support, and grow our investments.
Commercial Property Assessed Clean Energy (C-PACE) is an innovative financing program that is gaining popularity across the U.S., as it offers a low-cost, long-term capital solution that doesn't require upfront equity from the property owners. The central appeal for using this program for energy-efficient upgrades and retrofits is that any level of C-PACE used will lower the overall cost of capital compared to mezzanine, third-party equity or even many senior loans. This is impactful for commercial property developers.
In the current market, the cost of capital has increased significantly, along with higher interest rates and wider spreads from lenders. In addition, higher financing costs put pressure on loan-to-value (LTV), loan-to-cost (LTC) ratios, and the amount of capital lenders are willing to provide, reducing liquidity for new developments. Construction costs have also increased significantly with back-to-back years of double-digit increases, with further increases in 2023 as CBRE expects a growth of 5.4% for construction costs.
C-PACE is in heavy demand because it's a fixed-rate product, starting in the mid-single digits. It also can be up to 35% of the capital stack. With a typical senior loan at 65% loan-to-value, providing C-PACE at 30% of the stack, the lender becomes below 40%, lessening its capital risk. As a result, it is helping development projects across all real estate sectors pencil to start construction and those in mid-construction reach get completed.
Today we see more requests for this financing as budgets are blowing out with cost overruns. C-PACE provides the needed capital when the developer cannot offer additional equity or banks are unwilling. The following are examples of mid-construction projects that utilized C-PACE funding from Peachtree to bring projects across the finish line.
