Interview by John Nelson
Commercial Property Assessed Clean Energy (C-PACE) financing is a lending option that is gaining traction in the commercial real estate lending world. This type of financing is beneficial for owners who are looking to finance their new construction or redevelopments with long-term debt.
Rafi Golberstein, founder and CEO of PACE Loan Group (PLG), a C-PACE lender with offices in New York City, San Diego, Chicago, and Minneapolis, says that what many borrowers are now finding out is how adaptable this loan structure is, especially when paired with traditional bank financing.
“C-PACE as a product type is not just living and breathing — it’s expanding,” says Golberstein.
Originated in Berkeley, Calif., in 2008, C-PACE financing is now available in 40 states and Washington, D.C. It serves as an alternative funding source for commercial projects that qualify on the basis that they will result in reduced energy and water usage and greater building efficiency. C-PACE is not a federal program as it is overseen at the state or local level, with some states allowing local governments to administer the program.
“States are making their legislation more broad, which allows us to get more projects done and larger checks out the door,” says Golberstein. “The market hasn’t quite realized all of these changes that are happening.”
Golberstein says companies like PLG that are executing C-PACE loans are no strangers to having an “educational threshold” to overcome, whether it be for first-time clients or those that are not up to date on the ins and outs of the loan program. He says that one misconception is that C-PACE is only done for deals with complicated debt structures.
“The reality is that most of what we do is right down the middle financing with local and regional banks that have a strong pre-existing relationship with the borrower,” says Golberstein. “C-PACE is more accessible than clients think. They may have a misconception that C-PACE isn’t an option or that it will complicate the deal, but it works almost all the time.”
Golberstein adds that C-PACE has evolved from being a one-time loan that borrowers get at closing to being drawn down in tranches like a typical construction loan from a bank.
“C-PACE has been able to adapt and come up with some creative structures to allow for staged fundings, and that allows us to play in more sophisticated and larger deals,” says Golberstein.
REBusinessOnline recently caught up with Golberstein to discuss C-PACE financing trends and how the loan can be beneficial for both borrowers and banks. The following is an edited interview:
REBusinessOnline: What are the benefits when banks collaborate with C-PACE?
Rafi Golberstein: From the bank’s perspective there are several reasons why having C-PACE in their capital stack is beneficial. The first is that right now, a lot of banks are a little more cautious with their lending practices than they were probably a few years ago. And all things been equal, they’d probably prefer to lend out less money than more money, but they also want to maintain their market share. What we’re finding is that C-PACE is becoming effectively a participation for a bank.
There are banks that are bidding on a $50 million construction loan, but internally they only want to write $30 million checks. We can come in and fill that gap for $20 million, and that way they’re not losing on the deals. On one hand, it’s allowing banks to get deals done where they don’t want to put as many dollars out the door.
Plus, banks have relationship limits, so introducing C-PACE as a participant reduces the dollars the bank is putting out while getting that transaction closed for their client, all without breaching an exposure limit.
REBO: What’s the benefit to a sponsor when partnering with C-PACE and a bank?
Golberstein: C-PACE allows the clients to effectively hedge their term exposure. With banks it’s usually a three- or five-year term, but with C-PACE it’s a 25- to 30-year term. When that bank loan comes due in three to five years, the owners of the property don’t have to pay off the full balance, only the bank’s portion. The C-PACE portion can still ride for some period of time. Additionally, banks are typically recourse, whereas C-PACE is typically non-recourse, so for clients the benefit of merging the two is reducing their recourse exposure.
REBO: When is C-PACE not a good fit in a capital stack?
Golberstein: If a property is financed through agency debt — Fannie Mae, Freddie Mac or HUD — those are typically not the best executions with C-PACE, primarily because those are the cheapest cost of capital in the market. They’re super-efficient and are for properties that are more or less stabilized, and so there’s typically not a lot of C-PACE eligible activity happening there.
REBO: Are some banks better fits for C-PACE than others?
Golberstein: We truly have seen it across the board, from the local community banks to the national banks. We’ve done deals with U.S. Bank on the large scale, down to ‘community bank of whatever city’ on the small side, so it really does work across the spectrum. Banks are relationship businesses; they really tend to follow their clients. We’ve found that as long as it’s a good client to the bank, generally they’re very receptive to C-PACE.
REBO: Explain the closing process with banks as the senior lender. Does it take longer to close a loan if C-PACE is in the capital stack?
Golberstein: We almost always will close our financing simultaneously with the bank financing; there are very few instances where it doesn’t work out that way. We really are working on the same time schedule — we’re not the tail wagging the dog. Once the capital stack has been formed and the lenders have been selected, we are working in lockstep with the banks. We’re meeting the timing that the deal requires and we’re piggybacking off existing reports like appraisals or environmental reports so that we’re not duplicating costs or efforts.
REBO: Is there a ‘sweet spot’ for bank and C-PACE loan executions in terms of borrower, loan amount, property type, etc.? What’s the most popular iteration that you’ve experienced?
Golberstein: The most popular execution really is using C-PACE as a participant. We closed a deal two months ago in downtown St. Paul, Minn. It was a conversion of an office building to apartment complex. The capital stack was mortgage lender plus C-PACE plus historic tax credits. The bank had a great relationship with the sponsor, but ultimately, they had a lending limit that they couldn’t exceed. PLG went almost 50/50 with the bank.
By bringing us into the deal, it allowed the bank to still be active with the client and maintain the relationship without the client having to go to a larger bank to finance the deal. This participation trend is pretty common even if it’s a $60 million loan execution, it’s the same thesis throughout.
REBO: Are there C-PACE loan executions where the loan amount is larger than the bank’s loan?
Golberstein: Yes, we’ve done deals where we’re larger than the bank.
REBO: Is hospitality an asset class that borrowers are looking to finance with C-PACE?
Golberstein: For banks, construction lending for hospitality is tough to get today. You used to be able to get 70, 75 or maybe even 80 percent loan-to-cost debt. Today, if you’re getting 60 percent loan-to-cost you are lucky. For that reason, we’re getting a lot of requests from owners of hospitality assets, either existing or planned ground up, to have C-PACE be a pretty integral part of their capital stack.
In California we’ve had three hospitality deals — two were new construction deals in Sacramento where we worked with a local/regional bank to basically come in dollar for dollar and fund the construction of the assets.
We also did a very esoteric hospitality project at Joshua Tree National Park. It was an outdoor container-type hotel project that was very experiential, very beautiful, very high-end and very hard to finance. C-PACE was the answer to their financing problems. We came in along with a debt fund — not a bank — to basically help to get the construction loan over the hump.
PLG is not doing a lot of stabilized multifamily or stabilized industrial — we’re doing transitional multifamily deals like conversions, as well as hospitality, senior living and select office deals. Wherever capital is strained, C-PACE can come in to fill the void.
REBO: What is retroactive C-PACE and how are borrowers using that in their capital stack?
Golberstein: Most states allow borrowers to use C-PACE not only for new projects, but also for projects that were completed within the past three years. If a borrower has a property that qualified for C-PACE over the past three years, they can tap that credit retroactively. We did a deal for a flagged hotel in the northern Chicago suburbs where the owner had completed a very large PIP (property improvement plan) that was basically a very large-scale renovation. Their loan was coming due and they had to refinance their construction loan.
PLG was able to retroactively lend the borrower a bunch of cash for improvements already completed. That cash helped the borrower pay down the old lender and secure new financing. Banks love this too because they want nothing more than for their position to be paid down.
REBO: Are most of PLG’s deals done with repeat borrowers?
Golberstein: My hunch is that our deals are split 50/50 between repeat and new clients, mostly because the market is growing so fast. We have a massive repeat client account, which speaks to our execution in the marketplace and our ability to do what we say we’re going to do. The C-PACE industry is growing rapidly so we have a ton of new clients coming to us; I’m always shocked at the amount of word of mouth referrals that we get.
REBO: What’s next for PLG?
Golberstein: We’re growing pretty quickly. We are opening a new office, which I think is going to get announced in the next few weeks. Our head count is increasing as well. We’re very much leaning into the market.
— This article was originally published in the June 2025 issue of Southeast Real Estate Business.