Common C-PACE Myths Bankers Still Believe

For a product that has matured significantly over the last several years, C-PACE still raises a familiar set of questions among banks and other commercial real estate lenders.

That is understandable. C-PACE does not fit neatly into the traditional senior debt or subordinate debt framework, and many lenders may only encounter the structure periodically. In some cases, it is introduced late in the financing process, after the senior loan has already been sized and much of the credit work is complete.

As a result, some long-standing perceptions can persist even as the market continues to evolve.

For banks, the goal should be to understand the fundamentals of C-PACE, identify where the structure may create value for a borrower, and determine when it may fit within the bank’s established credit framework.

For C-PACE providers, the responsibility is equally clear: engage early, understand the lender’s underwriting criteria, and structure transactions in a way that works to benefit both the senior lender and borrower.

Here are four of the most common misconceptions that continue to surface.

Myth 1: C-PACE is simply expensive subordinate debt

C-PACE has a fundamentally different structure from conventional subordinate debt. In structure, it is most similar to a property tax assessment: the financing is secured through a property assessment, cannot be accelerated, and is typically long-term, fixed-rate, and non-recourse. For those reasons, many lenders choose to underwrite C-PACE as a property expense rather than as traditional subordinate debt.

It is also important to distinguish today’s C-PACE market from earlier perceptions around pricing. As the market has matured, C-PACE spreads have tightened significantly and, in many transactions, pricing is increasingly comparable to other institutional construction financing alternatives.

For a lender, the more relevant question is not whether C-PACE resembles another financing product. It is how the complete capital structure affects the credit. 

That means evaluating the transaction in the same way a lender would assess any other financing strategy: total leverage, debt service, sponsor liquidity, collateral support, business plan execution, and the amount and type of capital sitting alongside the senior loan.

In the right structure, C-PACE can help solve for capital needs without requiring the senior lender to stretch beyond its established underwriting parameters.

Myth 2: The entire C-PACE balance becomes senior to the mortgage in a default

This is one of the most important structural distinctions for lenders to understand.

Under most C-PACE programs, the relevant priority relates to delinquent assessment payments rather than the entire future C-PACE balance becoming immediately due ahead of the senior mortgage.

That distinction matters when evaluating downside risk.

It does not eliminate the need for careful underwriting or documentation. Banks should still understand the applicable program requirements, repayment mechanics, remedies, and servicing considerations before providing consent.

But evaluating the actual mechanics of the assessment allows the credit team to review the structure based on the exposure presented by the transaction rather than applying assumptions associated with traditional subordinate debt.

Clear documentation around those mechanics is an important part of any well-prepared lender consent package.

Myth 3: Lender consent is simply a procedural approval

At Bayview PACE, and in most C-PACE programs, lender consent is a substantive credit requirement.

Banks and debt funds have the opportunity to evaluate the C-PACE financing alongside the senior loan, understand the impact on cash flow and leverage, review relevant documentation, and determine whether the structure is consistent with their credit requirements.

The strongest C-PACE providers approach the process accordingly.

That means engaging the senior lender early, providing a clear view of the total capital stack, and addressing questions around repayment, remedies, servicing, collateral, and borrower economics before the transaction reaches its final stages.

When C-PACE is incorporated into the financing discussion early, the bank has an opportunity to evaluate it as part of the overall capitalization rather than as a late-stage change to an already approved structure.

Myth 4: C-PACE is relevant only for a narrow category of property improvements

The C-PACE market has evolved considerably.

In most states, C-PACE financing is be available for up to 40% of new construction costs, major property repositionings, resiliency improvements, qualifying deferred maintenance, and recapitalization of eligible prior expenditures.

C-PACE is also being incorporated across a broader range of commercial property types, including hospitality, multifamily, industrial, and other CRE sectors.

The question is not whether a transaction fits a particular label. The more useful question is whether C-PACE can address a legitimate capital need while supporting a financeable, durable business plan.

Why greater familiarity matters

These distinctions matter because C-PACE is increasingly intersecting with transactions banks are already evaluating.

A relationship manager may be working with a borrower that needs additional proceeds. A development lender may want to maintain its targeted loan basis while the sponsor looks for a more efficient source of capital. A bank may want to retain an important CRE relationship but prefer not to increase its own balance sheet exposure.

In each of those situations, familiarity with C-PACE gives the lender another potential solution to evaluate.

That does not mean C-PACE belongs in every transaction. It means a lender that understands the structure is better positioned to determine where it may be useful and where it may not.

As banks become more familiar with C-PACE, the conversation increasingly shifts from whether the structure can work to how it can be incorporated thoughtfully alongside senior debt. That familiarity also creates an opportunity for C-PACE providers to engage earlier, understand the lender’s credit requirements, and structure the financing as part of the broader capital strategy.