C-PACE Securitizations and Their Implications for CRE Industry

By Dennis Kaiser

Sausalito, CA-based CleanFund, a national commercial property-assessed clean energy (C-PACE) origination platform, recently was awarded GlobalCapital’s 2019 Esoteric ABS Securitization Award. The award was presented for the best alternative (a.k.a., esoteric) asset-backed securitization transaction closed in 2018.

CleanFund’s ground-breaking CLEAN 2018-1 securitization, the first 144A securitization of C-PACE assets, was widely recognized on a number of fronts, including the AAA rating it achieved for Class A notes, which were backed by a pool of $115 million assets involving 82 individual parcel tax assessments from coast to coast.

CleanFund’s Greg Saunders shares a few insights into C-PACE, as well as the intricacies of originating such a diverse portfolio of C-PACE assets through a nationwide network of channel partners as well as direct relationships with commercial property owners. Check out his responses in our latest 3 CRE Q&A.

Q: C-PACE has been around a decade and is hitting nearly $1B, and now has Wall Street’s backing, so what do you see up ahead?
A: C-PACE is moving from an innovation-stage to a much more mainstream category that includes larger and more institutional owners. The industry is also seeing more securitizations, and in particular “public” offerings via 144A (versus true private placements). CleanFund’s deal in 2018 was the first ever public C-PACE securitization.
Now, with legislation adopted in 35 states, the industry hopes to achieve availability in all 50 within the next three years. States that recently adopted legislation include large commercial real estate markets like Illinois, Pennsylvania, and New York City.

Q: Unlike residential PACE (R-PACE), C-PACE programs typically require lender approval and there are still lenders that say ‘no’? What’s new on that front?
A: We are finding more banks and private lenders are getting comfortable with C-PACE given continued education in the marketplace, and a growing realization among banks that their collateral for mortgages can benefit from the value-creating improvements made possible through C-PACE. There is a growing list of consenting lending institutions; CleanFund has even been referred deals by banks and private lenders who understand the value and structure of C-PACE and the overall benefit to the capital stack and the client. In these cases, C-PACE actually helped these lenders win the business.

Q: What property types are the best fit for C-PACE, and for what uses?
A: C-PACE is very beneficial to all commercial and industrial properties, with particularly high adoption rates in office, hospitality, single tenant properties, and alternative asset classes (such as golf courses and houses of worship).
There really is no ‘typical’ C-PACE deal. It’s a versatile financing product that is currently being used for everything from adaptive re-use, to energy retrofit, and CapEx projects to new construction. The securitization, for example, included 82 assets including various property types and different types of energy improvement measures across the pool.

*Pictured State House Square in downtown Hartford, CT

For comments, questions or concerns, please contact Dennis Kaiser