Q&A with PACE Loan Group’s Matthew McCormack on Key Trends and the Acceleration of C-PACE Finance

Current market trends point toward the growing use of C-PACE financing. Part of C-PACE financing’s surge in popularity has been driven by the current market conditions and challenges in traditional capital markets. Connect CRE recently interviewed PACE Loan Group’s Senior Vice President Matthew McCormack for his take on C-PACE trends and insights.

Q: How is C-PACE (Commercial Property Assessed Clean Energy) financing becoming an increasingly important part of the capital stack, especially as traditional lenders pull back amid today’s high interest rates?
A: PACE Loan Group, and the industry in general, is becoming more and more mature. When interest rates were low, we were almost exclusively thought of as a way to enhance leverage. But with today’s higher interest rates, deals are not penciling as much, and we’re also seeing a lot of traditional banks on the sidelines. When there are fewer lenders and leverage, in general, is lower, our niche is not necessarily replacing other forms of financing or equity. Rather, we are backfilling what would otherwise be senior debt.

Today’s capital stack looks different with C-PACE than it did three years ago. With banks on the sidelines, a lot of what we’re doing now is offering the cheapest senior debt for clients seeking non-bank lenders to secure financing to build. In the rare cases where banks are lending for development deals, a big trend with C-PACE loans is that they are plugging a gap, and we can make the capital stack more attractive.

Q: What are some of the benefits, advantages, and creative uses of C-PACE financing you’re seeing?
A: We’ve arranged a wide variety of structured deals and transactions with C-PACE financing. In situations when the bank is not there, the benefits of C-PACE are clear in today’s very liquid market. This is especially true for lenders PACE Loan Group, who actually have a balance sheet and access to institutional capital along with flat decision making. We see some strong markets there that could benefit from C-PACE, where our financing is more attractive than banks. There’s a lot of growth in the Southeast and the Midwest.

Q: Can C-PACE be effective gap financing for multifamily housing?
A: With the long maturities and the stress in the multifamily market, we see some interesting opportunities for PACE to fit. Situations where a project has experienced construction delays, is not stabilized, or not yet qualified for agency—that’s a great fit for C-PACE. In many of these scenarios, we are offering the most accretive cost of capital. In those construction-to-bridge opportunities, we are able to finance up to 25% to 35% of value, depending on the state, on a 30-year term.

Q: What are typical scenarios of C-PACE financing for other developments such as affordable housing, student living properties, or senior communities?
We see quite a bit of workforce housing as well as hotel-to-multifamily conversions. Senior housing is probably the second most common type of transaction behind hospitality. In these cases, many of the upgrades and property improvements (e.g., HVAC, lights, insulation) are C-PACE eligible. From the development side, C-PACE can be the most attractive source of financing. For example, we have one client with whom we closed nearly 20 senior housing deals utilizing our financing.

Q: Why are securitized C-PACE loans an attractive alternative fixed-income asset class for investors?
A: We are seeing larger players starting to operate in the C-PACE space, such as becoming interested in warehouse lines, buying C-PACE notes, or investing, which is driving the liquidity in the market or also how we’re able to still lend despite market conditions. In fact, 2023 was PACE Loan Group’s best year yet, and we’re on track to exceed that in 2024. There’s a lot of growth left in this market.

Matthew McCormack is a panelist at the upcoming Connect Midwest: Multifamily, Affordable, Senior & Student conference on the afternoon of Tuesday, June 4. Register Today to network with commericial real estate colleagues and industry leaders!

“C-PACE offers certainty of execution and flexibility to execute your business model.”

Senior Vice President Matthew McCormack, PACE Loan Group