What is CPACE financing?

What Is CPACE Financing?

CPACE financing is a type of assessment financing for energy efficiency and renewable energy investments. 

CPACE financing is unique because you can get 100% loan to value (LTV) and amortize payments over 25 or even 30 years. 

Indeed, because energy efficiency and renewable energy investments save money and/or make money, CPACE financing may save you more money in utility costs than the debt service on the loan. 

In other words, with CPACE financing, the bank could literally be paying you to improve your buildings. 

CPACE Financing Explained

This article describes what CPACE financing is, how it works and how to use it to make your real estate investments more valuable.

In the following sections you’ll learn:

  1. What is CPACE financing?
  2. How does CPACE financing work?
  3. 17 CPACE financing use cases
  4. How to use the CPACE savings to investment ratio (SIR)
  5. You’re in the money

After reading this article, if you aren’t sure how to proceed with CPACE – feel free to schedule an appointment with me. 

What Is CPACE Financing?

CPACE financing is a type of assessment financing1 for building energy and water efficiency, renewable energy and resilience improvements.

CPACE stands for “Commercial Property Assessed Clean Energy“…2 The term “property assessed” refers to the repayment mechanism, which is through property taxes.

CPACE is different from conventional building improvement financing (better!) because of the following benefits:

  • CPACE offers 100% loan to value (LTV) financing
  • CPACE financing is fixed rate 
  • CPACE financing payments are made along with property tax payments (tax deductible)
  • CPACE financing “runs with the land” meaning the CPACE assessment transfers with the sale of a property
  • CPACE financing is non-accelerating
  • CPACE financing is off-balance sheet
  • CPACE financing benefits from long-term amortization (up to 30 years)
  • CPACE enables many tax benefits and incentives, such as the investment tax credit and MACRS

Prepayment is also available. Prepayment penalties may be incurred if financing is prepaid in the earliest years of amortization, depending on the lender, with the penalty eventually falling to zero.

How Does CPACE Financing Work?

Let’s say you wanted to lower energy costs with energy efficiency improvements and install commercial solar on your roof. 

You could do this with CPACE. 

To secure CPACE financing, you would do the following: 

  1. Visit PaceNation.org to find out about CPACE programs in your local area 
  2. Click on your state
  3. Find the CPACE program administrator in your state and visit the program administrator website
  4. Follow the instructions of the CPACE program administrator3
  5. Work with a local contractor or consultant to identify and estimate the cost of energy conservation measures you want
  6. Borrow 100% of the money to pay for the project from a CPACE lender
  7. Start saving money on day one

As mentioned above, with CPACE financing it’s possible to pay for 100% of the cost of energy improvements that should deliver real energy savings. 

Below is a side-by-side comparison of how a hypothetical CPACE financing works – and the potential cash flow benefits – compared to a conventional bank loan.

CPACE Financing cost comparison
Note that unlike a conventional bank loan to make capital improvements, with CPACE financing there is no down payment, and positive cash flow...

CPACE programs are available in the majority of the U.S. in states where CPACE legislation has been passed. Legislation allows lien payments to be amortized and paid through local property taxes. 

The CPACE assessment is technically a lien paid for through a special property tax assessment and attaches to the property itself…

If the property owner sells the property, the CPACE assessment remains with the property and the new owner assumes the payment (and the benefits) of the CPACE improvements.

Commercial real estate owners with an existing mortgage may need mortgagee consent to approve a CPACE financing because the CPACE assessment resides at the tax assessor level (i.e. CPACE – like taxes – is in first position in the event of a default). 

17 CPACE Financing Use Cases

CPACE financing is mostly used to pay for improvements to eliminate waste in building energy, electricity and water. 

For example, if your building wastes $1,500 per month in some combination of electricity, energy or water, you’re sending an extra $18,000 each year to your oil, gas, electric or water utility.4

Tom Hanks Money Pit
Money Pits... Most buildings in the U.S. were built prior to 1989 and are very inefficient. This leads to unnecessarily high water, energy and electricity bills for owners and tenants.

In a building that would sell for a cap rate of 10, the $18,000 of lost net operating income (NOI) equals $180,000 of additional building value.

Because building values go up as cap rates fall, if your building would sell in the marketplace at a 7.5 cap, that $18,000 is $240,000 of additional building value.

CPACE financing is a solution to building inefficiency that doesn’t require coming out of pocket and has a clear path to profitability. 

How CPACE financing works in a deep energy retrofit
CPACE Financing is fixed and amortized over a term that is equal to the life of the energy efficiency, renewable energy or resilience measures you choose.

17 CPACE Financing Use Cases

The following are 17 CPACE financing strategies to add value to your real estate investments.

You can also use CPACE to finance a commercial solar system, make your properties more resilient.

The following are strategies the top real estate investors use to win at commercial real estate using green building retrofits5:

  1. Reduce real estate operating costs
  2. Create new, incremental revenue streams
  3. Be more competitive
  4. Reduce pollution and environmental waste
  5. Pocket more money
  6. Increase building resilience
  7. Make real estate assets more marketable 
  8. Be more attractive to prospective tenants 
  9. Build portfolio value
  10. Increase cash flow and net operating income (NOI)
  11. Boost rents (by 7.1% or more)
  12. Increase property resale values psf (by as much as 16%)
  13. Improve occupancy rates and reduce churn
  14. Provide better risk-adjusted returns
  15. Reduce carbon emissions and pollution
  16. Cut unnecessary waste
  17. Help lower cap rates

You can easily estimate whether a CPACE financing makes sense for you by using a savings to investment calculation, as described below. 

You can also easily calculate how LED lighting, building controls, HVAC upgrades, on-site renewable energy and other green retrofits add value with a quick calculation on the back of a napkin.

How To Use The CPACE Savings to Investment Ratio (SIR)

The CPACE financing savings to investment ratio (SIR) calculation helps you to identify the signal – and avoid the noise – in choosing sustainability investments for your buildings…

Whatever green building projects you choose, you should apply a savings to investment ratio to them.

The SIR calculation is composed of two parts:

  1. Savings (numerator)
  2. Investment/loan payment (denominator)
CPACE financing SIR example
In this example, the SIR shows that the savings are 50% greater than the cost of the investment. If the SIR is greater than zero you're "in the money", so to speak...

1) Savings

Savings is measured by forecasting projected energy, electricity and water savings and comparing them to your building’s baseline energy and water usage. 

The baseline represents your building’s historical energy and water data for specific “base year”, prior to any improvements you make with a CPACE financing.

The process for calculating your baseline is beyond the scope of this article… 

However, the Department of Energy offers a step by step process for setting a baseline for your building and gathering data such as:

  • Electricity 
  • Natural gas
  • Oil
  • Hot water
  • Chilled water
  • Steam
  • Etc.

And you can use the free ENERGY STAR Portfolio Manager software to do this, or hire a consultant to do it for you.  

More general information on the potential payback from energy, electricity and water efficiency and the cost of commercial renewable energy investments can be found in these articles: 

Once you have your baseline, you will be able to calculate the projected savings you would receive from future energy and water efficiency measures.

To calculate the cost and performance of the efficiency measures you will work with a local contractor who specialize in green building retrofits as described above.

2) Investment/Loan Payment

The loan payment in the SIR formula represents the cost to repay the CPACE financing over time. If you are receiving 100% of the capital from the CPACE financing this total number will represent your “Investment”. 

The cost of the loan payment will be a function of three factors:

  1. Total amount of CPACE financing loanThe cost of the total investment in energy, electricity and water and/or resiliency improvements.
  2. Amortization periodThe CPACE financing amortization period is determined by the useful life of the improvements, usually 20-30 years. For example, commercial solar systems may produce energy for 30 years or more and a CPACE financing that incorporates solar may be amortized over 30 years. 
  3. CPACE financing interest rateInterest rates for CPACE financing are fixed, but are typically higher than mortgage interest rates today… CPACE interest rates range from 4.95% to 8.39%. The longer the amortization term, the higher the interest rate.

The SIR calculation quickly tells you if the savings from your green building project(s) outweigh the costs of paying for them with a CPACE loan. 

As mentioned above, if your SIR ratio is >1 you’re “in the money”… In other words, you should be making money on day one. 

You’re In The Money

As long as the SIR ratio is >1, the project(s) should pay for itself immediately. 

As such, to be safe, you should apply an SIR and other calculations, such as net present value  to any “green” project you are considering to find out if the project is an investment that is truly worth making.

By always applying an SIR, you can root out any projects that appear “sustainable”, but upon further inspection are actually not sustainable to your bottom line…!

If you own commercial real estate, or are a general contractor or sub-contractor specializing in energy efficiency or renewable energy projects, please schedule an appointment with me.


  1. Assessment financing is an approach to funding public improvements, such as infrastructure (sewer systems, roads, etc.), that has been used in the U.S. for more than 100 years.
  2. There are differences between residential and commercial PACE programs.
  3. CPACE program rules vary by geographic area. The CPACE program administrator determines what energy conservation, renewable energy, resilience measures, etc. qualify for CPACE according to the rules of your program.
  4. Green building retrofits make logical sense in America because more than half of all the existing commercial buildings in the U.S. were constructed prior to 1989 and were not designed for efficient use of water, electricity and energy. While green building is an excellent strategy for owner occupiers it also can make sense if even if your tenants are triple net and pay all the utilities. Because NNN tenants have options and green building investments make your buildings more competitive and attractive to tenant prospects. Green building is also a proven strategy for raising rents and reducing tenant turnover and vacancy. After all, if your NNN tenant isn't using your roof, why not use your roof and install commercial solar, find an offtakerwho wants to buy the renewable energy, and take a tax credit.
  5. The case study of the Empire State Building is an exceptional one. Empire State Realty Trust (ESRT) invested in bottom line upgrades the that increased rents, cut costs and drove new tenant leasing activity to the highest occupancy rate ever.