The Wall Street Journal article “America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis” centered mostly on certain perceived negative aspects of residential PACE financing. It was a clear reminder to industry observers of the large differences between Residential PACE (“R-PACE”) and Commercial PACE (“C-PACE”).
Josh Smith, Esq., Senior Transaction Counsel at CleanFund, highlighted many of the key differences between R-PACE and C-PACE that are often overlooked when discussing PACE as an industry.
Unique features of C-PACE from a credit and cash flow prospective:
“The WSJ article states that credit worthiness matters little to lenders. We can’t speak for other commercial PACE providers, but for us, that’s just not true. To start with we examine the property cash flows as part of our credit evaluation. A key difference between C-PACE and R-PACE is that C-PACE is for properties that generate income from lease payments or revenues from businesses occupying those properties. In general, we only provide financing to properties that can demonstrate savings from the investments in renewables or energy/water efficiency measures – and demonstrate the ability to repay the PACE assessment.”
On the topic of lender acknowledgement:
“We require acknowledgment from any senior lien holder prior to closing of the PACE financing. We understand that a commercial real estate lender has an expectation of their lien priority and the amount of debt, and if that is going to be altered, then they have the right to know about that and in certain circumstances, mitigate that. We have been very successful working with skeptical lenders to find creative solutions so that they feel comfortable that their lien priority isn’t threatened. We want to be known as people who are educational, helpful and, ultimately, cooperative with lenders and we want lenders to see PACE as another source of capital that, frankly, makes their collateral more valuable.”
Strong underwriting standards:
“Our underwriting is similar to what property owners would might find from traditional mortgage lenders – but more simple and streamlined. Our approach is reinforced by the fact our credit team, myself included, come from a commercial real estate lending background. We have taken what we did to underwrite commercial real estate loans and applied the most relevant aspects to our PACE underwriting process. I think we are among the industry leaders in the depth and level of our underwriting knowledge and analysis.”
CleanFund has earned its position as the leader in C-PACE, not by employing pushy brokers or dodging lender consent, but rather by being a partner to the banking community and steward of the public trust that all PACE providers should uphold. CleanFund is dedicated to upholding the highest credit standards, serving the needs of customers and partners, balanced against the stringent requirements of our financial backers, setting an example to be followed by others.