How a potential policy change could shake up the commercial real estate sector
According to the report, the approach lowers annual debt payments by about 10% to 20% compared with conventional commercial mortgages. Total interest costs may be higher over the life of the loan, but lower annual payments improve cash flow and make more retrofit projects financially viable.
The authors say the target market is purpose-built rental, non-profit housing, and B- and C-class commercial properties, where margins are thinnest and retrofit need is greatest. The paper notes conventional loan terms often run only five to 10 years, against PSIF terms of two to three decades.
Lien priority draws lender review
The mechanism carries direct implications for mortgage holders. Under PACE-style programs, the repayment charge is collected like a property tax assessment, and past-due amounts can rank ahead of an existing mortgage in a foreclosure.
Because of that priority, PACE programs generally require mortgage holders to consent before a charge is levied against a property. According to law firm Mintz, the senior lender’s written consent — memorialized in a lender acknowledgment or intercreditor agreement — is a prerequisite to closing.
Industry material aimed at lenders sets out why holders in other markets have signed on. The charge does not accelerate, meaning that on a missed payment only the past-due instalment ranks ahead of the mortgage, not the full balance. In the event of a default in the payment of an annual or semi-annual C-PACE assessment obligation, only the past due portion of the C-PACE financing is senior to a mortgage lender’s claim. Program guidance also notes that senior lenders may escrow the assessment alongside taxes and insurance, and that foreclosure rights are preserved.
