Obtaining lender consent for C-PACE (Commercial Property Assessed Clean Energy) financing can pose several challenges:
Potential Challenges
- Lien and Priority Issues:
- C-PACE assessments generally hold a senior position to other liens (except for unpaid property taxes), which can complicate existing mortgage arrangements and require special consent from senior lenders.
- This can introduce complexity in loan structures and intercreditor agreements.
- Risk Perception:
- Senior lenders must weigh the benefits against potential risks associated with C-PACE, such as the overall financial health of the borrower and the impact on property value.
- Consent Requirements:
- Mortgage lenders are required to consent to C-PACE assessments before they can be levied on the property. This requirement can sometimes be a hurdle if lenders are unfamiliar with or cautious about C-PACE structures.
- Administrative Processes:
- The process of obtaining consent can be time-consuming and involves legal agreements. It requires cooperation between borrowers, C-PACE lenders, and existing mortgage holders.
- Mitigation Measures:
- Some lenders mitigate risks by requiring borrowers to escrow C-PACE payments, similar to property taxes and insurance. This adds to the administrative burden and can affect project viability.
Mitigating Factors
Despite these challenges, several factors help facilitate lender consent:
- Non-acceleration of C-PACE Assessments: Only unpaid portions are due upon default, reducing the immediate financial risk to senior lenders.
- Preservation of Foreclosure Rights: C-PACE financing does not restrict senior lenders’ rights to foreclose on their mortgages.
- Potential for Increased Collateral Value: Energy-efficient upgrades funded by C-PACE can enhance property value, benefiting senior lenders.
- Full Availability of Funds at Closing: C-PACE funds are often deposited into an escrow account at project closing, ensuring they are available as needed.
Overall, while there are challenges in obtaining lender consent for C-PACE financing, the benefits of energy-efficient investments and legal protections for lenders have encouraged widespread adoption.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-potential-challenges-in-obtaining-lender-consent-for-c-pace-financing/
