C-PACE financing offers several benefits, such as 100% financing for energy-efficient improvements and off-balance sheet treatment. However, it also comes with potential drawbacks that property owners should consider:
Potential Drawbacks of C-PACE Financing
- Lender Approval and Pushback: Because C-PACE assessments can create a senior lien on the property, lender consent is often required for properties with existing mortgages. This can add complexity, time, and cost to the financing process.
- Limitations on Refinancing and Sale: The senior lien status of C-PACE assessments can limit refinancing options. Some lenders, such as Fannie Mae and Freddie Mac, may not purchase or refinance mortgages with C-PACE liens.
- Transfer of Assessments: C-PACE assessments are tied to the property and are transferred to new owners upon sale. This can make it difficult to sell properties, as new owners must agree to assume these assessments.
- Complex Underwriting: The underwriting process for C-PACE financing can be lengthy and complex, involving multiple parties and guidelines.
- Potential for Prepayment Penalties: While C-PACE loans can be prepaid, there may be penalty fees associated with early repayment.
- Impact on Property Value and Credit Facilities: Although C-PACE does not directly impact existing credit facilities, the addition of a senior lien could affect overall property leverage and valuation.
- Location-Specific Eligibility: C-PACE financing is only available in locations with PACE-enabling legislation, limiting its accessibility for property owners in areas without such provisions.
- Higher Interest Rates and Fees Compared to Traditional Loans: The interest rates and fees for C-PACE financing might be higher compared to traditional financing options.
In summary, while C-PACE provides a unique opportunity for financing energy-efficient upgrades, property owners must carefully weigh these benefits against the potential drawbacks and consider their specific financial situation and local regulations.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-potential-drawbacks-of-c-pace-financing-for-property-owners/
