Commercial developers and property owners can use PACE financing as a way to fill the gap in their capital stack or replace more expensive forms of capital. PACE can have a significant impact on lowering the weighted average cost of capital for a borrower.
PACE offers other compelling benefits such as
- The ability to access 30-year fixed-rate financing at lower rates than mezzanine or preferred equity loans
- Non-Recourse Financing / No Personal Guarantees
- Interest only periods through construction, deferred payments for up to three years
- Transferrable upon sale of the property
- The ability to pass through the cost to tenants
- No operating covenants
- Funding for as much as 35% LTV of the value of the building to be renovated
Commercial PACE Financing vs. Preferred Equity
PACE loans differ from preferred equity arrangements because they do not confer an equity investment in the company or entity that owns the property. Instead, PACE financing is designed to attach to the property itself and to provide up to 30% of its value to fund construction projects that meet the minimum requirements. Stonehill PACE will provide guidance on the right approach to PACE eligibility, which will typically provide you with capital at a much lower cost than that associated with preferred equity lending arrangements.
Commercial PACE Financing vs. Mezzanine Loans
Mezzanine debt arrangements typically span three to five years and carry interest rates of between 10 and 14%+. They also require a balloon payment of interest and monthly payments by borrowers. By contrast, PACE financing arrangements are available in durations of up to 30 years, generally feature interest rates starting at 7%, and are non-recourse. PACE funding arrangements also allow the pass-through of required payments to tenants or hotel guests and are paid on an annual or a semi-annual basis. Depending on your requirements, you may also be able to delay your first payment by up to two years.
PACE financing is an ideal replacement for mezzanine or equity debt. PACE will reduce the cost of capital for your project and offer longer-term solutions for construction debt in a wide range of industries.
Contact Us to learn if your project can benefit from PACE financing.
| MEZZANINE DEBT | C-PACE FINANCING | |
|---|---|---|
| Financing term | 3-5 years | 20-30 years |
| Typical interest rate | 10-15% | Starting at 7% |
| Payment schedule | Monthly | Annual or semi-annual |
| Balloon payment | Yes- interest only | No – fully amortizing |
| Security interest | Borrower’s interest in the entity that owns the property | Land/property |
| Ability to transfer obligation upon sale | No | Yes |
| Ability to pass through payments to NNN tenants or hotel guests | No | Yes |
| Ability to delay first payment | No | Yes – up to 3 years post funding |
| Ability for off-balance sheet financing | No | Yes |
| Entire principal balance accelerates upon default | Yes | No |
| Includes financial/operating covenants | Yes | No |
| Requires a borrower’s guarantee | Yes | No |