C-PACE foreclosures
In the event of a C-PACE foreclosure (has yet to happen since program inception), is it just the delinquent payments that prime the senior lender? Or is it the entire OPB??
Just the delinquent payments. The unpaid balance is not accelerated in a foreclosure.
What happens to a site when the loan balance exceeds the value of the land? And the loan can't be expunged through foreclosure. Does the project just sit until values somehow improve? I don't understand how the site is ever developable with a non-expungable loan
Presumably the C-PACE is collateralized by some improvements to the land; however, I don't know enough about this specific scenario to opine further.
As a rescue capital vehicle, you can fund a C-PACE on existing improvements; therefore, there shouldn't be a scenario where the loan balance is indexed off the land value. That said, it does create a difficult situation where the debt stack exceeds as-is value. The C-PACE special assessment should be underwritten as an above the line tax expense in the event it is assumed by a new owner.
Outside of hospitality does anyone see these deals get done? I get plenty of Sr loan requests asking to put C-PACE in but it always destroys the underwriting as you need to underwrite that ongoing liability so we end up passing on all of them. I'm not entirely sure why they seem to work well in hospitality.
I am interested in this as well. It does seem to be 90% hospitality from the closing announcements that I see.
I generally see C-PACE transactions being done right now as part of new construction or rescue capital to fund cost overruns or pay down maturing debt. Variances in state legislation (e.g. SIR clauses) might make C-PACE more favorable for certain asset classes or retrofit projects. Historically C-PACE has backed non-institutional Sponsors, but I see institutional borrowers and senior lenders getting more and more comfortable with the idea (bc non-accelerable, pmts can be escrowed, freely transferable, etc etc). With pressures from municipal “green” legislation on CRE (e.g. Local Law 97 in NYC and BERDO and Boston)… landlords and lenders are going to see C-PACE transactions pick up meaningfully. Keep watch 👀
Seen it on a few multi deals that are still in lease-up that needed the C Pace to take out their initial construction loan w/ a bridge + . It tanks the deal from ever being able to be taken out by a perm loan and often puts their "debt" basis well above market value. It's a kick the can mechanism.
Yeah that's my impression. So they kick the can to avoid foreclosure in exchange for losing equity down the road? Or trying to figure out another restructure?
I think they work in deals where the interest rate on the senior sucks (ie, hotels). In other asset classes with better financing, it's less accretive. I've never been able to make the math work. The problem is senior lenders almost always underwrite the CPACE debt service as a property tax payment, so it's included in NOI for sizing purposes. So they end up dropping the senior loan amount to adjust for this.
Well C-PACE is paid through a tax assessment so.... it will operated exactly as any other tax forclosure.
It isn't in my opinion for designed for what most people want to use it for which is MF development for sale. You should be using this stuff for long term hold redevelopment of NNN lease properties. This rolls off the risk from the senior lender to the credit of the tenant. If you combine this with a tax basis lock program you are essentially offsetting the tax impact for the tenant and replacing it with a long term fixed but known liability.
Are you sure it operates as any other tax foreclosure? In a typical tax foreclosure the debt is expunged a the lienholder takes title. I don't think that's how CPACE works. The debt isn't expunged, it stays with the land and is collected as any other assessment. That's why so many of the CPACE lenders are risk averse funds, they feel that this superpriority lien can't be erased
It is a tax assessment, so yes it will stay with the property. When you buy a property at a tax auction it doesn't magically change the tax assessed value or millage assessments on the property. C-PACE is essentially just a time capped additional millage charge.
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