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Currently researching it as well since one of my markets is looking at passing the legislation. My understanding is that since it's a special assessment that will sit behind a potential property tax lien only rates are very low. It also appears that the term can run as long as the useful life of the improvements (up to 40 years?). It is also assumable. Seems significantly cheaper than mezz, but some of the bankers I have spoken to don't like it since it sits in front of their first mortgage.
PACE financing is something you talk about at a cocktail party
Maineiac42 hit the nail on the head with his last point.
Senior lenders don't want to be subordinate to anything; having PACE financing attached to your deal means you're almost certainly going to get hit on spread and probably on leverage as well.
Seems like some banks would take the opportunity to layer the financing, have you seen that structure where one lender does the pace and the 1st?
Don't have a ton of experience with PACE for the reasons emceedrive listed. At my previous bank, our Credit Administrators pretty much vetoed any deal with it because it takes 1st position. There certainly may be some banks that work with it frequently and I'd have to guess there are specialty lenders or debt funds that understand it well enough to get comfortable. As an underwriter its intriguing because the deals where it's being proposed are usually interesting ones but Commercial Bank Credit and Portfolio people really don't like to be in a junior position
coming from a regional bank we wont touch PACE due to their priority lien position. wondering what it is like for other debt providers though?
As everyone else has mentioned, it doesn’t work for us. Our credit facility doesn’t allow any sort of senior debt.
The PACE market has matured significantly since this was initially posted. Senior lenders are warming up to PACE for a few reasons: i) PACE loans cannot be accelerated - meaning at no point can the loan be called. You're max exposure is what is due that year; ii) there's flexibility in the PACE structure to make it more attractive i.e. capitalizing interest through construction, fully funding into the same title company as Senior (proof of funds). and; iii) for NNN retrofit projects, it's a home run. There are legitimate energy and R&M savings which go along with the PACE loan.
The lender will underwrite it on a deal by deal basis, but many of them are realizing they need to be open to it to maintain relationships.
I work at a PACE shop, would be happy to chat more.
Sent PM
Thanks for the explanation. I'm currently a broker, interested in learning about different areas. Anywhere I can read up on PACE financing since I'm not getting exposure through my job. I found a few reports on ULI, any other places you recommend? Also, any recs for a general understanding of financing options in the real estate industry - basically starting from 0.
Shoot me a PM I’d be happy to chat
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