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Pennsylvania Extends C-PACE Eligibility to Multifamily and Mixed-Use Properties
Practical Law Legal Update w-036-2742 (Approx. 5 pages)
Pennsylvania Extends C-PACE Eligibility to Multifamily and Mixed-Use Properties
by Practical Law Real Estate
| Published on 15 Jul 2022 • Pennsylvania |
New legislation in Pennsylvania revises the standards governing the state's C-PACE programs to cover multifamily and mixed-use properties along with additional categories of improvements. The changes go into effect on September 6, 2022.
On July 7, 2022, Pennsylvania Governor Tom Wolf approved Senate Bill 635 (Act 43 of 2022) amending the state's Commercial Property Assessed Clean Energy (C-PACE) law to allow financing for improvements to multifamily and mixed-use properties as well as indoor air quality and resiliency projects.
Background
C-PACE programs provide long-term, low-cost loans to commercial property owners to fund renewable energy systems, water conservation projects, and energy efficiency improvements. C-PACE financing is offered by private lenders but typically repaid through a special assessment billed and collected by a participating governmental entity. Although a C-PACE loan cannot be accelerated on default, the lender gains security from the assessment's super lien status.
Pennsylvania initially enacted C-PACE legislation in 2018 (12 Pa. C.S.A. §§ 4301 to 4310). At least a dozen counties in the state, including Philadelphia and Allegheny, currently administer C-PACE programs. A county (or a municipality with a community or economic development department) may implement a program by passing an ordinance or resolution with guidelines that at a minimum:
- Establish eligibility criteria for owners and real property.
- Require all clean energy projects to comply with national energy efficiency standards.
- Include any additional measures necessary to ensure the program is effective, efficient, and fair to owners.
Under the original law, C-PACE financing in Pennsylvania was limited to agricultural, commercial, or industrial properties. Projects involving multifamily housing and residential property were expressly prohibited.
Expanding C-PACE Eligibility
Act 43 revises the state's C-PACE law by replacing "real property" with "qualifying commercial property" as the target for project financing. The new term specifically:
- Includes multifamily housing with five or more units in addition to agricultural, commercial, and industrial real property.
- Excludes any residential property except for a commercial multifamily rental property or mixed-use property with at least five residential units. An owner cannot use program funds to construct or improve a condominium, cooperative, or another form of owner-occupied residential unit.
The amendments additionally expand the scope of C-PACE programs by authorizing improvements focusing on:
- Indoor air quality (spurred largely by COVID-19 mitigation challenges).
- Property resiliency, including flood mitigation, wind resistance, energy storage, and other measures to combat the effects of natural disasters.
Act 43 also makes several important clarifications to the C-PACE law, including that:
- An assessment is immediately dischargeable through full repayment of the related loan if a financed property:
- is transferred to a third party; and
- no longer meets the requirements of a qualifying commercial property because of the transfer.
- Lenders may require owners to escrow a project's maintenance, repair, and insurance costs.
- Owners and later purchasers may satisfy a loan early (and release an assessment) subject to any prepayment penalty imposed by the lender.
Practical Implications
Multifamily and mixed-use properties (such as senior living centers) comprise a large portion of Pennsylvania's developed real estate and remain popular choices for new construction. The amendments to the state's C-PACE law should allow owners of these properties to more easily finance projects aimed at reducing the environmental impact and enhancing the durability of their investments.
For a general discussion of C-PACE financing with guidance for both lenders and borrowers, see Practice Note, Loan Reserves and Escrows (Commercial Real Estate): PACE Financing. For a collection of resources addressing the various stages of a commercial real estate development project, see Commercial Real Estate Development Project Toolkit.