C-PACE as capital markets solution

NATIONAL REPORT – Over the last five years,
Commercial Property Assessed Clean Energy (C-PACE) financing has moved from the
margins to the mainstream—especially in the hotel sector.

Once considered a tool for retrofits and
small-scale efficiency projects, C-PACE has evolved into a capital markets
solution used by developers as a core part of the capital stack for new
construction, redevelopments, and refinancings—available across most states, it
is applicable to all commercial real estate classes and provides long-term,
fixed-rate financing that runs with the property.

This shift comes at a time when hotel
developers are navigating higher interest rates, reduced lender appetite, and
the capital-intensive requirements of both ground-up projects and property-wide
renovations. C-PACE has emerged as a flexible form of private credit that not
only fills financing gaps but does so at a cost well below mezzanine debt or
preferred equity. The result is a financing source that is increasingly popular
among sponsors with large portfolios and ambitious projects.

Use cases for development

Construction loans. Five years ago, using
C-PACE for new construction was virtually unheard of. Today, it accounts for roughly
50% of annual C-PACE dollar volume nationwide (source: PaceNation).

For hotels—among the most capital-intensive
property types—this shift has been game-changing. Developers can now use C-PACE
to replace expensive mezzanine debt or preferred equity, filling out the
capital stack at a lower blended rate. In many markets, loan-to-value ratios
can reach 35% or above, and with the advent of delayed-draw structures, C-PACE
can mirror the mechanics of a traditional construction loan.

Because it can refinance eligible costs already incurred, C-PACE is increasingly used as takeout financing to pay down senior debt or preferred equity. These loans are usually fully funded at close, providing immediate runway and relieving cash flow pressure.

Laura Rapaport

Many improvements already required to meet
code—HVAC, impact glass, plumbing, and resiliency measures—qualify for C-PACE.
By financing these components with C-PACE, sponsors can lower overall financing
costs and reduce equity while maintaining a structure senior lenders will
consent to.

Bridge financing. Hotel
projects often need more time to reach stabilization, particularly during
renovations or market recovery. Traditional bridge financing can be excessively
costly and hard to secure. C-PACE offers an alternative.

Because it can refinance eligible costs
already incurred, C-PACE is increasingly used as takeout financing to pay down
senior debt or preferred equity. These loans are usually fully funded at close,
providing immediate runway and relieving cash flow pressure.

Rescue capital. In today’s capital markets,
many owners are recapitalizing to reduce debt service and extend maturity
timelines.

By injecting liquidity at the property level,
C-PACE can help pay down senior lenders while improving collateral through
efficiency and resiliency upgrades. That dual benefit makes lenders more
willing to consent. For owners, it provides a lower-cost alternative to equity
infusions while creating time for a property to stabilize.

Case study:
Newport Beachside Hotel & Resort

A clear example of how C-PACE is reshaping
hotel financing is the Newport Beachside Hotel & Resort in Sunny Isles
Beach, Florida. The 339-key oceanfront property, once a destination for stars
from Sammy Davis Jr. to Tina Turner, is undergoing a complete repositioning and
will reopen in late 2025.

North Bridge arranged $42.7 million in C-PACE
financing, the first transaction of its kind in Sunny Isles. The financing
supported ~$37 million of eligible improvements, including high-efficiency HVAC
and low-flow plumbing; new elevators; impact glass and generator replacement; and
seawall restoration for resiliency.

The renovation, led by HB Capital Group with
design by EoA Group, will also transform the guest experience, including
upgrading the oceanfront pier restaurant into a fine dining destination, adding
six new food and beverage concepts, reimagining the pool and beach club, and
introducing fire pits along the waterfront.

Developer lesson: Many of the hotel’s
qualifying improvements—HVAC, plumbing, resiliency measures—are standard
requirements for any major renovation. By financing them through C-PACE, the
sponsor lowered its cost of capital while setting up the property for long-term
success.

The bigger picture

Five years ago, C-PACE for hotel development
was rare. Today, new construction represents about half of annual C-PACE volume
nationwide, and the hotel sector is at the forefront of this growth. More
sophisticated sponsors are using it not just for energy retrofits, but for
ambitious ground-up projects, large-scale repositionings, and
recapitalizations.

In a capital-constrained market, that
combination explains why C-PACE has gone from an afterthought to a fixture in
hotel financing—and why developers who ignore it may be leaving capital
efficiency on the table.

Contributed by Laura Rapaport, Founder & CEO, North
Bridge, New York City

The views and opinions expressed in this
content do not necessarily reflect the opinions of Hotel Investment Today by
Northstar or Northstar Travel Group and its affiliated companies.