C-PACE: The rapidly growing corner of real estate finance catching institutional attention

As first seen in Institutional Investor.

In a constrained credit environment and a real estate market in transition, institutional investors are increasingly taking note of a once-niche financing mechanism that is now quickly scaling: Commercial Property Assessed Clean Energy, or as it’s more commonly known, "C-PACE". Originally developed as a tool for promoting sustainability and building resilience, C-PACE is evolving into a differentiated asset class with investment-grade characteristics, offering compelling yield and structural protections.

Understanding C-PACE: A state-enabled financing tool with strong security features

C-PACE is a state-legislated financing structure that enables commercial property owners to fund qualified energy efficiency, renewable energy, and resiliency improvements through a voluntary special assessment on their property tax bill. This can include hard and soft costs associated with any measures that improve the energy efficiency, water performance or resiliency of a building. C-PACE is facilitated by state-level policies that classify these building upgrades as public benefits, allowing property owners to secure low-cost, long-term financing repaid via their property tax bills over periods typically ranging from 20 to 30 years.

Alexandra Cooley, a leader in the space and chief investment officer and co-founder of Nuveen Green Capital, explains “States can designate certain property upgrades as a public benefit, which allows a property owner to create their own special taxing district to secure fixed-rate, long-term financing.”

The lien associated with C-PACE assessments is senior to the mortgage in arrears, and subordinate only to property taxes– providing a robust credit enhancement for investors. Because repayments are made through property tax assessments and run with the land, C-PACE offers enhanced cash flow stability and collection priority.

Importantly, this unique avenue of financing is gaining traction during a time when traditional lenders are tightening their terms.

Higher interest rates have increased borrowing costs, making lenders more selective and reducing borrower demand. However, these tighter lending standards have created a favorable environment where C-PACE emerges as an attractive alternative for developers seeking flexible financing. According to the Federal Reserve’s Senior Loan Officer Survey, significant net shares of banks reported tightening standards for all types of commercial real estate (CRE) loans during the first quarter of 2024. This includes stricter terms such as lower maximum loan sizes and shorter interest-only payment periods.¹ The 2025 version of the same survey reported that lending standards for CRE loans remained tight, particularly for construction and land development projects.

C-PACE can provide incremental leverage via a highly structured long-duration obligation of the property, generating a predictable flow of investment opportunities which are increasingly attractive to institutional investors looking for secure, yield-generating assets – especially in today’s uncertain rate and credit environment.

Institutional appetite accelerates - Driven by yield, duration, and security

Investor interest in C-PACE has increased markedly over the past several years, largely in part because “the fundamental economic argument is there,” Cooley posits.

Indeed, C-PACE financing offers yields that exceed comparably rated fixed income assets, while aligning with insurers’ liability-matching strategies. The long-dated, amortizing structure makes C-PACE attractive to investors seeking predictability, principal protection, and resilience to interest rate volatility.

C-PACE has also emerged as a reliable capital source for property owners at a time when conventional credit channels are tightening. According to Cooley, originations have grown at a double-digit annual pace since her firm’s inception in 2015, driven by sponsor demand for accretive capital. “Property owners increasingly view C-PACE as an essential component of the CRE capital stack – particularly when traditional lenders are pulling back or requiring higher equity contributions.”

Cumulative C-PACE originations volume reached a record $9.7 billion in 2024, a 33 percent year-over-year increase from 2023². This financing option offers lower costs than many alternative capital sources and is often one of the few options left standing when banks retreat. Further, government regulations and tax incentives aimed at energy efficiency and sustainability have encouraged property owners to pursue C-PACE financing for eligible improvements.

Growing interest from institutional investors

Institutional allocation to C-PACE has accelerated as the C-PACE asset class continues to grow. When Cooley founded Nuveen Green Capital in 2015, there were only two active C-PACE programs in the country. This is in stark contrast to the 40 states (and D.C.) with active programs today. Over the past decade, cumulative originations have climbed into the billions annually. Cooley describes this period as the “early innings”, highlighting untapped potential for future institutional adoption.

Life insurance companies have found success with C-PACE financing. “It’s found a natural fit with life insurance companies given the long duration and yield we’re able to command,” says Cooley. Life insurance companies typically have long-term liabilities – policyholder obligations that stretch out 20 to 30 years or more. C-PACE financings are long-duration assets, often 20-30 years, making them an excellent duration match for insurance portfolios. The loans are also secured via property tax assessments, which are senior to most other forms of debt (including mortgage debt). Property owners repay through fixed assessments over time, making cash flows highly predictable and resilient, even during downturns. Most insurers think about their C-PACE allocation as a form of investment grade private credit, and typically access the asset class through the securitization market. More recently, Nuveen Green Capital has been partnering with a select few partners, including TIAA, Nuveen Green Capital’s parent, in the past three years on annual, large, standalone allocations to C-PACE via Nuveen Green Capital’s fund series.

While life insurers have been among the earliest adopters, other investor segments are beginning to recognize the structural merits of the asset class. Pensions, family offices, and non-insurance institutions are now adding allocations, with some participating via securitized vehicles for added liquidity.

“We’ve observed growing interest from institutional investors, including pensions and family offices,” Cooley notes. As educational efforts have expanded, so too has engagement across various investor types. “Participation varies depending on the investment vehicle; for instance, non-insurance entities have engaged in our securitizations, which offer more liquidity. C-PACE financing appeals to investors seeking fixed-income, investment-grade allocations, whether they’re establishing programmatic commitments or making ad hoc investments,” she adds.

Indeed, C-PACE’s structure creates a compelling opportunity: investors benefit from steady, attractive yields with strong credit protections, while property owners gain access to lower-cost capital, especially in a liquidity-constrained market. “We’re seeing originations increase in double digits year on year,” Cooley adds. “Property owners are now increasingly recognizing this is an important tool in their toolkit.”

An expanding market with broad applicability

C-PACE debt sits at the intersection of real assets and fixed income. It offers attributes akin to infrastructure debt – investment grade, long duration, stable cash flows, public-benefit alignment- yet it remains largely underrepresented in institutional portfolios. Its credit profile, backed by statutory liens and often enhanced by senior loan-to-value positioning, makes it suitable for core or core-plus strategies seeking income with downside protection.

“As both investor appetite and property owner utilization rise, the market is positioned for continued expansion,” Cooley affirms. “It’s a financing tool that delivers meaningful value to both sides of the table.”

For institutions seeking yield without sacrificing credit quality or duration alignment, C-PACE is increasingly hard to ignore. As awareness grows and platforms mature, C-PACE may soon shift from an alternative allocation to a mainstream fixture in diversified real estate and private credit portfolios.