What Borrowers and Lenders Need to Know

Sometimes we’ll bring in other experts to share their wisdom on other real estate topics. Here, YuhTyng Patka, Esq., of Adler & Stachenfeld LLP offers insights into the long-awaited guidelines for the updated NYC PACE program.

Guest Insights: Adler & Stachenfeld LLP

In late 2022, the NYC Property Assessed Clean Energy (PACE) program re-opened for business after overhauling program implementation and documents. While there are still some significant exclusions (namely, new construction/major renovations and ground lease tenants), the new and updated documents are an important step forward in the full launch of the PACE program.

Some of the most significant PACE program highlights include the following:

Senior debt. The biggest issue borrowers may run into is whether there’s existing senior debt on the property. If that’s the case, the question is whether the senior lender will consent to the PACE loan. This is something that should be reviewed and, if possible, mitigated as early in the process as possible.

Existing PACE loans. A related issue is whether a new lender will consent to the existing PACE loan. We’ve found that this could potentially limit a borrower’s lender options. It can also mean the new parties will be required to pay off the PACE loan, which potentially means prepayment penalties.

Savings-to-investment ratios. On the energy audit side, sometimes there’s an underwriting concern that the energy audit will not show sufficient energy savings to match the amount of the PACE loan. Some jurisdictions have such savings-to-investment ratio (SIR) requirements that may not meet the requirements of the loan amount.

Long-term amortization. Lenders should be advised that, if the borrower defaults, the PACE loan is never accelerated. The balance only gets paid through long-term amortization payments, which are typically 20-30 years.

If you have any questions about PACE or potential title issues, or if you would like to discuss an upcoming or prospective transaction, please contact us.