C-PACE is cheap, long-dated capital — and it collects like a delinquent property tax, which is the one claim that can reach the land itself. That makes it the most dangerous neighbor a ground lease can have. It can still work. Here is exactly what we require when a sponsor wants both.
A tax-priority instrument on the property makes every other layer work harder. When the PACE piece grows, our ground cap widens and total fixed-charge coverage — rent plus assessments against stabilized NOI — must still clear a healthy multiple. We would rather show a sponsor both quotes than pretend the assessment is free. And one thing we never do: close over a PACE subordination that exists as a phone call. Executed paper, or the PACE retires at closing.
A defaulted mortgage forecloses on its own collateral. A defaulted PACE assessment collects like unpaid property taxes, with priority that can touch the fee itself. That is why the fee-insulation paper is non-negotiable.
No. The ground lease is unsubordinated in every structure we do. The question is only whether the PACE's paper makes it a safe neighbor.
Yes, when the sizes are honest: the assessment capped, the leasehold lender's debt yield still strong after rent and assessments, and coverage that survives a bad year.
The land, on a 99-year lease: nothing to manage, senior to the building’s lender, low yield because the buyer is buying the right to not pay the tax. The building above it: higher yield, paid monthly, depreciable. Both are replacement property. Both close on a date we control, which is the part that matters on day 140.
1031 SolutionsWorking with an intermediary? The standby sheet for line 3 of the identification form.
Send the assessment terms and your budget. We will tell you quickly whether the paper can work and what the ground lease is worth alongside it.