A smarter, lower-cost layer of capital for today’s development environment

In today’s development landscape, capital stacks are more complex, and more expensive, than ever. Higher interest rates, tighter underwriting, and increased equity requirements are forcing developers to rethink how projects are financed.

TX-PACE (Texas Commercial Property Assessed Clean Energy) has emerged as a strategic capital source that helps developers close gaps, reduce cost of capital, and improve project feasibility, while simultaneously delivering long-term operational savings.

Once viewed primarily as a tool for energy retrofits, TX-PACE now plays a meaningful role in ground-up construction, major renovations, and large-scale redevelopment projects across the country.

What Is TX-PACE—Revisited for Developers

TX-PACE provides long-term, fixed-rate financing for eligible energy efficiency, water conservation, and resiliency improvements. Financing is repaid through a voluntary assessment on the property and is typically:

• Non-recourse
• Fully transferable upon sale
• Amortized over 20–30+ years
• Priced below mezzanine or preferred equity

For developers, TX-PACE is not just about sustainability, it is about capital efficiency.

Where TX-PACE Fits in the Capital Stack

TX-PACE typically sits ahead of senior debt and equity, functioning as a lower-cost substitute for:

• Mezzanine debt
• Preferred equity
• Additional sponsor equity

By shifting eligible improvement costs into long-term TX-PACE financing, developers can:

• Reduce required equity contributions
• Improve levered returns
• Preserve flexibility elsewhere in the capital stack

Importantly, TX-PACE does this without diluting ownership or adding recourse.

Alex Cartwright, Managing Member of The 702 LLC share this comment, "...we have spent the past few months increasing the scope of our energy efficiency measures including a significant solar component and reorganizing our capital stack, virtually eliminating high cost, short term construction financing and maximizing our use of the lower cost and long-term PACE Financing. This significantly improved our returns”

Lowering Cost of Capital

One of TX-PACE’s most compelling advantages is pricing.

Because TX-PACE is secured by a property assessment and amortized over the useful life of improvements, it is typically:

• Lower-cost than mezzanine or preferred equity
• Fixed-rate for the full term
• Insulated from interest rate volatility

For projects with large MEP systems, central plants, or envelope investments, the savings can materially improve overall project economics.

Improving Project Feasibility

TX-PACE often makes deals pencil that otherwise would not.

Developers routinely use TX-PACE to:

• Fill financing gaps created by conservative senior loan sizing
• Offset rising construction and materials costs
• Support projects in secondary or emerging markets

In many cases, TX-PACE is the difference between delaying a project and moving forward.

“Garages of America has been fortunate to have financed three mixed-use development projects to date utilizing TX-PACE as part of the Capital solution. The Garland-Firewheel project would not have happened without this energy efficient method of construction design to control costs” said Fred Gans, President & Founder, Garages of America.

Alignment With Construction Reality

Modern TX-PACE structures increasingly mirror construction financing practices.

For larger, more complex projects, TX-PACE can be structured to:

• Fund eligible costs in stages as construction progresses
• Accrue interest only on drawn capital
• Coordinate with senior lender draw schedules

This alignment reduces construction-period carry and integrates seamlessly with sophisticated capital stacks.

Enhancing Long-Term Asset Performance

TX-PACE-financed improvements are not cosmetic, they are foundational.

Eligible measures often include:

• HVAC and mechanical systems
• Building envelope and roofing
• Electrical infrastructure
• Water efficiency and resiliency upgrades

These investments reduce operating costs, improve NOI, and extend asset life, benefits that persist long after construction is complete.

Jill Turner Black, General Partner of Witcher Properties, shared, “We have been very pleased to provide our tenants with financial benefits such as lower electricity costs, along with the positive environmental impact. TX-PACE is a fantastic program that allows us to make needed improvements to aging buildings with sustainability in mind."

Increasing Exit Flexibility

Because the TX-PACE obligation runs with the property, it can:

• Transfer to a buyer upon sale
• Be prepaid as part of refinancing or disposition

For stabilized assets, buyers often view TX-PACE as a feature, not a burden, particularly when improvements are new and operating savings are documented.

A Tool for Today’s Market Conditions

TX-PACE has evolved alongside the market.

Today, developers are using TX-PACE to:

• Preserve equity in a high-cost capital environment
• Execute projects in secondary and tertiary markets
• Deliver higher-performing, more resilient assets

What was once considered an alternative financing tool is now a mainstream component of sophisticated capital stacks.

The Bottom Line

TX-PACE belongs in your capital stack because it:

• Lowers blended cost of capital
• Reduces equity requirements
• Improves project feasibility
• Enhances long-term asset performance

For developers navigating today’s financing challenges, TX-PACE is no longer optional to consider, it is increasingly essential.

At Texas PACE Authority, we work with developers, lenders, and communities to integrate TX-PACE seamlessly into projects of all sizes, helping move deals from concept to closing.  TX-PACE isn’t just financing, it’s a strategic advantage.

About Texas PACE Authority (TPA)

Texas PACE Authority (TPA) is the nonprofit administrator for more than 100 local TX-PACE programs across Texas. TPA helps commercial, industrial, and multifamily property owners access long-term, fixed-rate financing for energy, water, and resiliency upgrades that reduce costs, improve building performance, and strengthen communities. Working alongside cities, counties, lenders, and contractors, TPA has facilitated more than $600 million dollars in new private investment statewide.