20 February 2021
Hotel finance lawyer: PACE Financing is now mainstream
About five years ago, my partner David Sudeck, a senior member of JMBM’s Global Hospitality Group®, spoke at a hotel industry conference about the attractive features of PACE financing as an innovative financing technique. David has extensive experience with virtually all kinds of real estate financing from senior debt to joint ventures. At the time, he had just finished working on a hotel financing that included components of a senior construction loan from a private lender, Mello Roos community facilities district financing, EB-5 financing, and PACE Financing. Few people in the audience at the conference had heard about PACE financing, and there were a lot of questions about its characteristics.
Over the past five years, PACE financing has gained wider acceptance, and moved from a novel or creative technique to a widely-accepted practical solution to financings. It has gained traction with both lenders and borrowers. But its gradual increasing use was accelerated by the COVID pandemic and resulting lockdowns, and near collapse in many segments of the hospitality industry. The accompanying deficiency of construction and other financing since March 2020, supercharged the importance and use of PACE Financing. Over the past few months alone, David Sudeck and his team have worked, on the lender and borrower-side of transactions, on more than a dozen PACE financing transactions. The largest that we have worked on, more than $40 million of PACE financing, closed just a few weeks ago.
At this point, most owners and developers are considering PACE financing as part of their capital stack for development, for renovation, and for rescue capital (more on this below). And more and more lenders have been approving PACE as a part of the capital stack. Why, you ask?
Why PACE financing can be attractive:
PACE financing takes the form of a voluntary tax assessment on real property, having the same features and priority as an ad valorem real property tax (typically paid only twice per year, when real property taxes are paid). Here are some of the features that may be negotiated which can make it attractive financing: CONTINUE READING →