Can PACE ABS Pick Up the PACE in 2024?

After a tepid 2023, property assessed clean energy (PACE) securitization issuance has come out strong in the first quarter of this year. Public and private commercial PACE (C-PACE) and residential PACE (R-PACE) asset-backed securities (ABS) issuance through the first three months of 2024 was robust, with roughly $347.3 million in securitization volume, according to Morningstar DBRS estimates. Portfolio-level delinquencies and losses across our rated PACE securitizations remain low and within expectations.

Highlights:
-- If PACE ABS issuance keeps this momentum, we will finish the year with more than $1.3 billion in volume, easily besting 2023’s total.
-- In a reversal of trends, R-PACE ABS issuance accounted for the bulk of the Q1 2024 volume, representing about 81%. Two public 144a transactions came to market in the first quarter of this year: Renew 2024-1 and GoodGreen 2024-1.
-- C-PACE ABS issuance was relatively subdued in the first quarter, but the strong pipeline of C-PACE assessment originations supports future capital markets activity, with more pools available for potential securitization and larger individual C-PACE loans as candidates for financing. In addition, as yields on C-PACE assessments have improved, the overall economics of securitization have become more attractive.

“The overall state of the commercial real estate market will likely be a primary factor behind securitization volume going forward, depending on how tight lending may be,” said Stephanie Mah, SVP Structured Finance Research, Morningstar DBRS. “In 2022, we saw a significant uptick in C-PACE ABS issuance as issuers sought alternative financing avenues because more traditional lending channels constricted.”