U.S. PACE ABS 2025 Outlook

Morningstar DBRS has a stable credit outlook on the commercial property assessed clean energy (C-PACE) and residential PACE (R-PACE) sectors for 2025.

Key Highlights

-- We have observed low delinquency and low losses on the underlying C-PACE assessments in our rated securitizations and expect this trend to continue in 2025. Assessments are increasing in size; however, loan-to-value ratios remain relatively low.
-- As C-PACE expands, we see the financing increasingly being used for new construction, thus creating an elevated execution risk, especially regarding speculative projects.
-- Performance of outstanding R-PACE transactions is expected to remain stable with relatively low delinquencies and low losses on the underlying R-PACE assessments.

"With buildings becoming increasingly more vulnerable to the effects of climate change, PACE is expected to grow in the coming years as property developers and owners add PACE as part of the capital stack," said Stephanie Chin, Senior Vice President, Structured Finance Research.