The rapid increase in demand for data centres, driven particularly by Artificial Intelligence, presents developers with significant financial challenges. It is not just the buildings that need financing, but also the infrastructure necessary for operation, such as power supply and cooling systems. The International Energy Agency estimated global electricity consumption by data centres in 2024 at approximately 415 terawatt-hours and forecasts an increase to around 945 terawatt-hours by 2030.
One possible source of financing for this critical infrastructure is Commercial Property Assessed Clean Energy (C-PACE) financing. An example of this is a $100 million C-PACE financing for Patmos Hosting's AI data centre campus in Kansas City, Missouri. This loan, arranged by PACE Loan Group through Missouri's 'Show Me PACE' programme, was used to finance equipment, HVAC systems, and plumbing that support the cooling and electrical load of the 421,112 square-foot, 35-megawatt facility in the former Kansas City Star building.
This transaction was the largest C-PACE transaction in Missouri's history and was described as one of the country's first C-PACE financings for a data centre. The lender noted that many of the conversion costs were eligible and the long-term capital provision aligned well with the sponsor's business plan. Another example is the $40 million C-PACE financing arranged through Texas's 'Lone Star PACE' programme with capital from Nuveen Green Capital for the conversion of a 774,000 square-foot facility at the ViVa Center into a data centre. This included energy-efficient windows, LED lighting, advanced HVAC systems, and high-efficiency plumbing. The financing represented a loan-to-value ratio of 24 per cent.
Structure and Relevance of C-PACE
C-PACE allows commercial property owners to finance qualified energy, water, renewable energy, and resilience improvements through an assessment on the property. Repayment typically occurs via property tax bills, usually over 10 to 20 years. The assessment generally remains with the property, even upon sale. For data centre developers, certain building systems and supporting infrastructure can qualify, including energy and water efficiency measures, as well as renewable energy systems. C-PACE can also be relevant at the development stage, as it can cover certain planning and installation costs, including engineering, permits, and associated professional services.
Advantages and Applications in the Data Centre Environment
C-PACE is not a general funding source for every component of a data centre. The opportunity lies in financing a portion of the physical infrastructure, not the entire technology investment. The size of the facility can also play a role; administrators of the Missouri programme indicated that massive hyperscale data centres are unlikely to qualify, but C-PACE is expected to become more common for smaller data centres.
- —C-PACE offers long-term capital that can replace or minimise more expensive bridge financings such as mezzanine loans.
- —The structure can reduce a project's weighted average cost of capital.
- —The long repayment period, often over 20 years as in the case of Patmos, is another advantage, as it is stretched over the useful life of the installed equipment.
The transactions in Patmos and ViVa demonstrate that the structure can be applied to the conversion of various existing properties – in these cases, a former newspaper building and a former corporate headquarters campus – into data centres. Given the increasing capital intensity of infrastructure supporting AI and other high-density computing applications, C-PACE represents an important financing instrument for qualified improvements. For owners, sponsors, and capital market participants, it is advisable to align cooling, electrical, and other building systems with applicable eligibility guidelines early in the design process and to involve mortgage lenders early to optimally utilise C-PACE as a standalone long-term capital layer.
