IRS Private Letter Ruling Says CPACE Loans Qualify For REMIC Transactions

The IRS recently concluded that certain commercial property assessed clean energy ("CPACE") assets are "obligations . . . secured by an interest in real property" under Code Section 860G(a)(3) in a private letter ruling ("PLR").

This PLR is the first time the IRS has specifically ruled on the eligibility of CPACE assets in real estate mortgage investment conduit ("REMIC") transactions, signaling their potential use in the market notwithstanding the fact that PLRs are limited to the particular set of facts of each case and cannot be relied upon by the general public.

CPACE programs are typically administered by local property tax authorities to provide funding to property owners for improvements aimed at promoting environmental sustainability, including installing energy-efficient windows and insulation or upgrading a building's HVAC system. These improvements typically reflect a property owner's efforts to reduce energy and water consumption or to promote