Updated August 16, 2026
Usually yes, in practice, even though neither is technically a mortgage. PACE financing — used across California for energy, water, and seismic improvements — is repaid through a special assessment on the property tax bill, and it sits in a senior position ahead of the mortgage. Most commercial lenders will not fund a loan behind it, so the buyer's lender typically requires it paid off at closing. A leased solar system is a different instrument with the same practical effect: it usually carries a UCC filing against the equipment, and the buyer must either assume the lease with the provider's consent or have it bought out. Either way, the number comes out of the seller's proceeds, and it should be identified before you set an asking price rather than during escrow.
It is a property tax assessment, not a loan. It attaches to the property, is billed with property taxes, and is senior to the mortgage.
Seniority is the issue. A lender in second position behind an assessment that can result in a tax lien has a risk most commercial lenders decline to accept.
Amounts can be substantial. PACE has been used for seismic retrofits, roofing, HVAC, and solar installations on multifamily buildings — programs where the financed amount can run into hundreds of thousands of dollars.
The payoff includes more than the balance. Prepayment premiums and administrative fees often apply, and the payoff figure has to be requested from the program administrator.
The right question is which structure you have, because they behave completely differently in a sale.
Owned outright. The simplest case. The system conveys with the building and generally adds value, particularly where it materially reduces a common-area electric bill.
Financed through PACE. Treated as above — expect the assessment to be paid off at closing.
Leased. A third party owns the equipment. The buyer must assume the lease, which requires the provider's approval and a credit review, or the lease must be bought out. Buyout amounts on older leases are frequently higher than owners expect.
Power purchase agreement. You buy the electricity rather than the equipment. Same assumption-or-buyout dynamic, with the additional wrinkle that the contracted rate may be above current utility rates, in which case the agreement is a liability rather than an asset.
The PACE payoff statement. From the program administrator, in writing, including any prepayment premium. Not an estimate from the tax bill.
The full solar contract. Lease, PPA, or purchase documents, including the assignment provisions and the buyout schedule.
The UCC filings. A UCC search reveals equipment liens that a title search alone may not surface clearly, and these turn up late in escrow with surprising regularity.
Production and savings data. If the system genuinely reduces operating expenses, that is real NOI and worth documenting. If it does not, better to know before a buyer's analyst points it out.
Your property tax bill, read line by line. PACE assessments appear as direct assessments on the bill, and owners who inherited a building or use a management company sometimes do not know one is there.
Treat the payoff as a reduction of proceeds, on the same footing as the mortgage payoff and transfer taxes. The mistake is assuming the improvement's value offsets the payoff dollar for dollar — it rarely does. A buyer pays for the building's income and condition. A new roof financed through PACE may well have been worth doing, but the buyer is paying for a building with a good roof, not for the roof twice.
The exception is where the improvement genuinely reduces operating expense in a way that shows up in NOI — a solar installation cutting a large common-area electric bill, for instance. That flows through to value at the cap rate, and it should be documented with actual bills rather than the vendor's projection.
Read your property tax bill for direct assessments, run a UCC search on the property, and locate every solar or equipment contract before you go to market. Get written payoff figures rather than estimates. Then put those numbers in your net sheet from the first conversation — a six-figure PACE payoff discovered in week three of escrow does not just cost the money, it costs the negotiation.
Can the buyer assume the PACE assessment instead?
Occasionally, on an all-cash purchase where no lender objects, and some programs permit it. In a financed transaction it is uncommon, because the buyer's lender generally will not accept a senior assessment ahead of its loan.
Does the solar system add value to my building?
Only to the extent it reduces operating expense in a documented way, and only if the buyer is not simultaneously assuming a payment obligation. An owned system on a building with a large common-area electric load can add real value. A leased system at an above-market contracted rate is a liability a buyer will price accordingly.
What if I did not know there was a PACE assessment?
It happens, particularly with inherited buildings and third-party management. It appears as a direct assessment on the property tax bill. Check now rather than in escrow — it is one of the more common late surprises on California multifamily closings.
Michael Sterman is Senior Managing Director Investments at Marcus & Millichap.
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