NYC expands C-PACE eligibility for embodied carbon in office conversions

What happened

New York City expanded its Commercial Property Assessed Clean Energy, or C-PACE, program in late June to make embodied carbon eligible for financing. The city is the first U.S. municipality reported to make that change; Colorado is the only state where embodied carbon is included in law.

Embodied carbon refers to emissions associated with materials already contained in a building, including concrete, steel and glass. By adding it to the program, the city broadened a financing tool that had principally supported energy-related building improvements and sustainable elements in new construction.

The policy change is particularly relevant to office-to-residential conversions, where retaining an existing structure can avoid the emissions associated with demolition and replacement. It took effect shortly before structural concerns at one of the city’s largest conversion projects brought renewed attention to design, engineering, inspection and cost challenges in the sector.

The key details

C-PACE financing is repaid through a voluntary assessment on a property’s tax bill. The obligation is tied to the property rather than its owner and sits at the top of the project capital stack. Proceeds may be provided when a project starts or later through a refinancing, and terms can run as long as 30 years.

New York authorized this form of financing in 2009, expanded eligibility to new construction in 2019, and New York City launched its initial C-PACE program in 2021. The city’s maximum C-PACE financing level is now 35% of a property’s as-stabilized or as-complete value. The cap sets an outer limit on C-PACE’s role in a project’s financing; the report says it must still operate alongside senior debt and equity on all but the smallest deals.

Before this update, C-PACE commonly financed measures such as boilers, insulation and renewable-energy systems. The new eligibility recognizes the carbon value of reusing an existing building. According to the report, the change can allow financing to cover the cost of acquiring a building intended for reuse, rather than limiting the program to retrofit work.

Manhattan has 19.2 million square feet of conversions underway, according to Avison Young’s second-quarter 2026 Manhattan office report. A separate state incentive, the 467-m tax break enacted two years ago, exempts qualifying conversions from property taxes for up to three years during construction. Projects with at least 25% income-restricted units can receive exemptions lasting 25 to 35 years after construction.

Why it matters

The update adds a potential source of long-duration capital for conversion projects as costs rise and funding remains difficult to secure. Its environmental rationale centers on reuse: producing steel, concrete and other materials releases emissions, while retaining an existing structure avoids repeating those material-related emissions for a replacement building.

The scale of Manhattan’s pipeline means a change to available financing tools could matter beyond a single project. The tool, however, does not replace other funding sources. Following the structural concerns at the large conversion project, inspectors examined other projects and found problems, but determined that none posed a public-safety hazard, according to the report.

What to watch

The next indicator will be whether the expanded eligibility is used in completed office-conversion financings and the role C-PACE takes under the city’s 35% cap. Continued engineering and inspection activity at conversion projects will also remain in focus.

The interaction between the expanded C-PACE program and the 467-m incentive is another reported feature of the conversion landscape. The policy’s practical effect will depend on whether it is used as projects confront higher conversion costs and difficult funding conditions.