Financing a self-storage facility: C-PACE, and what SOP 50 10 8.1 changed

Self-storage sits in an awkward spot for financing. It is real estate that behaves like an operating business, and the two main long-term tools an owner hears about, C-PACE and SBA lending, treat it in different ways. They also cannot both sit on the same property. This guide sets out what the published deals and SBA’s own rulebook say, checked on 23 October 2026.

How C-PACE has been used in self-storage

C-PACE pays for qualifying energy and water improvements and is repaid through an assessment on the property tax bill. In storage, the published deals show it funding the building envelope, HVAC and lighting of climate-controlled facilities. Three examples, each with its date and source:

Romulus, Michigan — new construction. In September 2024 REBusinessOnline reported that PACE Loan Group provided a $1.5 million, 25-year C-PACE loan for a 475-unit self-storage project under construction in Romulus. The loan closed out a $9 million capital stack alongside a $5.5 million senior loan from a local bank. It was to pay for the building envelope, Energy Star windows, high-efficiency HVAC, plumbing and LED lighting, and the report said the measures were expected to save $57,616 a year with a payback period of 8.5 years. The facility was planned as seven one-story buildings with 298 climate-controlled and 177 drive-up units.

Connecticut — ground-up construction. WealthManagement.com reported in February 2023 that developer Eugene Poverni of Poverni Sheikh Group received $3 million of C-PACE funding at 5.75% interest the previous June for the energy- and water-related components of a 120,000-square-foot ground-up self-storage project in Connecticut. The $20 million project was also funded with a $12 million floating-rate bank loan.

Baltimore County, Maryland — conversion. The Maryland Clean Energy Center’s MDPACE case studies page, checked on 23 October 2026, describes new owners of a vacant former printing facility who converted it into a self-storage and motor vehicle storage facility. They used $3,000,000 of C-PACE financing from Greenworks Lending, on a 20-year term, covering HVAC systems, lighting upgrades, a solar PV installation, elevators, water conservation systems and building envelope improvements.

Why storage keeps appearing in C-PACE deal lists is answered by the providers themselves. Matthew McCormack of PACE Loan Group wrote in Inside Self-Storage in February 2025 that self-storage projects are great applications for C-PACE because of the large role a climate-controlled environment plays in facility operations. That is a provider’s view, and a fair one: climate control is where the energy load, and so the eligible spend, is concentrated.

C-PACE as a mezzanine substitute

The more interesting use in storage development is not the retrofit but the capital stack. Jason Schwartzberg of MD Energy Advisors wrote in Inside Self-Storage in July 2023 about three self-storage case studies — ground-up projects in Connecticut and New York and a conversion in Maryland — and said that in each case expensive mezzanine financing and/or dilutive preferred equity was replaced with C-PACE. He put the pricing at 350 to 400 basis points above the 10-year Treasury, fixed at closing for the duration of the loan, on 20- to 25-year terms, and said this let the sponsors reduce their equity raise.

In the same article he wrote that C-PACE can finance up to 30% of a property’s stabilized value. McCormack’s February 2025 article put the figure at up to 35% of the stabilized value of a self-storage project. Those are statements by two firms at two dates, not a programme rule. What C-PACE can fund depends on the state programme, on which measures qualify, and on the senior lender.

That last point is the one owners underestimate. Schwartzberg’s list of hurdles includes confirming the project has enough cash flow at stabilization to support both the senior loan and the C-PACE, and educating the senior lender to obtain its consent. A construction lender that will not consent ends the conversation. Our capital stack guide explains where C-PACE sits relative to the mortgage.

SBA and self-storage: what the rulebook actually says

SBA’s lending rulebook for 7(a) and 504 is Standard Operating Procedure 50 10. The current version, SOP 50 10 8.1, took effect on 1 October 2026; SBA’s version history lists the previous version, SOP 50 10 8, as effective 1 June 2025.

Neither version uses the word “self-storage”. The questions an SBA lender asks of a storage owner come from general rules.

The passive business rule. Under 13 CFR 120.110(c), passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds are ineligible, except Eligible Passive Companies under section 120.111. SOP 50 10 8.1 repeats that rule and adds that businesses primarily engaged in owning or purchasing real estate and leasing it for any purpose are not eligible. For a storage owner, the lender’s question is whether you are running a storage business or holding real estate.

The management agreement point. Many storage facilities are run by a third-party manager — the Romulus project, for one, was reported as to be managed by Extra Space Storage. SOP 50 10 8.1 says a management agreement that gives the management company sole discretion over the business operations makes the applicant an ineligible passive business. If the manager lacks sole discretion and the applicant exercises “meaningful oversight”, the applicant is eligible. Meaningful oversight requires a management agreement under which the applicant does all of the following:

• approves the annual operating budget;
• approves capital expenditures or operating expenses over a significant dollar threshold;
• has control over the bank accounts; and
• has oversight over the employees operating the business, who must be the applicant’s employees.

The SOP requires the lender to obtain the management agreement, review it to determine whether it results in an ineligible passive business, and keep it in the loan file. If you plan to hand a facility to a manager, have that agreement drafted with those four points in mind before you apply.

What SOP 50 10 8.1 added for storage acquisitions

SOP 50 10 8.1 gathers the 7(a) rules for buying a business into a new Appendix 15, “7(a) Changes of Ownership”. Two provisions there apply when the buyer acquires an owner-occupied Special Purpose Property — defined as a limited-market property whose design, materials or layout restricts its utility to the specific use for which it was built — and the property cannot be separated from, and is integral to, the acquisition and continued operation of the business.

• Projections instead of history. For such an acquisition, where the appraised value fully collateralizes the loan, the lender may rely on projections to meet the debt service coverage requirement, which must then be satisfied within two years of loan funding. The lender must still calculate the historical coverage of the business being acquired and analyse the variance. The SOP states: “Examples of this type of loan include storage units and hotels where the real estate fully secures the loan.”
• A longer term. Change-of-ownership 7(a) loans are generally limited to a 10-year amortization, but for an owner-occupied Special Purpose Property acquisition the lender may structure a maturity of up to 25 years if 85% or more of total project costs are for real estate.

The phrase “storage units” does not appear in SOP 50 10 8, the version 8.1 replaced. Whether a particular facility counts as a Special Purpose Property is the lender’s determination, which the SOP requires it to document in its credit memorandum. Note too that self-storage is not among the examples on the separate Limited or Special Purpose Property list that 8.1 uses for 504 borrower contributions. Read the Appendix 15 provision as a change-of-ownership rule for 7(a), not a general statement about storage.

The rule that decides the structure: C-PACE and SBA cannot share a property

SOP 50 10 8.1 lists among its restrictions on uses of proceeds:

Whether at loan origination or as a servicing action, SBA Lenders may not permit a C-PACE loan to be made on a property that has or will have a 7(a) or 504 loan.

The same sentence appears in SOP 50 10 8, effective 1 June 2025. For a storage owner this means two things. A facility you are buying with a 7(a) or 504 loan cannot also carry C-PACE. And a facility that already has an SBA loan cannot add C-PACE later for a solar array or HVAC replacement, because the rule covers servicing actions too. The history of how SBA got here is in our guide to C-PACE and SBA loans.

Choosing a route

The deals above show the pattern on each side.

• Ground-up development or conversion is where the published C-PACE storage deals sit. Where there is an equity gap, C-PACE is worth pricing against mezzanine debt or preferred equity, provided your senior lender will consent and the state has a programme.
• Buying an operating facility you will run yourself is where SBA’s change-of-ownership rules, including the Appendix 15 provisions, come into play. Choosing SBA means giving up C-PACE on that property for as long as the SBA loan is there. Our SBA 504 page explains how 504 works for owner-occupied real estate.
• A facility run entirely by a third-party manager with sole discretion is, under the SOP, an ineligible passive business for SBA. That points back to conventional or C-PACE-led structures.

If a merchant cash advance is already in the picture, do not assume SBA can help until you have read our guide to SBA’s merchant cash advance rule.

Sometimes neither route fits: the improvements are too small for C-PACE, the lender will not consent, and the ownership structure is too passive for SBA. Say so early rather than late. If you are weighing a storage project, talk to us and we will tell you which structure, if any, works.

C-PACE Desk is an advisory and placement service, not a lender, fund or programme administrator. Nothing here is legal advice. SBA rules change by SOP version and C-PACE terms vary by state, so confirm the current rules with your lender or programme administrator.