Property Assessed Clean Energy financing, or PACE, is starting to get more and more attention around the Commonwealth and the nation. In fact, Governor McAuliffe and his administration recognized PACE as a viable means to create more jobs, save energy, and lower electricity bills in a recent press release. As it’s popularity increases, many are still unaware of just exactly what PACE is and who it can benefit.

PACE financing is a loan program to help bring low-cost, long-term capital to fund the rehabilitation of existing and new privately owned commercial buildings through energy efficiency, renewable energy, and water conservation projects. The loan is repaid annually through the property’s real estate tax bill.

Thirty-three states and Washington, D.C. have passed legislation at the state level to enable PACE financing; nineteen of those states have already started a PACE program. In Virginia, a commercial PACE, or C-PACE, enabling law was originally enacted in 2009 and amended in 2015. Virginia’s PACE law requires a locality to develop a PACE program, and private lenders make the loan and negotiate directly with the property owner on rates and terms. Currently, Arlington County is the only Virginia jurisdiction actively developing a PACE program; however, several over localities are exploring the development of their own programs.

Practically all privately-owned commercial buildings, regardless of size, are eligible for PACE financing, including office, retail, hotel, and industrial space. Eligible PACE projects must either reduce energy consumption or generate energy, and they must be permanently affixed to the property. Eligible improvements include: insulation, solar panels, lighting, roofing, and HVAC systems. In Virginia, commercial, nonprofit, and multifamily buildings (except condos and dwellings with less than five units) are eligible regardless of their age.

PACE offers an array of benefits for each key stakeholder: property owner, contractor, lender, locality.

Property owners:

– 100% financing: PACE covers 100% of all hard and soft project costs, eliminating the need for upfront cash investment.

– Long-term loan: With terms up to 20+ years, PACE loans result in lower annual payments and immediate positive cash flow.

– Transferable: PACE loans do not have to be paid off at the time of sale; they transfer to the new owner.

– Non-accelerating loan

Contractors:

– Increase sales volume and improve profit margin: By covering 100% of project costs and eliminating the requirement for out-of-pocket expense, PACE brings financing to more customers. Since PACE is based on equity in the property and not personal credit, it is easier for more customers to obtain financing.

– Fund deeper energy retrofits: Long-term financing enables customers to take advantage of projects with longer paybacks, which leads to more comprehensive projects with greater effect on energy usage. PACE can also fund efficiency improvements that are not allowable uses of Weatherization Assistance Program funds (i.e. replacement windows).

– Gain support and resources: PACE programs can be developed to offer an array of contractor services to help grow business and streamline financing. Services include training, call center support, customizable marketing materials, tools to pre-qualify customers, project estimation calculators, and web portals for financial analysis and deal-tracking.

– Spur demand for retrofits and energy auditors: As the number of people taking advantage of PACE increases, PACE could spur a surge of private demand for well-trained retrofitters. Additionally, as the program grows, so will the demand for energy audits. Energy audits are used to track a building’s energy usage before and after PACE improvements are installed.

Lenders:

– Meet client’s needs of implementing upgrades

– Increase value of collateral: upgrades and improvements increases the value of the property

– Enhances property owner’s ability to pay their debt: raises net operating income (NOI) through low annual payments and decreased operating costs

Localities:

– Creates employment opportunities for contractors, trades, engineers, vendors, etc.

– Serves as a redevelopment tool for “tired” buildings with obsolescent and inefficient systems

– Improvements make buildings more marketable, leading to better tenant retention and increases property values

– Increased property taxes  and construction fees yields more revenues for jurisdictions

– Reduces locality’s carbon footprint, enabling it to become a green leader

– Minimal municipal burden: a third party administrator carries the cost of starting and running the program

The difference between traditional bank financing and PACE financing:

PACE financing is a lucrative tool that can benefit all parties involved. We look forward to seeing Arlington get their program up and running later this year and are excited to continue working with other localities as they explore the feasibility of developing their own PACE programs.

If you would like additional information about PACE, please contact VAEEC Program Coordinator Jessica Greene.

Last week (February 20, 2017) VAEEC participated in the first Mid-Atlantic PACE Alliance (MAPA) kick-off meeting in northern Virginia. MAPA is the result of a U.S. Department of Energy grant to support the development, implementation, and utilization of Commercial Property Assessed Clean Energy (C-PACE) programs throughout Virginia, Maryland, and Washington, D.C. The Virginia Department of Mines, Minerals and Energy is leading this effort between private and public stakeholders to develop and promote best practices, which will make the development of PACE programs more effective and will accelerate the growth of C-PACE programs throughout the region.

Educating stakeholders and standardizing templates and models are two key focuses of the MAPA team. Partners will use grant money to educate primary stakeholders (localities, property owners, lenders and borrowers, and contractors) about PACE. The second focus is to develop streamlined, consistent practices that will propel the adoption of PACE across Virginia while supporting the expansion of existing programs in Maryland and Washington, D.C. This includes the creation of consistent, cost-effective practices for program administration, drafting ordinances, financial underwriting guidelines, measurement and verification requirements, contractor training, and overall support.    

This grant will enhance the work the VAEEC is already doing to further promote and advance PACE throughout the Commonwealth.

Click here to learn more about MAPA and here to read a copy of Governor McAuliffe’s press release about the grant.

The Virginia Energy Efficiency Council is diligently working to build a coalition of support for Property Assessed Clean Energy financing, or PACE, and to provide guidance and resources to localities interested in developing PACE programs.  To assist with this effort, VAEEC has initiated a series of events across the Commonwealth suitably called “PACE Lunch + Learns”.  Each event is open to anyone interested in learning more about PACE; however, these events target commercial property owners, contractors, lenders, and local government officials.  Knowledgeable speakers from the field will provide attendees with information on PACE and answer PACE-related questions.  VAEEC is teaming up with different sponsors to host the events and provide a complimentary lunch to all in attendance.

On Monday, December 5, VAEEC and Williams Mullen kicked off the first Lunch + Learn for the Hampton Roads/Norfolk area with a diverse group of nearly 30 people in attendance. Speakers included Abby Johnson, Bill Nusbaum, and Rich Dooley.  Abby Johnson is the President and founder of Abacus Property Solutions, an independent real estate advisory firm.  Abacus provides PACE project development and consulting and works with capital partners to identify PACE opportunities and develop PACE programs.  Bill Nusbaum is an attorney with Williams Mullen, a full-service law firm, which is a key stakeholder in developing PACE financial underwriting guidelines with the Department of Mines, Minerals and Energy along with Abacus and VAEEC.  Rich Dooley is the Community Energy Coordinator with Arlington Initiative to Rethink Energy (AIRE) in Arlington County.  AIRE’s goal is to cut greenhouse gas emissions from County operations.  Arlington County is the first locality in the Commonwealth on track to develop a PACE program.

The presentation provided a wealth of knowledge for all in attendance as it covered many different aspects of PACE.  Here are my key take-aways:

• PACE provides a win-win opportunity for property owners, contractors, localities, and lenders. Through PACE financing, commercial and multifamily property owners can receive 100% project funding for energy efficiency, renewable energy, and water conservation upgrades. The loan is paid back as a line item on the property tax bill, and in most cases, the utility savings from the funded projects cover the costs of the loan.  Additionally, as a senior lien status, PACE assessments stay with the property upon sale.

• Contractors benefit from PACE through increased sales volume and improved profit margin. By helping customers reduce costs and improve the value of their property, customers are able to spend more on additional building improvements.

• PACE spurs economic development within localities. Not only does PACE provides jobs, it improves building stock and increases property values, which produces more revenue for the jurisdiction.  PACE serves as a redevelopment tool for older buildings at little to no cost to the locality; third party providers carry the cost of starting and maintaining the program.  Furthermore, PACE helps decrease a locality’s carbon footprint.

• Based on the types of questions posed by the audience, the advantages of PACE to lenders is perhaps the hardest to grasp. In order for a PACE program to be full-fledged and offer the most benefits to all parties involved, the existing mortgage holder must consent to allow PACE to take senior lien status. However, PACE is still beneficial to lenders because it increases the value of their collateral.  Moreover, PACE improves a property’s net operating income (through reduced utility bills), and the project is cash flow positive (the loan payment is typically less than the energy savings).  In fact, over 200 lenders nationwide have already consented to make their mortgage junior lien status because they recognize these benefits.

• Arlington County is on track to become the first locality within the state to develop a PACE program. Other localities, such as Norfolk, the City of Fairfax, and Richmond have expressed interest in developing PACE programs.

• To facilitate interest in and garner support for PACE, Arlington engaged with the real estate community and coordinated with the private sector and several County departments. By building a relationship with these groups, there was enough interest in PACE to begin developing a program.  Currently, Arlington is in the midst of finalizing a Program Administrator.  The program is on track to launch in early 2017.

Our next PACE Lunch + Learn is scheduled for Tuesday, January 31 in Ashland.  Stay tuned for a Lunch + Learn event in your area.