Property Assessed Clean Energy & Development Finance

Overview

Property Assessed Clean Energy (PACE) financing is a mechanism for achieving energy retrofit or energy generation of existing privately-owned buildings by utilizing special assessment district financing techniques to finance projects, with private capital, via property owners’ property tax bills. PACE programs are administered by state and local governments and can exist for both residential properties (R-PACE) and commercial properties (C-PACE). PACE programs can be established to address a single property, a district, a region, or an entire state. This proves PACE to be a flexible and easily implementable financing tool.

PACE provides property owners the opportunity to implement energy improvements without the high upfront cost. By utilizing PACE, the property owner is able to access affordable capital in the form of a bond, or a loan from a government entity to make energy efficiency upgrades, retrofit, or generation to their business, home, or industrial property. In turn, the government entity places a special assessment on the property owner’s tax bill. The PACE assessment is considered a debt of property, meaning the debt is associated with the property rather than the owner. The assessment is collected over a set time period, typically 10 to 20 years, during the regular property tax payment process with payments made to the private lender. Over time, the loan is paid off and the property sees measurable energy savings creating a more sustainable energy solution and community.

One of the major benefits of the PACE model is that the tool can be tailored to broad and narrow programs at the same time. Communities can create broad programs that encompass larger geographic districts and allow for multiple uses such as housing, commercial, industrial and mixed-use. Conversely, programs can be designed to be very narrow such as assistance for low-income households, manufacturers, or business districts.

Case Studies

PNC Plaza, Columbus, Ohio

PNC Plaza is a 24-story, 360,000 square-foot office tower located in Downtown Columbus, Ohio. The building owner had a mortgage on the building and did not have the capability or to finance the energy-efficient upgrades. Instead, the building owner took advantage of PACE financing to pursue special energy improvements, such as energy-efficient roofing, air controls, and lighting controls. The building owner accessed $3.2 million in PACE financing to fund the energy efficiency upgrades without accruing additional debt. PACE special assessments were imposed on the property and pledged to the Columbus-Franklin County Finance Authority. The energy-efficient upgrades are expected to save the building owner approximately $187,000 per year.

Colorado Commercial Property Assessed Clean Energy

In 2008, Colorado passed the first wave of Commercial Property Assessed Clean Energy (C-PACE) legislation for the state. Although the most recent legislature supersedes the original statue, Colorado C-PACE was among the first statewide PACE programs to allow property owners to finance 100% of the up-front costs of energy efficiency, renewable energy, or water conservation improvements. These improvements are financed by placing a special assessment on the property tax bill for up to 25 years. New construction projects may also utilize C-PACE financing for up to 20% of the total construction costs when building in energy efficiency above what is required by building code. C-PACE financing is available to commercial, industrial, agricultural, non-profit, and multifamily residential properties.

Colorado C-PACE is financed through the County property tax assessment process. This assessment is repaid over the financing term with annual energy cost savings typically exceeding the annual assessment payment. Since the assessment is attached to the property, the assessment is transferred to the next property owner upon sale. Each Colorado county that participates in the C-PACE program collects the assessment payments from the property owners through the property tax collection process, then remits the funds to the District for distribution to the private capital provider that financed the project.

The Colorado C-PACE program is designed to be self-sustaining. The Colorado Energy Office charges a 2.5% C-PACE project financing fee (not to exceed $50,000 per project) to cover the costs related to the support given to sustain the C-PACE program. The county in which the project is located also charges up to a 1% servicing fee.

The Colorado C-PACE statute established the New Energy Improvement District (NEID), or the “District,” to be governed by a Board of Directors. NEID selected Sustainable Real Estate Solutions, Inc. (SRS) to administer the Colorado C-PACE program. SRS provides technical supports to C-PACE stakeholders and ensures the underwriting requirements are met.

Set the PACE St. Louis

Set the PACE St. Louis is a local PACE program that provides 100% of the upfront, fixed rate, long-term financing to property owners for qualified energy upgrades and water efficiency projects. Set the PACE St. Louis allows residential and commercial building owners to finance energy efficiency upgrades over a 20-year period through additional payments on their property tax bills. The energy savings often offset the additional property tax assessment.

The maximum financing amount for Set the PACE St. Louis is 35% of the property value, and the minimum financing amount is $25,000. The assessment can be repaid over 5, 10, 15, or 20 years and interest on PACE financing may even be tax deductible. Eligible applicants must hire an energy auditor and complete a work plan. The cost of initial energy consultations may be included in the PACE loan to reimburse the property owner.