As we are getting out of a recession, the overwhelming building stock in the US is existing buildings, built well before recent energy efficient technologies were made practical. How can such building owners afford upgrades of old energy systems? Ironically, the older the building, the more need there is for upgrades and the more money is needed for such upgrades. But, older buildings are likely “poorer” (attract fewer premium tenants), and may have less money “in the bank” or access to fund needed to invest in upgrades. To address this conundrum, a number of states are subsidizing a program called Property Assessed Clean Energy or PACE to simplify access to finance specific energy efficiency upgrades.
In PACE, the building owner has access affordably to low-cost capital needed to begin energy efficiency projects. The building is the collateral, not the person or business. Unique PACE conditions make this attractive to lending institutions to participate.
PACE financing is typically used for entire facility upgrades, not individual projects. A PACE loan enables the building owner to perform pre-approved energy upgrades with little or no up-front payments. Before financing is approved, proposed projects are vetted technically and financially for success and will provide a given return based on estimated cost savings. The degree of the loan and a schedule is determined to allow repayment primarily from cost savings, to attain positive cash flow for the owner at all times. The owner is less likely to skip payments because it comes from savings.
In most communities, PACE repayment is tied to the building’s property tax payments; it is a line item in their municipal or state property tax bill. The government entity collects payments and transfers it to the PACE agency or directly to the bank. Payment tied to its tax bill also allows the owner, if desired, to spread the cost among tenants.
PACE does have a number of requirements for it to work, such as the local municipality or state formally signing on to participate and willing to add it as a line item and collect and manage payments. The building owner must not be in bankruptcy, and must not have failed to pay property taxes and mortgage, generally, for the previous 3 years. PACE loans are also often limited to 10 to 20% of the total assessed property value.
Might a PACE long-term loan be an anchor around an owner’s neck, complicating a desired sale of the building along the way? While the loan and the potential lien is tied to the building and the buyer must agree to continue to make payments, the new owner should understand that future PACE payments are for upgrades that reduce other costs (energy) in an overall positive cash flow, and raise the building’s value.
Most important, PACE can remove the strong obstacle many owners have to performing an energy upgrade, and allow access to needed upfront capital in an affordable way.
CCES is an approved PACE technical provider in New York under the Energize-NY program. We can help you determine which energy efficiency projects can benefit you the most, determine the scope of useful projects, estimate project costs and energy cost savings, and help determine the right financing approach involving PACE or similar vehicle. Contact us today at 914-584-6720 or karell@CCESworld.com.