As a growing number of communities focus on energy efficiency the question of how to pay for “green” upgrades of existing buildings requires a financially attractive and easy to implement answer!
Answering that question was one of the main topics of the recent West Michigan PACE Summit which took place on October 10, 2019 on the 17th floor of the Varnum Building overlooking beautiful downtown Grand Rapids, one of America’s “greenest” cities.
Hosted by Lean and Green Michigan and billed as West Michigan’s first PACE Summit, the event brought together a large, diverse group of stakeholders interested in learning more about Property Assessed Clean Energy, or PACE. Attendees included building owners, property developers, architects, engineers and lenders-all especially interested in hearing about successful Michigan PACE case studies.
Although PACE was adopted in Michigan in 2010, the relatively steep learning curve has made adoption of this unique financing solution slower than anticipated. The participants at the PACE summit heard from multiple experts who detailed how and why the use of PACE is now rapidly expanding.
Kyle Peczynski, Vice President of Underwriting at Petros PACE Finance of Texas, noted the following: “I am thrilled about the exponential growth of C-PACE in recent years, both in terms of general awareness and actual deals closed. Based on the deal volume we’re seeing at Petros, I expect the trend to continue in 2020 and beyond.”
Gillian Giem, who is the Program Manager at U.S. Green Building Council of West Michigan noted the growing demand for green buildings during her presentation. Green buildings are ideal projects for utilizing PACE financing.
Giem detailed the top three reasons why green buildings are increasingly preferred by buyers, investors and tenants:
- Reduced energy consumption and utility expense
- Increased occupant health, productivity and wellbeing
- Strong financial return due to higher value of green buildings
During a discussion with one of the participants having questions about their project qualifying for PACE, Curt Monhart, President of E3 Prime Environments noted:
“PACE is an innovative funding mechanism specifically designed for energy efficiency, water conservation and renewable energy projects in the commercial, industrial, multi-family and non-profit sectors. It offers a number of key benefits versus traditional funding options and answers a common question for these projects: ‘how do we pay for it?’
Monhart then described the four primary benefits of using PACE financing for green building upgrades:
- Terms of 15-25 years at a fixed interest rates – Commercial loans are typically for a term of 3-5 years. In most cases there hasn’t been sufficient energy savings from the upgrades to cover the total loan amount.
- 100% financing – Traditional loans usually require the borrower to put down 20-30%. PACE provides 100% financing for the total upgrade including audits, equipment, labor, materials, engineering, legal and financial – every cost associated with the project.
- Non-recourse – For traditional loans the owner is always personally responsible. For PACE loans the property secures the loan. If for whatever reason the owner can no longer pay his property taxes, including the special PACE assessment, he is not held personally liable for the remaining balance since the property has secured the loan.
- Can be considered “off-balance-sheet – Traditional loans are a liability negatively impacting the owner’s credit worthiness for future borrowing. Since PACE is repaid with a special property tax assessment, it’s considered an expense, not a long-term liability. This preserves the owner’s borrowing capacity for other projects.
As events like the West Michigan PACE Summit increase the awareness of Property Assessed Clean Energy, the economic viability of renovating and upgrading older buildings is dramatically improving. PACE answers the question “how do we pay for green upgrades”?
With the demand for green buildings on the rise, unique financing tools like PACE make energy efficient upgrades easily affordable. Specific efficiency financing tools like PACE are often the determining factor between a proposed green project that just sits on the drawing board and one that actually launches and creates dramatic results for building owners, tenants and the community.
“I am thrilled about the exponential growth of C-PACE in recent years, both in terms of general awareness and actual deals closed. Based on the deal volume we’re seeing at Petros, I expect the trend to continue in 2020 and beyond.” Kyle Peczynski, Petros PACE Finance
To learn more about the unique financial benefits of Property Assessed Clean Energy for Commercial Real Estate (CRE) energy upgrades, download the free report: Property Assessed Clean Energy (PACE) For Driving Commercial Real Estate Financial Performance
For more information e-mail info@E3PE.com.