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PACE FinancingSouth CarolinaOctober 28 & 29, 2015
PACENOW
PACENOW
More is better501(c)3 Not-for-Profit
Foundation Funded• Rockefeller Brothers Fund• Kresge Foundation• Tilia Fund• Energy Foundation• Roy A. Hunt Foundation
Information, Resources, Advice, Networking, Problem Solving
• www.PACENow.org
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Building PACENation
PACENATION
More is better
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Join for Free
PACENATION
More is better
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Sign up for the Summit
PACE IN 90 SECONDS
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OLD CONCEPT – NEW APPLICATION
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1736 – First Assessment District in Philadelphia
Today – 37,000 Assessment Districts nationwideWater & Sewer ServiceParksSidewalksLightingDowntown renewalEnergy Efficiency (PACE)
Local Government Financing – Public Purpose Goal
WHAT MAKES A PACE DEAL?
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A Building Owner
WHAT MAKES A PACE DEAL?
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A Project…. And a Contractor
WHAT MAKES A PACE DEAL?
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Someone to Fund the Project
Consent from the Mortgage Lender
WHAT MAKES A PACE DEAL?
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Local Government to “Service” the Financing
WHAT MAKES A PACE DEAL?
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Building Owner Repays with an Assessment
WHAT MAKES A PACE DEAL?
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Assessment Repays Project Funder
WHO CAN USE PACE?
Almost Any Building – Including Non-Profits
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WHAT FOR?
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Projects that Save or Generate Energy
WHY PACE?
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No $ out of pocket – Hard and Soft costs
WHY PACE?
Long-Term Payback
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Standard commercial lending rarely exceeds 5 to 7 years
WHY PACE?
Makes Long Payback Projects Work
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The secure nature of PACE enables up to 20-yr funding: projects with simple paybacks as long as 12 years can be implemented on a positive cash flow basisIncreases NOIIncreases Property Value
WHY PACE?
PACE Transfers on Sale
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No payoff on sale – PACE automatically transfers to the new owner, like any other real estate tax
No residual encumbrance and easy exit. Takes the risk away from investing in needed CAPEX.
WHY PACE?
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Share Benefits and Costs with Tenants
The real estate tax assessment can be passed on to tenants under most lease forms
Eliminates the landlord/tenant split incentive for triple net, modified gross leases, and industrial modified gross leases.
WHY ARE MORTGAGE LENDERS GIVING CONSENT?
Over 100 Different Lenders to Date, Nationwide
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1. PACE project makes the building – the lender’s collateral – more valuable2. Only PACE assessment in arrears is senior – future assessments do not
accelerate3. Underwriting standards make sure projects are appropriate4. Lender can always say NO…
Arrears = only part senior to mortgage
PACE TODAY
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32 states and DC - 80+% of US population
2009
2009
2009
2013
2009
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2009
2009
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20152008 20132013
2013
2011
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2012
20102009
2009
HI Existing Authority
2015 / 2016 legislative initiatives
2013
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2014
2015
20162016
2015
2016
2015
2015
2015
PACE enabled
Early stage PACE program development
PACE programs with funded projects
JUNE 2010
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PACE enabled
27 Projects completed - $5 mil
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PACE programs with funded projects
PACE PROGRAMS TODAY394+ Projects - $152+ mil - Pipeline $500+ mil – 1,900+ Jobs
Early stage PACE program developmentLaunched PACE programs
PACE enabled
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PACE COMMERCIAL MARKET STATS
Cumulative Financing
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PACE COMMERCIAL MARKET STATS
Broad ApplicabilityFunding by Property Type (2009-present)
Number of Projects by Property Type (2009-present)
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PACE COMMERCIAL MARKET STATS
Broad Applicability
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Number of projects by project dollar amount (categorized)
Improvement type by building type
Mixed Energy Efficiency Renewables
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PACE COMMERCIAL MARKET STATS
Broad Applicability
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Type of improvement by number of projects
Type of improvement by project dollar amount
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SIMON PROPERTY GROUP – GREAT LAKES MALL, OH
“We hope to serve as pioneers in this arena, encouraging others to explore the many ways to reduce energy use now, rather than delaying sound financial and environmental decisions.”
George Caraghiaur, former SVP for Sustainability at Simon Property Group
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$3.4 mil Energy Efficiency – Multi Project
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PROLOGIS, INC. HEADQUARTERS – SAN FRANCISCO, CA
“Prologis is participating in the PACE program in order to promote new, innovative solutions for financing sustainable building improvements. It provides the flexibility to drive more energy improvement programs and that’s something everyone should embrace.”
Jack Rizzo, Managing Director, Global Construction and Renewable Energy, Prologis
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$1.4 mil Energy & Solar Upgrade – Multi Project
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SOLAR & EE UPGRADE IN MIDDLETOWN, CT
Project
the installation of air units, variable frequency drives, high efficiency lights, occupancy sensors, air leakage improvements, an upgraded energy management system,
and a 260 kW ground-mounted solar photovoltaic system.
Financial Impact
▪Energy savings of $224k annually
Impact
▪51M kBTUs saved
▪8.5M kWh clean energy produced
$2.5 mil Energy & Solar Upgrade – Multi Project
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ACCESSING PACE – LOT’S OF MODELS
PACE Platform – Municipality as “Loan Servicer” Sole municipality
• Edina (MN), San Francisco (CA), Ann Arbor (MI), Sacramento (CA)
Multiple municipalities – Consortiums• California (California First, FigTree, LA County)
• Florida (Florida Green Energy Works, Ygrene)
• Michigan (MI Lean & Green)
• New York (Energize New York)
Statewide – Uniformity and Scale• Connecticut
• Maryland
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Decentralized Market – Mix of Models & Providers
LowLow
HighHigh
PACENOW
David Gabrielson, Executive Director [email protected]
www.pacenow.org www.pacenation.us
Questions: [email protected]
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Contact Information
CASE STUDY: CONNECTICUT
PACE FINANCIAL SERVICING and Greenworks Lendingwhere clean energy becomes smart business
Create PACE Program Rules and Structure;
Train Participants
Manage PACE Projects From
Idea to Completion
Provide 100% Upfront
Financing
Approve Project and
Secure Financing via
Tax Assessment
1 2 3 4
PACE FINANCIAL SERVICING provides outsourced administrative services to aspiring PACE districts (#’s 1, 4)
Greenworks Lending partners with clean energy contractors to originate, approve, and finance PACE projects
U.S. Buildings Lose Billions Annually From Inefficient Energy Use
$279B Projected Value of Efficiency Retrofits
$1 Trillion 10-Year Energy Savings Potential
30%U.S. Electricity Spend Avoidable through Efficiency Projects
10%Emissions Reduction if all Efficiency Projects were Completed
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DESPITE CLEAR ROI, 80% OF PROJECTS FALL THROUGH FOR FINANCIAL REASONSPACE overcomes many traditional project hurdles
•5-20 year term…dramatically lowering monthly payments
•Projections verified by third party
•Full tax benefits of ITC, Depreciation
•Transfers on sale
• Energy savings (and cost of upgrades!) passed to tenants
• Finances 100% of costs - $0 cash down
• Competitive rates (4.3-7%)
• Can be off balance-sheet (op-ex)
• Underwriting focused on the building
Cash Bank LoanPACE
AssessmentDown payment amount ($2,000,000) 15% - ($300,000) $0 Loan amount $0 $1,700,000 $2,000,000 Loan term NA 7 yrs 20 yrsInterest rate NA 4.00% 6.00% Annual Cash Flow Annual payment NA ($339,884) ($177,856) Annual energy savings $320,000 $320,000 $320,000 Net annual cash flow $320,000 ($19,884) $142,144
5-Year Financial Performance5-Year Net Cash Flow ($720,000) ($399,418) $710,718 5-Year NPV @ 6% ($840,766) ($366,776) $598,7605-Year IRR -16% NA Infinite 1Assumes no utility cost escalation and no performance degradation to simplify case study
PACE PROJECTS HAVE A “DAY 1 PAYBACK”Sample $2M, Multi-Measure Project w/ ~6.25 Year Simple Payback
CT’S PACE POLICY
• Commercial, industrial & multi-family property
• Requires the consent of the existing mortgage lender
• Requires energy savings, permanently affixed
• Single statewide program with CT Green Bank as named administrator, municipalities opt-in
• Renewable and energy efficiency (and related measures)
CT GREEN BANK’S ROLE
THE CT PACE STORY
Launched in January 2013
Two years later….
• Over 120 municipalities “opted in”
• 200+ contractors trained
• 25 qualified capital providers
• Originated with $100M internal warehouse CEFIA
capital
• Sold loans to private capital
• 40 mortgage lenders have provided consent
Pre-sold initial $30M portfolio through bid
process
4Q 2014:
>$75 million (60) deals approved
Average deal size $700k
>$100M pipeline
KEY LESSONS
Statewide standardization is key
PACE isn’t just about the money.
Work with banks early on consent
Flexibility is critical.
Volume drives everything.
Keep it simple.
PACE doesn’t work for everyone.
LENDER CONSENT
Lenders need to be engaged early
Assessment doesn’t accelerate
Lien and Loan to Value need to match loan covenants
Borrower needs to be in good standing
Project needs to make building more valuable
PACE doesn’t work for every building
INTRODUCING GREENWORKS LENDINGAccelerating Clean Energy Projects through PACE
• Partners with owners and contractors to make clean energy projects come to life
identifies leading partnerstrains sales teams provides tools to assist origination
• Finances commercial clean energy projects using PACE (property assessed clean energy)
financing available through construction100% financingcompetitive rates; fast and simple underwriting
• Guides owners, property managers, and contractors through the PACE process
What We Do
Who We Are
• Greenworks is a clean energy company focused on commercial PACE projects
• Headquartered in Stamford, CT and operates wherever PACE programs are active
• Founded by the architects of the Connecticut Green Bank’s C-PACE program – the program that completed 75% of all commercial PACE nationwide in 2013-2014
INTRODUCING PACE FINANCIAL SERVICINGProviding turnkey, no-cost administration for counties
• Supports states, counties, and municipalities to set up PACE programs• Pass enabling legislation and ordinances• Track applications and approve projects• Standardize programmatic approaches• Source capital providers and originators• Train and approve contractors• Service benefit assessments• Facilitate low-hassle collection and remit payment to capital providers
What We Do
Who We Are
• PFS is a PACE administrator
• Headquartered in Stamford, CT and operates wherever PACE programs are active
• Founded by the architects of the Connecticut Green Bank’s C-PACE program – the program that completed 75% of all commercial PACE nationwide in 2013-2014
MARKET SELECTION CRITERIA
Workable PACE policy
Senior Lien at Close
Open market
Borrower Economics
High energy prices
Good incentives
Operational Program
Low application fees
Project opportunities
Clustering
Potential market size
Contractor Network
45K sq foot office building in Simsbury, CT
$840k energy efficiency project
Project
PACE IN ACTION: $840K ENERGY EFFICIENCY – SIMSBURY, CT
$165k utility incentives
$675k financed through PACE @ 5.5% interest for 18 years
Annual savings of $241k vs. assessment of $166k result in $75k+ annual cash flow
PACE Financing
PACE in Action: $2.9M Energy Efficiency and Solar - Middletown, CT
81K square foot office building in Middletown, CT
$2.9M energy efficiency and solar project
Project
• $387K utility incentives
• $2.5M financed through PACE @ 5.5% for 20 yrs
• Annual assessment $189k
• Annual savings $224k
• Building cash flows in excess of $35k annually, plus receives REC revenue and tax credit
PACE Financing
CT GREEN BANK’S CASE STUDY
CT GREEN BANK’S CASE STUDY
CT GREEN BANK’S CASE STUDY
