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Commercial Property Assessed Clean Energy (C-PACE)
Financing Session:
Strategic Opportunity, Tactical Benefits &
Practical Implementation
November 7, 2017
Keirstin Beck
Principal,
Real estate professionals that bridge the gap between “green” improvements, specialty finance, and profitable investments
Brian McCarter
CEO,
C-PACE Program Administrator in markets nationwide:
CA, CO, CT, OH, OR, RI, UT, VA
Today’s Presenters
3
New way to finance energy efficiency & renewable energy
improvements in CRE retrofits & new construction:
100% financing (no out-of-pocket expense, soft or hard costs)
Long term (up to 25 years)
Lower energy costs
Cash flow positive projects
Combine with utility & tax incentives
No personal guarantees
Payment obligation can transfer upon sale (akin to sewer assessment)
What is C-PACE?
4
C-PACE is designed as an “open source funding model”
Pre-qualified private capital providers fund eligible projects
Owner may choose a preferred capital provider; OR
Program Administrator can review pre-approved projects with pre-
qualified capital providers to determine funding interest
C-PACE requires owners to receive consent of their mortgage holder
(C-PACE assessment lien is a priority lien akin to sewer assessment)
What is C-PACE? (Cont.)
5
C-PACE available in 19 states; ~$500 million in projects to-date
C-PACE Market Nationwide
6
C-PACE is a voluntary special assessment-based, private financing program
Building owners choose to install eligible improvements
Costs are spread over periods up to 25 years
Repayment via a new “Special Assessment” bill from the local government
Goal: energy savings $$ > the payments; Creating cash flow positive projects
Finance payments can potentially be passed-through to tenants in NNN lease
The repayment obligation and can transfer to the new owner upon sale
How C-PACE Works?
7
Eligible Property Types (C&I)
Office
Retail
Hotel
Industrial
Healthcare
Non-profit
Multifamily (5+ units)
What’s Eligible?
Eligible Improvements (examples)
Automated building controls
Boilers, chillers & furnaces
Building envelope (insulation, windows)
Combined heat & power (CHP)
High efficiency lighting
Hot water heating systems
HVAC upgrades, VRF installs, controls
Solar PV systems, incl. roof upgrades
Pumps, motors, drives
8
Owners can tap C-PACE financing to:
Replace aging energy-consuming equipment & install solar PV systems
Fund capital intensive building modernization projects that:
Require NO owner out-of-pocket expense
Generate IMMEDIATE positive cash flow
Solve for short-term payback & fix-at-failure challenges
Existing Building Retrofit Benefits
9
Developers can tap C-PACE financing to:
Construct more efficient buildings, i.e. lower operating costs
Increase tenant comfort
Include improvements often “value engineered” out of a project
Potential benefits to developer:
Reduce owner equity contribution or other high-cost capital
No personal guarantees required
No impact on working capital or developer’s credit
New Construction Project Benefits
10
Leverage energy savings to pay for necessary capital improvements
Redirecting existing asset costs from utility payments to C-PACE
payments to improve underlying asset
Accelerate company sustainability goals with improved building performance
Reposition underperforming assets with C-PACE by addressing capital
needs
Stabilize balance sheet with additional operation/maintenance savings,
improved building performance and reduction of impact from rising energy
costs
C-PACE for REITs
11
Retail
Case Study – Simon Properties
12© 2017 Integro, LLC
How C-PACE Works…
Office Building1. Needs new Windows (Capital Needs
Item)
2. Install AHU
3. Install upgraded LED lighting
STEP 1: Energy Star Score- Establishes
Baseline
STEP 2: Energy Audit – Analysis of Building
to establish energy savings and costs of
upgrades
STEP 3: Take Energy Savings and Cost to
implement the improvements and establish
the amount of the PACE loan
STEP 4: Source loan provider
STEP 5: Secure 1st Lienholder Consent
STEP 5: Close PACE Loan
STEP 6: Implement improvements
STEP 7: Pay Property Taxes
13© 2017 Integro, LLC
Denver
Office
Building –
Windows/
Glazing*Colorado PACE does not have a
Savings to Investment Ratio (SIR)
so larger capital improvements
can also be addressed
13
Office - Denver8/28/2017 Energy Score 77 After PACE Energy Score 92
Total Square Feet 144,500
Energy Use Current Energy Costs Current Cost $/sf Projected Energy CostsProjected $/sf Projected Savings $ / SF
Gas -$ -$ -$ -$ -$
LED Lighting -$ 66,759.00$ 0.46$
Air Handling Unit - 1 1,350.00$ 0.01$
Controls 5,764.00$ 0.04$
MAU-1 2,597.00$ 0.02$
Garage EF's 480.00$ 0.00$
Roof 1,691.00$ 0.01$
Glazing 1,613.00$ 0.01$
Garage Lighting 468.00$ 0.00$
Saved Lighting Maintenance -$ -$ 20,181.00$
$194,869 $1.34 -$ 100,903.00$ 0.70$
Hard Cost Cost
LED Lighting 438,673.00$
Air Handling Unit - 1 21,936.00$
Controls 55,261.00$
MAU-1 18,600.00$
Garage EF's 1,200.00$
Roof 32,264.00$
Glazing 897,000.00$
Garage Lighting 7,200.00$
Total Hard Cost 1,472,134.00$
Soft Cost Lender Legal 5,000.00$
Program Administrator 38,745.13$
Loan Fee 1% 15,158.79$
Other (MEP design, permits, engagement 57,533.00$
commissioning)
Total Soft Costs 116,975.96$ 0.81$
PACE Loan Total Loan Amount 1,589,109.96$ 11.00$
PACE Term 20
PACE Interest Rate 5.00% ($125,849.07)
Annual Assessor Fee (1,258.49)$
Annual PACE Payment 125,849.07$ 0.87$
Annual Energy Savings 100,903.00$ 0.70$
Assumed Increase to Op Expense 24,946.07$ 0.17$
Assumed Savings/Value
Assumed Xcel Rebate 75,000.00$
Total Hard Cost Improvements 1,472,134.00$
TOTAL VALUE ADDED 1,547,134.00$
14© 2017 Integro, LLC
Denver
Office
Building
Needs New
Building
Controls –
Neutral NOI
14
Office Building
Denver - Energy Score 74 Energy Score After PACE 91
Total Square Feet 97,395 Energy Use Current Energy Costs Current Cost $/sf Projected Energy Costs Projected $/sf Projected Savings $ / SF
Electric 203,555.55$ 2.09 154,891.55$
Air Handling Unit -1 -$ -$ 0.10$ 9,800.00$ 0.10$
Building Controls 0.10$ 9,390.00$ 0.10$
Upgrade LED Lighting 0.20$ 19,444.00$ 0.20$
Lighting Maintenance 0.09$ 8,875.00$ 0.09$
Roof 0.01$ 1,155.00$ 0.01$
Natural Gas 948.00$ 0.01$ 948 -$ -$
Water -$ -$
204,503.55$ 0.01$ 155,839.55$ 0.50$ 48,664.00$ 0.50$
Cost Cost Per Square Foot
Hard Cost Air Handling Unit -1 47,782.00$ 0.49$
Building Controls 159,000.00$ 1.63$
Upgrade LED Lighting 84,056.00$ 0.86$
Roof 188,820.00$ 1.94$
Other -$ -$
Total Hard Cost 479,658.00$ 4.92$
Soft Cost Loan Origination 1% 4,796.58$ 0.05$
Program Administrator 2.50% 11,991.45$ 0.12$
Other (Project development fees, MEP 83,594.00$ 0.86$
Permits, Commissioning, Lender Legal)
Total Soft Costs 100,382.03$ 1.03$
PACE Loan Total Loan Amount 580,040.03$ 5.96$
PACE Term 20
PACE Interest Rate 5.60%
Annual PACE Payment 48,274.24$ 0.50$
Annual Assessors Fee 482.74$ 0.00$
TOTAL PACE LOAN PAYMENT 48,756.98$ 0.50$
Annual Energy Savings 48,664.00$ 0.50$
Assumed Increase to Op Expense (389.76)$ 0.00$
Current Property Taxes Current Assessment 248,310.62$ 2.55$
PACE Assessment 48,756.98$ 0.50$
New Property Taxes 297,067.60$ 3.05$
Assumed Savings/Value
Total Hard Cost Improvements 479,658.00$
Incentives/Rebates 95,423.00$
TOTAL VALUE ADDED 575,081.00$
15
Questions & Answers
© EnerNOC, Inc. All rights reserved. www.enernoc.com
November 7, 2017
Navigating the New Energy Economy
17© EnerNOC, Inc. All rights reserved. www.enernoc.com
Click to edit Master title styleEnerNOC is Now an Enel Group Company
18© EnerNOC, Inc. All rights reserved. www.enernoc.com
Click to edit Master title styleThe Enel Group’s Global Reach
19© EnerNOC, Inc. All rights reserved. www.enernoc.com
Click to edit Master title styleAssembling Capabilities: Enel’s Acquisitions in 2017
January
2017
August
2017
October
2017
20© EnerNOC, Inc. All rights reserved. www.enernoc.com
Click to edit Master title style
Source: The Economics of Grid Defection, The Rocky Mountain Institute, 2014
Confluence of Challenges Facing Energy Providers
21© EnerNOC, Inc. All rights reserved. www.enernoc.com
Source: Commercial and Industrial Energy as a Service Applications and Deployment Models: Global Market Analysis
and Forecasts | Navigant Research, 2017
“To operate a decentralized
grid and otherwise adapt to
these changes, utilities
must open new channels
of interaction with
customers that want to
install DER and intelligent
controls, participate in DR
programs and join new
markets, and generally flex
their power of choice.”
– Navigant Research
Transforming the Business Case
C&I businesses are looking to capitalize in this new environment
22© EnerNOC, Inc. All rights reserved. www.enernoc.com
Source: Clean Disruption of Energy and Transportation, Tony Seba, 2014
When a market disruption occurs…
It leverages new technologies
It eliminates efficiencies
It is inevitable
“The age of film photography did not end because we ran
out of film.” – Tony Seba, 2014
A Familiar Opportunity
Where have we seen this before?
23© EnerNOC, Inc. All rights reserved. www.enernoc.com
Challenges
Fragmented suppliers
Financing capital projects
Volatile energy prices
Maintaining productivity
Opportunities
Investor demand
Sustainability pressure
Creating value from assets
Improving resiliency
Ample Opportunity, Complex Challenges
25© EnerNOC, Inc. All rights reserved. www.enernoc.com
Assembling energy
expertise and
technological
capabilities
Leveraging Enel
Group’s extensive
global resources
Connecting C&I
businesses to new
energy opportunities
Enabling Customers to Create Value and deliver outcomes
Partnering with our customers to provide energy management as a service “EaaS”
26© EnerNOC, Inc. All rights reserved. www.enernoc.com
What: Networking, drinks, snacks
Where: Row 34, 383 Congress Street, Boston, MA 02210
When: 6 pm
Join us Tonight: Greenbuild Kickoff Happy Hour
© EnerNOC, Inc. All rights reserved. www.enernoc.com
Regional Sales Manager
EnerNOC
Kevin McSweeney