New Opportunities in Property Assessed Clean Energy (PACE) financing November 17, 2016 2016 Governor's Housing Conference
New Opportunities in Property Assessed Clean Energy (PACE) financing
November 17, 2016
2016 Governor's Housing Conference
• Overview of Commercial PACE
• C-PACE in Virginia
• PACE in Play: Case Studies
Agenda
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Background: Abacus Property Solutions
• Independent real estate advisory firm, developing and financing energy solutions in commercial buildings.
• Provides PACE project development and consulting on national basis.
• Works closely with capital partners to identify PACE opportunities and develop PACE programs.
• Key stakeholder in amending 2015 PACE legislation and developing underwriting guidelines.
• New origination platform, Atlantic PACE, created to drive demand and consistency.
Overview of Commercial PACE
Fundamentals of C-PACE
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• Innovative way to pay for energy efficiency, renewable energy and water efficiency upgrades for commercial, multifamily and non-profit properties.
• Owners receive 100% project funding and pay it back as a line item on their property tax bill.
• Lien is senior to existing mortgage and typically equal status to property taxes.
• PACE assessment runs with the land so it transfers upon sale and does not accelerate.
• Owners receive funding principally through private capital providers.
• Set up by a locality and managed typically by third party contractor.
Eligible Improvements
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Where is PACE ?
7 Source: PACENation
PACE Structure
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3 Primary Parties Involved: 1. PACE Lender 2. Property Owner 3. Taxing Authority (or program administrator)
Assessment Pmts.
PACE Lender
Property Owner Taxing Authority / Program Admin
PACE Financing
Approve Project
Assessment Pmts.
What if you could build this?
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Or this?
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Instead of replacing this?
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Property Owners: Benefits
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No Money Out of Pocket: 100% financing + soft costs
Immediate Savings: Cash-flow positive on day one
Capital Budget: Paid with operating savings
Longer Term (20 + Yr.): Lower annual payments
Comprehensive Financing: Fills Capital Gaps
Replaces Equity or “Mezz” Debt: Frees Up Cash
Non recourse: Limits owner personal liability
Contractors: Benefits
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• Increase sales volume, improve profit margin
• Add staff, partner with other aligned companies like energy engineers
• Help customers reduce costs and improve value of their properties, allowing them to spend more money on even more building improvements
Local Governments: Benefits
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• Local business owners with critical capital improvements to their buildings – tangible retention strategy
• Creates local employment opportunities for G.C.s, trades, engineers, vendors, etc.
• Cap Ex improvements makes “tired” buildings more marketable
• More marketable buildings leads to better tenant retention
• Increased property values & construction fees yield more revenues for jurisdictions
• 3rd party administrator carries cost of starting and running program
C-PACE in Virginia
C-PACE in Virginia
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• Law originally enacted in 2009 and amended in 2015 to make C-PACE attractive to investors (lien priority)
• Law went into effect July 1, 2015 • DMME provided uniform financial underwriting
voluntary guidelines, released December 2015 • Active programs expected in 2017 including Arlington
County and potentially other interested localities including other Northern Virginia counties, Norfolk, Richmond, smaller localities (Roanoke, Charlottesville)
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• Loan secured by a voluntary special assessment lien, equal in priority to real estate taxes and senior in priority to pre-existing mortgages
• Locality must adopt an ordinance to create a PACE program
C-PACE in Virginia
• Locality can set up its own program or contract through a third party administrator
• Both existing buildings and new construction projects eligible under the law
• C-PACE includes all commercial, industrial, and multifamily residential over 4 units
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What’s coming in 2017? • Arlington County expected to select program
administrator by year end • DMME awarded DOE grant to Virginia, DC and
Maryland to drive consistency and cohesion • Virginia Energy Efficiency Council (VAEEC) awarded private
foundation grant to provide outreach to Norfolk, Charlottesville, and Richmond, and hired Jessica Greene to lead this effort
• City of Richmond has set up PACE working group to explore implementation in 2017
• Norfolk Chamber of Commerce promoting PACE in Hampton Roads
• Abacus providing technical expertise to these cities, DMME and VAEEC
PACE in Play: Case Studies
“Capital Gap” Project
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• Redevelopment of Historic Building in St. Louis
• Built in 1920’s as movie theater and office space
• Conversion of 158,000 sf. to a 150 room hotel with 2 floors of office and retail space.
• Improvements included roof & insulation upgrades, LED lighting, high efficiency HVAC and low flow plumbing
“Capital Gap” Project: Financials
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• Eligible for $8,500,000 in PACE
• Savings-to-Investment Ratio of 1.4
• 20-year term, 6% rate, 1 year of capitalized interest
• PACE LTV = 16.5%; CLTV = 73%
• Decreased owner equity by $500,000
• Financing by Twain Financial Partners
“Bread and Butter” Project
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Owner: 100% fixed rate long term financing Municipality: Prop. value increase, no city funding Contractor: greater deal flow, new financial product Mortgage Holder: prop. value increase, less loan risk Environmental: reduces carbon footprint B
enef
its
Project total: ~ $800,000 Term: 20 years Capital Provider: Inland Green Capital Program Admin: Greater Cincinnati PACE Mtg. Lender Consent: Yes O
verv
iew
Solar panels LED lighting Elevator modernization HVAC upgrades Energy savings: ~37% Electricity savings: $12,000/year
Up
gra
des
Thank You! Abigail Johnson, President
415.307.7777
Abacus Property Solutions [email protected]
Atlantic PACE [email protected]