Though it is concentrated today in the residential sector, Property Assessed Clean Energy (PACE) financing is growing and could eventually be a common vehicle for bankrolling commercial and industrial energy efficiency projects.
There is some PACE activity in the commercial sector. For instance, MLive reports that Powers Distributing, a beer distributorship in Orion Township, MI, is the first PACE project in Oakland County. It is getting help under the financing arrangement to install a 16,000 square foot solar array and LED lighting.
Also last week, the St. Louis Business Journal reported that two developers in the city will receive $600,000 each in PACE financing. The loans, which the story says are “roughly” 20 years, will enable utility savings of more than $3 million.
In one, the Advantes Group will convert an old school into more than 30 lofts, which will be rechristened as the Lafayette Loft Apartments. The project, which will include new windows, LED lighting, envelop improvements and a new roof, is expected to be completed in the autumn. The other features Rothschild Development Ltd., which is is converting a warehouse in the Central West End into a residential and commercial space consisting of 33 residential units and 3,000 square feet of retail space, according to the story. The project will feature LED lighting, high efficiency HVAC and improvements to the building envelop.
PACE loans are repaid through property tax assessments. A key to the ultimate success of this approach is whether such loans are accepted in mortgages backed by Freddie Mac, Fanny Mae or the Federal Housing Authority.
The biggest issuer of PACE loans — Renovate America — has taken a step that could make PACE loans more common and enable them to gain greater traction in the commercial and industrial sector. Independent housing analyst Laurie Goodman told Energy Manager Today that, in lay terms, companies offering PACE-backed loans to date generally demand to be the first in line to get paid if there is a default. This structure, she said, discourages the three big mortgage backers from deep involvement when PACE loans are included. Renovate America is addressing this obstacle by voluntarily surrendering that superior standing.
This is a big move, since Renovate America controls about 90 percent of the PACE market in California which, in turn, is about 90 percent of the PACE market in the United States, Goodman said. “This is super important,” she said. The existing structure of favoring the PACE creditors is “is the largest impediment to jump starting the business.”
Goodman is the Director of Housing Finance Policy Center at the Housing Finance Policy Center at the Urban Institute. She and Jun Zhu — a Senior Research Associate at the Urban Institute – were funded by Renovate America to look at home prices in relation to PACE loans.
The two, independent of their work at The Urban Institute, were funded by Renovate America to report on the impact of PACE loans relative to other typical loan vehicles. The finding was that PACE loans pay for themselves completely in the final sale price. Other loans – which in some cases are used to make improvements that don’t lead to recurring savings – pay back at about a 60 percent rate, Goodman said. The press release said that resale values range from $199-$8,882 more than those without PACE upgrades.
PACE financing structures seem to be gaining momentum. Michael Kanellos wrote last week at Forbes that Renew Financial – a firm that specializes in PACE financing among other energy efficiency programs – raised $70 million in Series D financing. The money will be divided between existing and new projects.