Affordable commercial loan program can speed the PACE of financing

Property owners understand the importance of energy-efficiency, but they often find that financing efficiency projects can be difficult, especially in today’s belt-tightening business environment.

To help ease the burden, and to speed up efficiency efforts, the U.S. Department of Energy offers an innovative financing mechanism known as Property Assessed Clean Energy Programs (PACE). The PACE program provides low-cost loans for up to 100 percent of the up-front cost of efficiency projects for businesses for new construction or renovation projects. The low-cost loans have an advantage over the higher interest rates that may be available through a traditional bank, and with loan terms of up to 20 years, the loans can be repaid over time through voluntary assessments. In addition, there is no up-front investment, and the loans do not count as debt, as they are assigned to the property rather than to the individual.

Businesses can gain multiple advantages by taking advantage of the PACE program, not the least of which are the low output of owner cash, benefits to the environment, long-term energy cost savings and a resulting increase in property value. PACE financing allows for secure financing of projects over a long period of time, making more projects a cash-positive investment.

PACE loans are available to owners of for-profit, nonprofit, multifamily (more than four units), retail and commercial, industrial and government properties located within a designated Energy Special Improvement District. However, they cannot be used for transportable items such as light bulbs and regular refrigerators, and the loans are not appropriate for projects with an investment value of less than $2,500.

Sometimes, the PACE loan can be an important element in finalizing the funding for a project. In one example, a full-service developer was able to obtain incentives for the relocation and renovation of its headquarters facility. In place of new construction, the company chose to purchase property near where it had been operating and renovate its existing 56,000 square-foot building. In total, it was a $15 million project, drawing on both public and private financing opportunities to create the project sources.

The renovation costs were more than $7 million, which made up a substantial piece of the project budget. Built in 1970s, the two-story building had several inefficiencies, including windows, HVAC and lighting, and it was not ADA accessible, making the project a perfect fit for PACE financing. Although the location of the new headquarters was not originally in an eligible district, and the host city was not part of a local Energy Special Improvement District, the city recognized the importance of attracting new development through this type of incentive. Working with a PACE lender, the developer was able to obtain a $1 million PACE loan, getting the up-front capital needed to complete the project, as well as the flexibility to pay the balance over time.

The option to use PACE financing not only provides needed funds for projects, PACE also ensures that, as buildings are newly built or rehabilitated, there is an eye to sustainability and efficiency that improves the operating costs of buildings, in addition to helping fund projects that might not otherwise be affordable.

Jennifer Syx is president of inSITE Advisory Group