Texas Commercial PACE Program: Protecting Borrowers and Creating Economic Benefits

January 11, 2017

Today The Wall Street Journal published a front page article about the California residential PACE program highlighting problems relating to consumer protection and other issues. Fortunately, none of these problems or issues are relevant to, or cause for concern under, the Texas PACE program for the reasons listed below:

• The purpose of the Texas PACE statute is to enable energy-efficiency financing for commercial and industrial properties.

• Residential PACE loans are not permitted in Texas.

  • The Texas PACE statute does not authorize single-family residential PACE loans.

  • PACE financing for residential property is available only to borrowers who are in the business of operating multi-family properties containing 5 or more units.

• The Texas PACE statute includes multiple layers of protection for commercial property owners and lenders, including:

  • Commercial property with a mortgage is not eligible for a PACE loan without the written consent of the mortgage holder. This approach protects preexisting lien rights of the mortgage holder.

  • Prior to closing a PACE loan, an independent professional engineer must confirm that projected savings are consistent with applicable technical standards.

  • Upon completion of the project, an independent professional engineer must confirm that the equipment was properly installed and is operating as intended.

  • The term of the commercial PACE assessment cannot exceed the projected useful life of the improvements.

  • Private, open-market lenders provide all PACE financing in Texas. The Texas PACE program does not utilize government bonds or public funds.

  • All PACE programs established in Texas are administered by the Texas PACE Authority, a non-profit organization whose sole purpose is to operate PACE programs for local jurisdictions. This arrangement is unique to Texas and avoids conflicts that can arise when the PACE administrator is a for-profit organization that receives compensation for both facilitating the program and arranging the loans.

  • Lenders, contractors and other service providers for all PACE projects in Texas are selected independently by the property owners in a free-market, competitive environment not restricted to any particular or favored contractors or lenders.

The Texas commercial PACE program was designed by a group of more than 130 stakeholder-volunteers dedicated to ensuring that the problems and issues highlighted in The Wall Street Journal article will not arise in Texas.

Repost of a Texas PACE Authority article

All Star Panel Speaks at PACE Sustainability Event

All Star Panel Speaks at Bisnow Sustainability Event

Source of Excerpts: Houston Sustainability  Kyle Hagerty, Bisnow Houston Jul 29, 2016

Senior adviser in the Mayor's Office of Sustainability Marina Badoian-Kriticos said "The goal of the city is to make it more than the energy capital of the world. Houston can also be the efficiency capital of the world. The key to achieving that is through improvements in construction, renovation and property management."  

"Sustainability and business are [often] inconsistent. Capital improvements and investment decisions often work against each other. PACE is a new financing concept to solve that problem. Started about eight years ago, fairly new to Texas, and brand-new to Houston, the program allows property owners to access 100%, fixed-rate, long-term non-recourse financing on building improvements that conserve energy or water. The loans require the savings be greater than the cost of implementation, so they're actually self-funding. This effort isn't about being green, it’s not about decreasing electricity or saving water. It’s about increasing NOI. Economics is the primary driver, but sustainability and efficiency are the primary benefits. Think this sounds like a great idea? So do others. Harvard named PACE one of the top five breakthrough ideas and Scientific American named PACE one of the 20 best ideas in the world." PACE Houston president, Tim Crockett

"Texas was actually already at the forefront of green building, so this push could make us one of the leaders in the space. The US Green Building Council ranked Texas eighth in the country (to many's surprise, we're sure) largely due to sustainability efforts in Houston." 

Skanska chief sustainability officer Elizabeth Heider shared the stats: "In 2005, Doge (at the time, McGraw-Hill), found only 2% of real estate was green. By next year, between 48% and 54% of the market will be green. She says sustainability is no longer a fad, it is a trend." 

JLL EVP of sustainability, energy and safety Robert Best (co-author of "Green + Productive Workplace The Office of the Future"  (available on Amazon) noted: 
 "Not only does sustainability help your bottom line and the environment, but it can also improve productivity. All nine cognitive aspects that make up productivity (like memory, mental acuity and math ability) are improved by sustainable efforts, according to research. A study about kids taking the SAT found they do consistently better when they take the test in a room filled with daylight. Minimizing CO2 in the workplace is another focus of the USGBC. A study by three Harvard professors found a stunning correlation in how people perform across the nine cognitive area while in the presence of varying levels of C02. These can have a major impact on your bottom line. Energy savings at best are a few dollars per SF, but if you can improve productivity, it blows energy savings out of the water. That's the potential building owners and managers are dealing with." 

TrueGrid CEO Barry Stiles noted an innovative solution to Houston's reliance on concrete in parking lots. "True Grid is a form of permeable pavement made from a unique design of plastic and gravel that not only saves concrete, but also functions as stormwater retention. Businesses all around Houston have seen the benefit, and True Grid is in talks to work with the largest building in the world, the 13.1M SF Tesla factory. Because of potential cost savings on land required for stormwater retention, True Grid is a prime candidate for PACE funding." Their website is www.truegridpaver.com

 

Read more at: BISNOW's complete article is at Article by Kyle Hagerty, Bisnow Houston Jul 29, 2016

PACE Houston Sends PACE Support Letters to City of Houston Council Members

Typical Type of Letter

August 2015
 
Re: Support for adopting PACE (Property Assessed Clean Energy) in Houston
 
Dear Councilmember:
 
Thank for your service to the City of Houston in your role as Councilmember.  Your responsibilities are both numerous and significant discerning among the many issues that come before you for consideration. 
 
I am writing you in support of the City of Houston adopting the PACE program as made available by Texas House Bill 3187 which will allow commercial property owners in Houston to gain access to a powerful financing tool already in use by many cities and counties across 29 states.  Several local governments in Texas are considering making PACE available in their areas with two having already done so, Travis County (Austin) and Willacy County in the Lower Rio Grande Valley.
 
We also encourage you to name the nonprofit, Texas PACE Authority as “the Administrator” for your program.  An outside Administrator can streamline the application process, determine if projects comply with the legal requirements of the PACE statute, and ensure the filing of the assessment with the local taxing authority.  Having a single Administrator for all programs throughout the state will provide a professional and consistent platform.
 
Without using any public money, PACE allows a property owner the opportunity to obtain long term fixed rate 100% financing to make improvements to increase their property’s energy efficiency, water conservation, renewable energy and most importantly lower their operational cost resulting in an immediate increase in their cash flow.  PACE provides access to increased energy efficiency, improved quality of the local commercial building stock, increased property valuations and economic development by increasing the number of jobs in our city.
 
PACE is the most significant new development I have seen in my 35 year real estate career.  It is a real game changer for a city, helping local property owners, engineers, contractors, lenders truly providing a win-win-win-win situation.
It is a powerful financing tool because:
1) It allows the property owner to repay the loan via an additional line item added to their property’s annual tax bill
2) It connects the financing of the improvement to the actual property vs to the owner thus allowing the financing tenor to match the useful life of the improvement
3) Provides financing that will be fixed rate and cannot be accelerated by the lenders
4) With 100%, long term financing it frees up an owner’s cash for other uses
5)  It enables a property owner to do all construction projects that improve energy efficiency together now, receiving the benefits of lower utility bills immediately while paying back the funds over a much longer time period typically 20 years. I personally experienced the economic limitations while redeveloping the Esperson Buildings.  We had numerous projects we had to delay and spread out over many years because we could only justify spending so much money each year.  Had PACE been available back then we would have gladly used it to accomplish so much more.
6)  It provides better security to the lender by directing the loan repayment through the property tax assessment.
 
By increasing the number of energy and water conservation projects being completed in the private sector within the city, PACE also extends the useful life of existing power generation and public water resources.
 
PACE will further enhance Houston’s image as not only the energy production capital of the world but also the energy conservation capital of the world.
 
It improves the quality of our local inventory of commercial real estate and thus the long term tax valuation for the city thereby ensuring that during the next economic downturn Houston’s buildings will be less susceptible to the problems of urban blight that have afflicted other cities and not only hurting tax valuations but all the people in our city.
 
This is an opportunity that reaches across the political aisle benefiting: big property owners, small tenants, business owners, environmentalists and business, energy providers and users as well as the City itself.
 
PACE Houston is an independent private company that will work within the City of Houston and the Texas PACE Authority’s guidelines to provide strategic advice to property owners and assist them in developing their PACE Project.
 
Blessings,
Tim

Tim Crockett
President
Pace Houston and C-C Development, Inc
100% Financing for Energy Improvements
(713) 530-7922    
tim@CBarC.net
www.pacehouston.com