Using PACE Financing for Retroactive Energy Efficiency Projects
Written by Chris Jones, PACE Financing Consultant, Bricker & Eckler LLP
Property Assessed Clean Energy (PACE) is a financing option for commercial property owners wanting to install energy-efficient or renewable energy building improvements. PACE is a special kind of loan repaid by adding a special assessment to the existing property tax bill. The main advantages of PACE financing are:
Can provide up to 100% of the project costs,
Long-term to match the useful life of the improvement (not to exceed 30 years),
Fixed-rate & fixed payment terms for the life of the loan,
No down payment required, and
No business or personal guarantee required.
To date, over $350 million of PACE loans have been approved for hundreds of projects throughout Ohio. These projects typically fall into one of three categories: existing building retrofits, existing building “gut-rehabs”, or new construction. Due to the current economic challenges, a lesser-known application of PACE has begun to be more widely considered, PACE refinancing or “Retroactive PACE”. This option allows eligible building improvements that have already been installed to be refinanced with PACE.
What are the benefits of Retroactive PACE?
Retroactive PACE allows owners to conserve capital, free up operating funds and reserve capital for other needs. Currently, PACE funding can be secured at below 6% interest rates for up to 30-year terms. The long repayment period can significantly reduce the debt service when compared to a traditional loan. Additionally, some PACE lenders will delay the start of loan repayments for up to 24 months, thereby preserving cash flow in the near-term.
How does Retroactive PACE work?
Retroactive PACE generally allows for two scenarios of refinancing eligible past expenses:
Expenses incurred that have an outstanding “debt instrument” such as a construction loan, or
Expenses paid with cash within 60 days prior to an “Inducement Letter” being issued by the Energy Special Improvement District (ESID) in which the property’s jurisdiction is an active member.
Who has used Retroactive PACE?
While there have been several properties in Ohio use Retroactive PACE, one great example was a recently completed hotel in the Middleburg Heights area of Cleveland. Completed at a cost of $20M, PACE was able to refinance approximately $4M in 2020; the eligible building systems included HVAC, building envelope, elevators and LED lighting. The first repayment of the Retroactive PACE loan will begin in 2021, thus
significantly reducing the debt service for the property owner in the near-term.
How do I get more information about Retroactive PACE?
Contact Nicole Stika at GCP to determine if your project may be the right fit for Retroactive PACE. Additionally, on June 5th, GCP and Bricker & Eckler LLP conducted a webinar to further explore Retroactive PACE, and the webinar link is available here