There has been a lot of buzz about PACE financing lately, but what exactly is it? And how does it affect the buildings we care for?
PACE is an acronym for Property Assessed Clean Energy. A PACE bond is issued by a city and the proceeds are then loaned to building owners, so that they can finance green energy retrofits.
Retrofits typically include installing energy efficient windows, insulation and solar panels.
The loans are then repaid over the assigned term, usually between 15 to 20 years, at a competitive interest rate, via an annual assessment on the owners property tax bill. A unique attribute to these bonds, is that the loan is attached to the property, rather than an individual.
These bonds have been creating a lot of stir in congress lately, and in the cities that are attempting to adopt them. So, let’s dig a little deeper…
PACE bonds make energy retrofits affordable by avoiding steep upfront costs. Building owners can spread the cost out over time, so they can start to realize the energy savings before they have to make their loan payment — a situation which often results in net-positive returns at the end of the year.
The perk of the loan being attached to the property, rather than the owner, is that the risk is more proportional to the rewards. Without PACE, an owner might go through all the trouble of enacting energy saving measures, but may have to sell the property before reaping any of the rewards. With PACE, even if the owner has to sell the property soon after the retrofits, he or she can pass on a portion of the responsibility, along with the rewards, to the new owner.
And I cannot describe PACE bonds, without pointing out the obvious, yet crucial motive behind them: preserving the Environment. Incentivizing green retrofits in buildings will increase energy efficiency, reduce greenhouse gas emissions and encourage the shift to renewable sources of energy all of which will aid in larger climate goals.
Because PACE is funded through municipal bonds, it creates no liability to the city’s funds, yet it can help cities create jobs and thus spur local economic development.
Sounds great, how could anyone object?
Well, as the LA Times reported last Thursday, lenders are alarmed by the fact that PACE funds are to be paid back before a mortgage in the case of a foreclosure. Lenders warn that they might have to tighten standards for entire communities that participate in PACE financing.
Tighter standards mean larger down payment requirements and less home loans. And for existing mortgage owners who participate in PACE, they might even be violating the terms of their mortgage.
The Federal Housing Finance Agency (FHFA), which is the regulator and conservator for Fannie Mae and Freddie Mac and 12 Federal Home Loan Banks, a.k.a. they can sort of speak on behalf of “lenders”, released a statement in July that PACE was too risky, especially in a shaky housing market.
Objections by federal regulators have put a lot of PACE programs on hold. As a result, projects have been halted and many building companies that were counting on eco-retrofit projects, are wondering if they can keep their doors open.
“Several lawsuits have been filed against the FHFA, and Congress is considering legislation that would force the agency to support the program,” according to the LA Times.
But many avid supporters of PACE are beginning to look at other funding solutions.
If you are greening your building cleaning and maintenance company, these eco-projects are probably on your radar as key growth targets (whether you knew they were dependent on PACE or not!) So, keep an eye on EcoGurus.com for updates on PACE and other green retrofit financing solutions.