PACE Financing Lean & Green Michigan Presented by: Bali Kumar, CEO Lean & Green Michigan, LLC #michPACE
What is PACE? Property Assessed Clean Energy (PACE) is a financing mechanism that allows commercial and industrial property owners to make their properties more energy-efficient without incurring upfront costs.
Lean & Green Michigan Who are we? Market leading, statewide administrator for PACE financing Our mission: 1. to facilitate an efficient and thriving Michigan PACE market 2. incentivize property owners to retrofit existing buildings + build properties to highest standards possible 3. Continue doing deals that improve property owners’ ROI
Lean & Green Michigan
Lean & Green Michigan What do we do? • Matchmaking lenders, • Manage PACE marketplace contractors • Education of stakeholders • Contractor trainings (online • Paperwork and in person)
Map of Participating Jurisdictions
PACE in Michigan 40 $24M Local governments worth of C-PACE have joined Lean & 71% projects have been Green Michigan completed in Michigan of Michigan’s population lives in Lean & Green 6 jurisdictions
States with PACE Legislation Source: PACENow
National C-PACE Market • More than 1,900 commercial projects, over $880M financed • Over 13,000 jobs created • $1B in pipeline pacenation.us
Why PACE? Energy Waste = Capital Waste On average, 30% of all energy consumed in commercial buildings is wasted Energy efficiency is the single largest way to reduce this waste, reduce emissions and save money
The PACE Solution! 0% down payment • Non-recourse (no personal guarantee) • Improved cash-flow, NOI, and asset value • Assessment (and benefits) transferrable upon sale • Can be passed down to tenants • Fixed interest up to 25 years • For retrofit, gut rehab, new construction projects, • renewable energy + refinance of all these.
How are we accelerating the PACE market?
LAGM market updates “PACE Express” • PACE projects $250,000 and below • SIR and ESG not required • Cheaper, faster, easier
LAGM market updates New construction policy 1. For any such PACE project that contains 2 or less ECMs, at least one • ECM must exceed code. 2. For any such PACE Project that contains 3 or more ECMs, at least two of • the ECMs must exceed code. 3. For any such ECM that exceeds code, this measure must be a material • component of the PACE Project.
How does PACE financing work?
Identifying the Right Property
Property Eligibility - Legal • Located in a PACE district • Right type of property • Commercial (incl. agricultural) • Industrial • Multi-family • Private non-profit (hospital, private school, church, etc.) • Property owner is not delinquent on property tax bills (including previous PACE liens) or water/sewer bills
Jurisdictions not in LAGM? If you have a project in a jurisdiction not currently • partnered with Lean & Green Michigan, don’t worry! That’s what we’re here for. The process has gone very smoothly so far - and it • tends to move more quickly when there is a live project that requires the passage of local PACE legislation.
Property Eligibility - Practical • The property is healthy and likely to continue to be used for 10-25 years • Property is not overly leveraged • Property value is sufficient
If not PACE…? • Michigan Saves is a complimentary financing mechanism – e.g. Single family residential, gov’t properties – We can refer!
Identifying a Good Energy Project
What Michigan’s PACE Act Allows • Energy-efficiency or water conservation and/or add renewable energy generating capacity • An energy savings guarantee is required over $250k • Bottom line: the statute is incredibly broad and leaves room to include new technologies
Examples of improvements include, but are not limited to: • Water efficiency improvements • Insulation • Solar • Lighting • Wind • Efficient windows • Geothermal • Caulking, weather-stripping, • Stormwater runoff • air-sealing • Hot water systems • Energy control systems • Biomass • HVAC modifications • Combined heat and power • EV charging stations
PACE is mostly for Larger Projects! • PACE is practical for projects of $100,000 and up • Utility bills are $60,000/year or greater • PACE financed amount must be less than 25% the value of the property • PACE makes sense for projects with simple paybacks of five years and longer • There is no upper limit for PACE projects – they can run into the tens of millions of dollars
Understanding the PACE Process
1. Determine Eligibility • Is the property a commercial, industrial, nonprofit, multifamily, or agricultural property? • Is the property value greater than $400,000? • Does the property spend a lot (say, more than $60,000) on utilities annually? • Is the existing debt on the property less than 80% the value of the property? • Is the Property Owner current on all property tax obligations?
2. Initial Energy Analysis • PACE contractor or consultant – Visits property – Reviews historical utility bills – Gathers information about what property owner wants/needs • PACE contractor provides general estimate on viability of project and PACE opportunity for property owner
3. Secure Financing • PACE contractor/property owner teams up with PACE lender to determine opportunity for financing • LAGM is an open market: property owners may use any appropriate lender • We have a roster of expert PACE lenders • Most likely a specialty PACE lender, not a bank
Secure Financing • Lenders and contractors can develop relationships… • and do project after project together as a team. • Some use contractors/consultants to determine initial viability of deals • Rates currently range between 5.5% and 7.5%
4. Energy Audit & Final Scope of Work • PACE contractor needs to: – Complete the energy audit – Finalize a scope of work – Develop energy modeling for the guaranteed savings – Provide an energy savings guarantee
5. Apply Using LAGM Application • Once you have a viable project, it is time to file an application for PACE financing with LAGM • Iterative • Submit LAGM Application file • Fill out all fields • Send attachments to LAGM
Potential Hiccup! Lender Consent The PACE lien actually improves the banks position in three ways 1. Positive cash flow means property owner has more money to pay mortgage 2. The value of the bank’s underlying asset is increased 3. The business outlook of the property owner improves Hundreds of banks and agencies have given consent
When to Seek Consent? • It depends. Some banks know nothing about PACE and will say no if asked to “take a back seat” out of the blue • The case for consent is more convincing when you have a fully developed story – and then it is often overwhelming • Parties are much more bought into a fully engineered project, rather than just a possibly good idea • The PACE lender and Lean & Green Michigan should be involved in discussions with the bank
6. Documentation and Deal Closing Once lender has been secured, it is time to document the project and • close the deal Lean & Green and the lender will handle a lot of the paper work • Contractor provides audit, useful life calculation, project proposal, and • Energy Savings Agreement
7. Project Implementation • Upon completion, property owner and contractor must submit installation verification letter to LAGM
8. Measurement & Verification • Energy Star portfolio manager account must be created, linked, and updated for the project • Property owner must agree to enter utility bill data over the entire term of PACE loan • Details regarding frequency of data entry will be in the energy savings guarantee
PACE in the Capital Stack: Incentives and Rebates • DTE Energy • Consumers Energy • Historic Tax Credits – (513-515 West Ionia case study) • Brownfield Funding – (513-515 West Ionia case study) • Solar tax credits • Match loans – (Motor City Match) • Other incentives too!
Case Studies
Heller Machine Tools • ABM installed HVAC, Roof, Lighting, Building Controls • 15 year term • $978,607 in PACE financing • Total avoided utility costs $1.7 million • Total net-savings of $230,498
Garfield Metro Building • BASS Controls installed efficient heating and cooling systems, LED Lighting, Building Controls • 20 year term, $249,000 in PACE financing • Total avoided utility costs: $733,133 • Total net-savings of $254,725 • Average annual cash flow increase: $12,736
Multifamily Housing Hatchery Road Cambridge Court 513-515 Ionia Street Apartments Apartments Waterford Twp., Oakland County Lansing, Ingham County Greenville, Montcalm County ECMs: LED lights, new HVAC, building ECMs: solar PV, EV charging, LED ECMs: solar PV, LED lights, efficient boiler, insulation, water conservation lights, CHP system, more... building controls, and more... measures, and more... PACE Project: PACE Project: PACE Project: - 20 year term - 15 year term - 20 year term - $247,829 in PACE - $117,580 in PACE - $224,335 in PACE - $276,457 net savings - $68,000 net savings - $175,680 net savings
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