City of Houston Green Building Office Endorses PACE Building Efficiency

October 25, 2018

To Whom It May Concern:

The City of Houston is pro-PACE Financing, adopted in 2015, and prominently featured on the greenhoustontx.gov website. Houston believes that PACE Financing is a powerful tool, truly a game changer for any property owner looking to make energy and water efficiency improvements to their property.

I think Tim Crockett of PACE Building Efficiency can provide not only a good education about PACE, but invaluable expertise helping the property owner manage the whole process, complying with PACE requirements, analyzing multiple efficiency components, as well as evaluating the different lenders and their proposals. No longer limited to just helping renovate building's older mechanical systems, PACE has become a meaningful component of the capital stack for large scale redevelopments which typically encompass new HVAC, Building Controls, Lighting, Windows, Water, even on site micro-grid power generation for resiliency as PACE provides a lower cost of capital when compared to Equity or Mezzanine financing.

I can attest that PACE Building Efficiency was instrumental in bringing PACE Financing to Houston and facilitated the first office building in the State to use PACE and in my opinion, provides superior knowledge and service for any property owner considering upgrading or redeveloping a project. I highly recommend Tim and their services. If you have any questions regarding Tim’s abilities, take a few moments to view his commanding performance in our PACE education seminar from February of this year residing on the Green Building Resource Center website:

https://www.youtube.com/watch?v=7TpRHprSdo0&feature=youtu.be

Steve Stelzer, AIA, LEED AP, TRUE Advisor
Program Director, Green Building Resource Center
1002 Washington Avenue
Houston, Texas 77002
Direct: 832-394-9050
Email: Steve.Stelzer@houstontx.gov
http://www.codegreenhouston.org

PACE Building Efficiency Reference Letter City of Houston.jpg

2018 List of Consenting Lenders to Date

America’s Christian Credit Union, A2B2 LLC, Academy Bank, Ally Bank, Ally Capital, Amalgamated Bank, American Agricultural Bank, American River Bank*, American West Bank, Ameriprise Financial, Ameritas Investment Partners, Bank of America*, Bank of Ann Arbor, Bank of New York Mellon (as Trustee), Bank of Sullivan, Bank of the West*, Bank Rhode Island, Bankwell, Banner Bank, BBCN Bank, Berkshire Bank*, BMO Harris Bank, Bremer Bank, Bridge Bank, Business Lenders LLC, Byzantine Diocese of Stamford, CAB Associates, California Bank and Trust*, California Plan of Church Fi-nance, Inc, Capital Region Development Authority, Cen-Cal Business Finance Group, Charter Oak Federal Credit Union, Chase, Chelsea Groton Bank, Chelsea State Bank, Chestnutz, Cheviot Savings Bank, Circle Bank, Citibank, Citizens Bank*, Citizens Business Bank, City National Bank, Connecticut Innovations, CT Dept of Economic & Com-munity Development, CTBC Bank Corporation, CW Capital, Department of Economic and Community Development (CT), Deutsche Bank*, Dime Bank, District of Columbia Housing Authority, Eagle Bank, Exchange Bank*, Fairfield County Bank, Farm Credit East, Farmington Bank, Fifth Third Bank*, First Bank of Boulder*, First Bank of Lake Forest, First Citizens Bank & Trust, First Community Bank*, First County Bank, First Mountain Bank, First National Bank of Boulder*, First Niagara Bank*, First Republic Bank*, First State Bank & Trust, First Utah Bank, Five Star Bank, Flatirons Bank of Boulder, Folsom Lake Bank, Free and Clear, Genworth Life Ins. Co, Golden Pacific Bank, Great Western Bank, Greater Sacramento Development Corp., GRS Realty, LLC, Guaranty Bank and Trust*, Hanmi Bank, Helaba Landesbank Hessen-Thüringen, Heritage Bank of Commerce, Hometown Bank, HSH Nordbank, JP Morgan Chase*, Key Bank, Layne Foundation, Lehman Brothers, Liberty Bank, Litchfield Bancorp*, M&T Bank, Marion Haddad, McCoy Ventures, Mechanics Bank, Mercedes Benz Financial Services, Metropolitan Life Insurance(and as LIHTC Investor)*, Michigan Business Connection LLC, Monson Savings Bank, Mortgage Calmwater Capital, Mutual of Omaha Bank, National Iron Bank, New Resource Bank*, Newtek Small Business Finance, LLC, Newtown Savings Bank, NorthEast Community Bank, Northwest Mutual Insurance, NUVO Bank, NY State Teachers’ Retirement System, Oritani Bank, Pacific Alliance Bank, Pacific Premier Bank, Pacific Union 7th Day Adventists (Parker Mortgage & Investment Co.), Patriot Bank, People’s National Bank, Peoples Bank of Massachusetts, Peoples United Bank, Plumas Bank, Preferred Bank, Premier Valley Bank, Presbyterian Church Investment & Loan Program, Inc., ProAmerica, Prosperity Bank, Protective Life Insurance, Prudential Insurance, PyraMax Bank, Milwaukee Economic Develop-ment Corporation, Redwood Credit Union*, Riversource Life Insurance Company, Rockland Trust*, Rockville Bank, Royal Bank of Canada (as LIHTC Syndicator), Royal Credit Union, Salisbury Bank & Trust, Santa Cruz County Bank, Savings Institute Bank & Trust, Security Bank of Kansas City Simsbury Bank, Sonoma Bank*, Stancorp Mortgage Investors*, Standard Life Insurance, State Bank of Delano, Sterling Savings Bank*, Summit State Bank, TD Bank, The Private Bank & Trust, Thomaston Savings Bank, Torrey Pines Bank, Toyota Financial Services, TriCounties Bank/Private party, Umpqua Bank*, Union Bank of California, Union Savings Bank*, United Bank*, UPS Capital Business Credit, US Bank*, US Department of Agriculture (USDA), US Small Business Administration (SBA)*, Vectra Bank, Washington D.C. Housing Authority, Washington Trust*, Waterbury Development Corporation, Webster Bank, Wells Fargo*, West America Bank*, Westerly Community Credit Union, Westfield Bank, Whitcraft, LLC, Whittier Trust Company of Nevada, Wilshire Bank, Windsor Federal Savings

* More than one consent provided

Source: PACENow

First Hotel in Houston to use PACE Financing

Congratulations to Houston and the Regency Inn Hotel

"The City of Houston adds another project to its TX-PACE portfolio with the closing of a $135,000 project at the Regency Inn & Suites. This is the first hotel to utilize the TX-PACE program and the first solar project for the City of Houston's TX-PACE program.

"The project will add a 45 kW solar power system that will offset a portion of the hotel's electric usage and help insulate the business from volatility in the power market. The availability of incentives and tax deductions are further motivating hotels around the country to invest in solar, providing a mechanism to strategically allocate resources while decreasing carbon footprint.

"The Regency Inn Hotel, located at 3617 E. Crosstimbers Street, will benefit from utility savings and tax incentives of more than $250,000 over the project's useful life. The project will be financed over an 18-year term."

Source Quoted: Texas PACE Authority

PACE Houston Facilitates First Texas Office Building PACE Project

PACE Houston acted as project facilitator and consultants to Stellar International Commercial Real Estate, LLC for their multi-tenant office building located at 1225 North Loop West. This project represents Texas' first office building energy retrofit to use PACE financing.

Mayor Turner, the City of Houston and Charlene Heydinger of the Texas PACE Authority are exercising leadership, commitment and vision in championing energy efficiency retrofit financing that makes financial sense.
— Tim Crockett, PACE Houston
PACE Houston logo  Building Energy Efficiency w website Nov 24 2017.jpg

Press Release

For immediate release:

1225 North Loop WestFirst Texas Office Building to Use PACE Financing

1225 North Loop West
First Texas Office Building to Use PACE Financing

PACE Houston has facilitated the closing of Texas' first office building renovation using PACE financing. The 200,000 SF, 11 story multi-tenant office building is located on I-610 at 1225 North Loop West.  A $1.3 million, fixed rate, 20-year PACE loan funded 100% of the cost of two new chillers, HVAC Controls and LED lights. The lifetime energy efficiency and operating cost savings are expected to exceed the cost of financing, making the loan self-liquidating, while increasing tenant comfort and the property’s market position.   

PACE Houston was engaged to guide the project through the PACE process from start to finish by the building management who noted, "PACE Houston has been the key partner to this project from the beginning. They know everything there is to know about PACE. Also, they have probably done more educating Houstonians on PACE than any other organization."

Tim Crockett, a 30+ year veteran in Houston Commercial Real Estate and co-founder of PACE Houston said, "PACE is the single biggest improvement in our industry I’ve seen in my 30-year real estate career."  

The City of Houston and the Texas PACE Authority exercised leadership in implementing this important energy efficiency financing program.  Mayor Turner first worked to pass PACE while working in the State Legislature and again when he launched the program last year as Mayor.

PACE legislation has now been adopted by 34 states and Washington DC.  Houston’s PACE program went live last year with Simon Properties adding Houston to the $500 million of PACE improvement projects they are doing around the nation. 

More information on PACE financing can be found at www.pacehouston.com


Tim Crockett, President, PACE Houston at tim@pacehouston.com 713-530-7922

 

 

Permeable Paving

Houston has endured two "once in 100 years flood" and one "once in 500 year flood" in two years.  I'm not very clear on that math but the point is we have had some serious flooding.  Our hearts go out to those who lost loved ones, homes, cars and were otherwise affected.  

1900 Storm Grade Raising.jpg

What are we going to do about it?   There are some who say, it's too complicated a problem, there is nothing we can do about it.  When asked how do you deal with an overwhelming problem as large as global poverty, Mother Teresa said, I do what is in front of me.   And as Texan, we won't sit idly and do nothing, that's not in our DNA.  We can do what is in front of us.  Galveston pumped sand and mud out of the gulf and bay to raise much of the island by 6 feet after the 1900 storm. Their actions in response to the storm were called "Galveston's finest hour". The Netherlands built dikes to hold back the ocean.  I suggest we begin with some incremental steps - that collectively could have a big impact in addressing flooding.  Over time we may find many other improvements to deal with the problem but here is one idea we can do today.

How many people have you spoken with since the flood who said their house did not flood, BUT just by inches and others who said we took on only a small amount of water.  For these people, a tiny difference made all the difference.  What if we focused on one incremental change which could make a huge difference to the thousands of people?

TRUEGRID Tire on Permeable Grid.jpg

One such incremental improvement is to replace at least some parking lots with permeable paving.  Rather than using concrete or asphalt which causes all the rain that falls there to run off to some other place and contribute to area flooding, one Houston company has developed a better idea.  An effective and affordable alternative utilizing stabilized porous material, covered with either stone or grass, strong enough to support fully loaded 18 wheelers that allows water to be both absorbed into the ground and some be retained temporarily within the permeable paving itself and allowed to drain away at a slower pace, lessening flooding. 

Interestingly, this solution has been developed by a Houston based company who is a leader in that field.  They have partnered with us at PACE Houston to help educate the public and get more of this solution installed. If you want to know more we are available to discuss your specific application.

Contact Tim Crockett at 713-530-7922 or at tim@pacehouston.com 

 

Historic building near Dallas' city hall lands biggest clean energy-tied loan in Texas history

Dallas Business Journal Complete Article by Candace Carlisle, Senior ReporterDallas Business Journal

Begin Quote

The Dallas developer behind proposed plans to bring a Trump-branded hotel to downtown Dallas has landed $23.9 million in Property Assessed Clean Energy finance funds — which will help update the $120 million historic building with energy-efficient systems and water reduction technology.

This loan is the largest commercial Property Assessed Clean Energy (PACE) deal in Texas and is believed to be the second largest of its kind in the country.

Alterra International, which is based in Dallas and San Francisco, decided to apply for the PACE loan for the nine-story, century-old building at 500 S. Ervay St. to help it increase the energy-efficiency of the redevelopment project, which is still underway.

Munsch Hardt Kopf & Harr P.C. represented Alterra International in securing the PACE funds.

”With the loan’s focus to increase energy-efficiency, the development will likely attract even more interest, as today’s residents and tenants look for high-efficiency and low maintenance costs for their apartments and businesses and hotel guests want to stay in buildings that are sustainable,” said Mike Sarimsakci, president of Alterra International, in a statement.

”Combined with federal and state history tax credits, we feel the PACE loan will enable us to bring this catalytic and complicated project into a reality,” he added.

The energy-efficiency updates will improve the property’s value and enable the owner of the building to lower an overall first lien loan on the project. The PACE loan was secured through a contractual assessment lien — which has the same priority as a tax lien loan.

The PACE assessment lien cannot be accelerated, like a conventional construction financing loan, and can only be enforced for the delinquent assessment amounts.

PACE loans, which are made through a city ordinance adopted by Dallas city officials, pair well with historic buildings that require additional capital to bring an aging property to modern energy efficiency standards, said Phil Geheb, a shareholder at Munsch Hardt.

”In my practice, I am beginning to see greater interest in the utilization of this program for history and non-history renovation projects because of its flexibility, relative low-cost and non-recourse nature,” he added.

Alterra International has been working on the redevelopment of 500 S. Ervay for years, transforming long-vacated real estate next to Dallas City Hall into 238 apartments and a 270-room dual-branded Fairfield Inn and Town Home Suites by Marriott, as well as retail and a small office complex on the ground floor of the property.

Sarimsakci says he hopes the redevelopment of the century-old building will be a catalyst for the immediate neighborhood. The apartments and small office space have been completed.

The dual-branded hotel is slated for completion by the end of the year.
— Dallas Business Journal Complete Article by Candace Carlisle, Senior Reporter Dallas Business Journal

City of Houston and Hays County Property Assessed Clean Energy (PACE) Programs Close First Projects

City of Houston and Hays County Property Assessed Clean Energy (PACE) Programs Close First Projects

Simon Properties Projects in Houston, Hays County Exceed
$4 million in PACE Investment

HAYS COUNTY / HOUSTON -- The City of Houston and Hays County announced the closing of their first commercial Property Assessed Clean Energy (PACE) projects at the Houston Premium Outlets and San Marcos Premium Outlets. Combined, the Simon Properties projects will receive over $4 million in energy and water saving retrofit investments financed by Petros PACE Finance.

"Houston is the energy capital of the world and has a responsibility to lead by example and use our energy resources as efficiently as possible," said Houston Mayor Sylvester Turner. "We created the Houston PACE program to help Houston businesses access low-cost financing and lower their utility bills. We're thrilled our first PACE project is at the Houston Premium Outlets and we hope more businesses will follow their lead."

"Hays County created a PACE program to help our businesses lower their operating costs with energy and water saving updates that benefit all of our citizens," comments Hays County Judge, Bert Cobb. "It's great to see the San Marcos Premium Outlets, one of Texas' top tourist destinations, be the first of many Hays County PACE projects."

PACE is an innovative financing program that enables owners of commercial and industrial properties to obtain low-cost, long-term loans for water conservation, energy-efficiency improvements, and distributed generation retrofits.

PACE financing will fund energy and water efficiency improvements at both outlet malls. Examples of efficiency improvements include: interior and exterior LED lighting, HVAC replacement, smart glass, heat reducing awning technology, replacement of hundreds of faucets, and conservation updates to water features and irrigation technology.

Combined, Anticipated Savings Benefits at Houston Premium Outlets and San Marcos Premium Outlets:

  • Annual electricity use will be reduced by 2,546,000 kWh
  • Annual water savings of over 11,500,000 gallons of water per year
  • Carbon dioxide emissions (CO2e) reduction of over 1,845 tonnes per year
  • Sulfur oxide emissions (SOX) reductions just under one tonne each year
  • Nitrogen oxide emissions (NOX) reductions exceeding 3 tonnes annually

 

Mayor Turner Announces PACE Houston Program

Mayor Turner Announces PACE Houston program. This is a repeat of our August 3, 2016 blog post. 

Today, Mayor Sylvester Turner and the Texas PACE Authority announced the launch of a commercial Property Assessed Clean Energy or PACE program in Houston. With the announcement, Houston joins Dallas as the only metropolitan cities in Texas to launch the program. The PACE program is also set up in four Texas counties (Travis, Williamson, Cameron, and Willacy).

Financing Energy Efficiency - National Association of Realtors Article by Bobby Hickman

The National Association of Realtors published this article "Financing Energy Efficiency" by Mr. Bobby L. Hickman. In this article Mr. Hickman reviews the evolving and fragmented residential PACE market and interviews Tim Crockett about Commercial PACE in Texas. Tim's comments highlight how Texas has chosen an open lender model, requires an engineer to stamp the energy report prior to funding and requires that the existing lender consent to the PACE loan.  (Click on the above Picture for the full article)

Read More

Greater Houston Retailers Cooperative Association recommends PACE Houston site

Benefits of Going Green

By Jeff Thompson GHRA April 2017 Issue Page 14

"If you’ve been in the convenience store business for any length of time, you’ve probably been approached by one or more vendors offering to reduce your energy costs with LED lights. This can be a costly conversion. What you may not know is that you can accomplish many energy saving goals for your business by utilizing a PACE loan. PACE stands for Property Assessed Clean Energy, and the loan structure is unique in that it is capitalized by independent lenders. Property owners like the PACE Loan program because it presents positive cash flow benefits immediately, and the annual assessment can usually be passed through to the tenants, who benefit from the lower utility bills. Even if you are intending to sell your property in the near future, there may be benefits for you since the financing stays with the property. Specifically, in the event the current owner should choose to sell the property, the current owner is not obligated to pay anything more than the Annual Assessment then due. As such, any a capital improvements made to your property using this loan structure can benefit your property value and resulting selling price. Perhaps the biggest benefit to a PACE Loan is that it requires an independent assessment of the loan and the anticipated energy savings. Also, a PACE energy efficiency project potentially increases the property’s Net Operating Income and building value. This independent assessment requires that upon analyzing the projected green energy savings, that the Savings to Investment Ratio (SIR) must be greater than "1". The Savings is calculated as the sum of the savings over the useful life of the project. The Investment is calculated as the Principal value of the Investment. Another simpler way to state this, is that the amount you save in utility payments must be greater than your annual assessment payments. This Benefits of Going Green means that in addition to having a zeroinvestment capital improvement to your property, your net operating income will see positive monthly benefits or else the loan won’t be approved. Rather than spending the entirety of this article discussing the benefits of a PACE loan we can also talk about what types of energy efficiency improvements can qualify for PACE funding. In the Houston area, the items which will produce the most benefit are HVAC, insulation, lighting (indoor and outdoor), cool roofs (reflective white roof), energy management systems, car charging stations, bike racks, windows, glazing. HVAC components include chillers, cooling towers, air handlers, thermostats, boilers, variable drive fans (VDF's). If you decide to pursue this type of funding, you can learn more at www. pacehouston.com, and keep an eye out for potential energy saving LED manufacturers in future issues of In Action Magazine. Keeping it Green can help keep you in the green."

Time is Money - Delaying Cost Savings Measures Means Permanently Lost Income

Time is Money - Delaying Cost Savings Measures Means Permanently Lost Income

I’ve heard this saying so often that it has lost some of its impact on me yet it remains as true as ever.  After recently completing an energy efficiency study for a building owner where all parties agreed that certain actions would result in this 600,000 SF building immediately reducing their electricity expenditures by 20% there seemed to be no sense of urgency.  Given this building is currently spending $2.00/SF per year on electricity, taking this action would save them $20,000/month. Unlike a one-time saving such as a discount on a purchase, we’re talking about operational savings where they will achieve the savings each and every month if and when they implement the prescribed action.  So for every month they delay they forever lose the opportunity to save those dollars.

Let's say the improvements that would generate savings are delayed 6 months. That would represent $120,000 in lost savings. 

Using a 5% discount rate, the present value of that lost 6 months of $20,000/month in operational savings would be $101,513.

 

 

 

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

 

Texas Commercial PACE Program: Protecting Borrowers and Creating Economic Benefits

Today [January 10, 2017] 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.

For more information about the Texas PACE program, visit www.KeepingPACEinTexas.org and www.TexasPACEAuthority.org, or contact Charlene Heydinger at charlene.heydinger@KeepPACE.org

 

WSJ Article on Residential PACE Quoted in Entirety

Begin Quote of WSJ Article by Kirsten Grind

"America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

Lenders offering energy-conscious loans care little about borrowers’ creditworthiness, contractors function as loan brokers—and investors can’t get enough

Cindi Ventura helps her mother out of the San Jose, Calif., house where they live. They got a PACE loan for $16,732 after eroded sewer pipes caused a flood. PHOTO: PRESTON GANNAWAY FOR THE WALL STREET JOURNAL

By

KIRSTEN GRIND

Updated Jan. 10, 2017 2:41 p.m. ET

Deanna White told a contractor she couldn’t afford the $42,200 loan he recommended for improvements to her house in Inglewood, Calif. The contractor, she recalled, said she wouldn’t be on the hook because the loan was part of a “government program.” She applied and was approved.

Two years later, Ms. White is struggling to make payments on the loan, which was packaged with more than 10,000 similar loans into bonds and sold to investors. Under its terms, Ms. White’s five-bedroom house could be foreclosed on if she defaults.

Her loan is part of a booming corner of the lending industry called Property Assessed Clean Energy, or PACE. Such loans, set up by local governments across the U.S., are designed to encourage homeowners to buy energy-efficient solar panels, window insulation and air-conditioning units.

About $3.4 billion has been lent so far for residential projects, and industry executives predict the total will double within the next year. That would likely rank PACE loans as the fastest-growing type of financing in the U.S.

As the loans spread, so do problems that echo the subprime mortgage crisis. Plumbers and repairmen essentially function as loan brokers but have scant training and oversight. They often pitch PACE loans to help land contracting jobs and earn referral fees from lenders, according to loan documents and more than two dozen borrowers, industry executives and employees.

Creditworthiness matters little to lenders, because loans are based on the value of a homeowner’s property. PACE loans typically require no down payment, and the debt is added to property-tax bills as an assessment. Ms. White’s annual property taxes soared to $6,500 from $1,215.

Loan growth is fueled partly by investor appetite for bonds created from PACE loans, especially among mutual funds and insurers. Investors like the bonds’ relatively high payouts, environmentally friendly reputation and lofty credit ratings. On the other hand, rating firms have said there aren’t enough historical data on PACE loans to forecast potential defaults.

Some local governments that embraced the loans as a way to bring clean energy to the masses didn’t anticipate the messy consequences.

“We wanted to put ourselves in the thick of this,” says Rick Bishop, executive director of the Western Riverside Council of Governments, a group of city and county governments in California that helps run the largest PACE program. “The downside is now we hear about these stories from people who feel like they’ve been misinformed in some fashion.”

The government group tries to resolve problems for borrowers. Riverside County, Calif., has opened an investigation into marketing practices for PACE loans, and California Gov. Jerry Brown signed into law in September new requirements establishing uniform disclosures for PACE loans, an effort to make lending terms closer to those for mortgages. Homeowners who get a PACE loan now have three days to back out.

The largest PACE lender, Renovate America Inc., is accused in three lawsuits filed in November by borrowers of double-charging interest and administrative fees and failing to immediately credit loan payments. The suits seek class-action status. The company denies the allegations and says it will “defend PACE, our company and the program vigorously.”

In November, the Energy Department urged administrators of the loan programs to clearly explain loan costs and other terms, allow borrowers to cancel their loan during a short period and deter kickbacks to contractors.

Industry executives say most borrowers are satisfied with their loans and defaults are rare.

Lenders are working with consumer groups to create nationwide standards “to prevent things that wouldn’t benefit consumers,” says JP McNeill, Renovate America’s founder and chief executive.

The growing pains are largely the result of the industry’s young age, the executives say. The first PACE program was started in 2007 by Cisco DeVries, then chief of staff to the mayor of Berkeley, Calif.

Cisco DeVries, center, at the Cities for Tomorrow conference in New York in July 2015, calls himself a ‘capitalist hippie’ and is chief executive of clean-energy company Renew Financial Group. PHOTO: LARRY BUSACCA/GETTY IMAGES

Thirty-four states and Washington, D.C., have passed legislation allowing the creation of PACE programs, according to PACENation, an industry trade group in Pleasantville, N.Y.

Mr. DeVries, who calls himself a “capitalist hippie” and now is chief executive of Renew Financial Group LLC, a clean-energy finance company in Oakland, Calif., says he is “really proud of what we’ve accomplished.” He adds: “We set out to help people save money and save energy, and it’s under way.”

The industry could get a new growth spurt from a July decision by the Department of Housing and Urban Development to allow the Federal Housing Administration to purchase mortgages on homes with PACE loans.

PACE loans range in size from about $5,000 to more than $100,000, with an average of about $25,000, and charge interest rates of 6% to 9% over a repayment period of usually five to 25 years.

Instead of making monthly mortgage payments, PACE borrowers pay what they owe once or twice a year along with their property taxes. Cities and counties collect the loan payments and pass along the money to lenders.

Local governments collect fees from finance companies. In the fiscal year that ended June 30, the Western Riverside Council of Governments collected revenue of $7.1 million, or about 15% of its budget, from the PACE program.

Another quirk of PACE loans is that the debt usually goes to the front of the line, ahead of the homeowner’s mortgage. Like a typical tax assessment, that means if a homeowner defaults on the PACE loan, the property can be seized as collateral and sold to repay the lender.

That setup puts local governments in the awkward position of potentially foreclosing on their constituents. If that happens and the house turns out to be worth less than the amount owed by the homeowner, other taxpayers could be stuck with a loss on the difference. So far, that hasn’t happened.

Some investors say the extensive involvement in PACE loans by governments across the country amounts to an implicit financial backstop. The belief that governments stand behind the loans is a major reason why investors are attracted to the bond deals, according to investors.

“There is such big national and state backing,” says Mike Warmuth, portfolio management vice president at FBL Financial Group Inc., the owner of Farm Bureau Life Insurance Co. in West Des Moines, Iowa. The insurer owned $22 million of PACE bonds at the end of September.

Mr. Warmuth says the insurer’s broker suggested the bonds, which generally yield about 4%. He says he isn’t aware of any underwriting deficiencies with the loans, adding that Farm Bureau only had access to aggregate loan data before buying the bonds.

Defaults on loans in PACE bond deals overall have been less than 1%, according to Kroll Bond Rating Agency Inc. Cecil Smart, a senior director at the ratings firm, says the bond deals are structured so that lenders bear the brunt of any losses, rather than investors.

Germany’s Deutsche Bank AG is one of the largest packagers of PACE loans into securities and led a $284 million deal in mid-December, which drew far more investor demand than expected. The bank is aware of problems stemming from the role of contractors, says a person familiar with the matter.

Contractors often line up loans while on house calls and can earn a referral fee of at least $500 per borrower, according to current and former employees. The loans also are marketed at county fairs and by cold calling, borrowers say.

Renovate America uses about 8,000 contractors to help line up loans, according to bond documents. Those contractors are overseen by 23 employees at the San Diego company.

The company says it recently put in place a more-stringent contractor management program. Renovate America says only about 200 contractors are actively arranging PACE loans.

Cindi Ventura, 65 years old, says she was urged last summer by her plumber to apply for a PACE loan after sewer pipes eroded underneath her three-bedroom house in San Jose, flooding the property. She said she had recently filed for personal bankruptcy, didn’t have the money to make all the repairs and couldn’t qualify for a home-equity line of credit.

She and her mother, 83, received a $16,732 loan for five years from Ygrene Energy Fund Inc. with a 6.5% interest rate. Ygrene (“energy” spelled backward), based in Santa Rosa, Calif., is the second-largest provider of PACE financing in the country, based on loan volume.

Cindi Ventura helps her mother sort old family photographs. She says she was confused about terms of their PACE loan because it was called an assessment. PHOTO: PRESTON GANNAWAY FOR THE WALL STREET JOURNAL

Ms. Ventura, a receptionist, says she was confused about the loan’s terms because it was called an assessment. She says she called and emailed Ygrene several times with questions about her loan documents and never heard back. “I still don’t really understand what the program is,” she says.

Louis Lalonde, chief marketing officer of Ygrene, says company representatives had a call with Ms. Ventura and her mother to answer all their questions before the loan was signed. He says he has no record of any further attempts to contact them.

The 3,200 contractors who drum up business for Ygrene are regularly screened for compliance with contractor licensing requirements and receive training before they are allowed to pitch loans to homeowners, he adds.

Malcolm Scott, 61, was planning to pay in cash the $34,000 it would cost for a new air-conditioning unit, furnace and other improvements at his house in Woodland Hills, Calif. His contractor suggested applying for a PACE loan.

Mr. Scott was surprised to find out less than 24 hours later that he had been approved for $94,000. Renovate America says he qualified for the larger loan based on the amount of equity in his house. He decided to borrow just the $34,000.

Michael Gardner, who runs Mediterranean Heating & Air Conditioning, which lined up the loan, says he has been recommending loans for about two years and got “an hour or two” of online training from Renovate America.

The program “is real nice because there are no FICO score requirements or anything like that,” says Mr. Gardner.

Some lenders have taken steps to strengthen underwriting practices, make loan documents more transparent and boost contractor oversight. Renovate America now requires in-house representatives to speak with a borrower by phone—outside of the room and away from the contractor—before signing a homeowner up for a PACE loan.

Renovate America, which is backed by nine private-equity and venture-capital firms, says it has spent the last several months working with consumer groups and regulators to come up with national lending standards for PACE. The new standards could include a year with no payments for borrowers who are suffering from an economic hardship.

“At the end of the day, PACE is an unregulated industry, and it’s just a matter of time before we get regulated,” says Mr. Lalonde of Ygrene.

Phil Adleson, a lawyer in San Jose, Calif., who represents borrowers, says PACE is “a very great idea implemented in a dangerous fashion.”

Ms. White, the borrower in Inglewood, a neighborhood in Los Angeles County, says a contractor from a company named the House Next Door told her in late 2014 not to worry that she couldn’t afford the $42,200 loan because “it wouldn’t be coming out of my pocket.”

The company says no one there would ever describe PACE loans like that and says Renovate America has held weekly training sessions for its contractors for “more than a year.”

Ms. White says the contractor finished the drought-resistant landscaping at her house only after being contacted by a Journal reporter. Renovate America says the contractor has been “under suspension” for the past several weeks.

Her loan went into a pool of 11,282 PACE loans that are collateral on bonds issued by the Western Riverside Council of Governments. Deutsche Bank packaged the bonds into a $240 million deal called “HERO Funding Trust 2015-1.” Kroll gave it a AA rating, the firm’s third-highest.

According to the latest available figures, fewer than 70 of the underlying PACE loans have defaulted, and Kroll said the transaction “has performed as projected.”

Ms. White’s next loan payment is due in April. She says she doesn’t know how she will be able to pay it."

End Quote of WSJ Article by Kirsten Grind

Write to Kirsten Grind at kirsten.grind@wsj.com

Fort Bend Public Hearing Has Widespread Support

Charlene Heydinger, Keeping PACE in Texas; Kristine Canady, Simon; Jack Belt, Ft Bend Economic Development; Don Massey, Katy Mills; & Tim Crockett, PACE Houston; after appearing with others in Ft Bend County Commissioners Court in support of PACE. To view the resolution of intent click here: FORT BEND COUNTY COMMISSIONERS COURT RESOLUTION OF INTENT TO ESTABLISH A FORT BEND COUNTY PACE PROGRAM.

"City of Houston Mayor Sylvester Turner Announces PACE Program for Houston" - August 3, 2016 PACE Houston

Today the City of Houston announced the official launch of PACE Financing in Houston.  PACE Houston along with many other private organizations, non-profits and individuals have worked tirelessly to bring this powerful new financing tool to owners of commercial property in Houston and its Extra Territorial Jurisdiction "ETJ".  

In our Mayor's own words, "Houston is the global energy capital of the world and today we are demonstrating that our leadership extends above and beyond to responsible resource management. And today we continue our role as the energy efficiency capital of the world." Mayor Sylvester Turner, August 3, 2016 Houston City Hall

Tim Crockett, Herbert Yuan, Charlene Heydinger, Paul Knudson. 

Tim Crockett, Herbert Yuan, Charlene Heydinger, Paul Knudson. 

PACE, or Property Assessed Clean Energy, provides 100%, long term (up to 30 years), fixed rate, non-recourse financing for air conditioning upgrades or replacement, lighting retrofits, energy management system controls, energy efficient "cool" roofs and windows, elevator modifications, water conservation and CHP or renewable energy projects. Because PACE provides long term financing, the energy and water savings can exceed the outgoing financing cash flow - making the project cash flow positive. Existing rebates are separate from the PACE program, enabling an owner to receive both preferential financing and the rebates associated with the equipment purchased.
 
Already proven effective by both large and small property owners spread across 33 states since it was first launched in 2008, in Councilman Christie's own words, PACE is a “win-win” for Houston.  PACE is good for the property owner because they can use Other People's Money instead of their own capital; good for the tenants because it lowers their operating costs; and is good for the building because it receives better quality and more reliable mechanical systems, quicker - accelerating future year's capital budgets and improved cash flow to "today".

PACE both creates jobs and is good for the environment. PACE reduces utility consumption and extends the time our existing utility infrastructure will meet the State’s needs. PACE is a public-private concept that uses no public funding - it uses private capital. 

“PACE is the single best new idea I have seen in my 35 year commercial real estate career.” Tim Crockett, President PACE Houston.
 
PACE Houston was created to help bring PACE to the Greater Houston region, educate the marketplace and help property owners use PACE to upgrade their properties.  And PACE Houston is already working to help extend the boundaries to neighboring cities and counties.

We can help with any or all steps required in the process, including access to competitive capital.  

Today, Mayor Sylvester Turner and the Texas PACE Authority announced the launch of a commercial Property Assessed Clean Energy or PACE program in Houston. 

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

 

TrueGrid Pavers

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

Summer Heat sets U.S. Natural Gas Futures on Course for the Largest Gain in Eight Years

While PACE is focused primarily on reducing the amount of energy consumed, PACE Houston also asks its clients to consider the historic low energy prices that we have been experiencing as an opportunity to fix the cost per kWh of energy consumed. While gas does not impact electricity rates on a 1:1 basis, it does have an impact. 

QUOTES IN THE MSN ARTICLE
"Gas has surged 18 percent this year, rebounding from a 17-year low. Drillers, burned by earlier declines, are refilling storage at half last year’s pace as extreme heat boosts the use of air conditioners, increasing gas demand from power plants. By November, supplies will probably drop below the five-year average, the benchmark for normal levels, for the first time in 13 months, based on storage rates."


"Just four months ago, gas plunged after the warmest winter on record left the market with a glut large enough to last through the year. Instead, hot weather and a slowdown in shale production are eating into the surplus, signaling an era of higher prices as gas exports rise and electricity generation cuts into excess supply."


"“We’re moving toward a potentially serious deficit in the supply-demand balance for this coming winter,” Andrew Weissman, chief executive officer of EBW Analytics Group, a Washington-based energy analysis company, said by phone."

See MSN full article for more information

 

 

A Fireside Chat with Gerald Hines - The Business Case for Energy Efficiency

In this interview, Mr. Gerald Hines discusses the business case for energy efficiency. Filmed on October 10, 2014 at Rice University, Mr. Hines used One Shell Plaza as an example of: building for the future, building with excellence and building with the goal of energy efficiency. This applies both to a building's operations and to a building's value upon its final liquidation or sale.

Built in 1971, One Shell Plaza became the tallest concrete building in the world and remains the tallest lightweight concrete building to this day.  In One Shell, Hines used reflective glass while wondering if the public would accept it. They took a chance. The public did accept this energy saving innovation and their tenant, Shell, became an investor. 

Mr. Hines grew up in Gary Indiana where gravity furnaces were used but in this building they used very low pressure duct work. The required 2.4 foot ceiling space gave them the room to upgrade throughout the years. Today (in new buildings)  Hines adds one foot of under each floor to enable the building to keep up with future technology. Mr. Hines noted that "just keeping a building in play for 100 years is an energy saver."

With respect to the meticulous maintenance for which Hines buildings are noted, Andy Kitchens remembered that when the One Shell chillers were finally replaced, that they were spotless. Mr. Hines noted they were so clean you "could eat off of them".

For advancement in building design, engineering and energy efficiency, Hines brought in-house the best structural, mechanical, electrical and curtain wall experts to supervise work done by talented local partners.  Completed projects are also rigorously evaluated. (Writer's note: This is similar to the way PACE loans require both a pre-project engineering assessment done by an MEP engineer and a post project engineering review by what is called an Independent Third Party Reviewer.)  

Against a backdrop of excellence in everything from structure to energy efficiency, Gerald Hines said "When we decide to sell a building we get the best cap rate, which means the best price, for the same income that someone else would have because we have good efficiency in the way the building operates - mechanically, heating and cooling ... and people know it is ... either Gold or Platinum [LEEDS] - and that means something; and today financial institutions are limiting their financing to only good buildings [with] ... higher rating[s]."

Gerald Hines said "We are ... pushing the barriers [in energy efficiency]."  He gave several examples: underfloor fresh air systems so that a building located in an agreeable climate such as San Francisco or San Diego will not have to use energy to cool the building for substantial portions of the year; their first net zero building that has used bio-gas to power itself under a net zero condition for a year and a half; or the 5 million square foot facility in the heart of Milan that tapped the underground water and used it to cool the condensers. 

Gerald Hines noted (by way of example) their innovative young staff and he stressed the importance of innovation for success at Hines. He also noted that for those who become a part of the senior team that they receive 50% of the equity. He noted "No other real estate company does that." 

In answering a direct question about how to best communicate the value of energy efficiency to the Class B & C buildings sector, Mr. Hines' answer emphasized the fact that the value of the building is a function of the energy efficiency and the cap rate. 

For Class B and C building owners Mr. Hines noted ... the final liquidation of the building is going to be a function of its energy efficiency and the cap rate under which the building can be sold. He noted these are the biggest incentives you can have to get Class B and C building owners to move in the direction of energy efficiency.

Andy Kitchens summed up the man whom many of us have come to admire based on his company's final product and the people who have built their reputation. 

"The greatest example Mr. Hines serves for the firm is beyond the buildings, the stadiums, the malls ... it is your integrity Sir and it is infectious." 

 

 

Source Note: This blog is excerpted  from a Video of the event during which Mr. Hines commented on the value of energy efficiency to Class B and Class B buildings - the cap rate and the liquidation value at 22:25 into the video. We had it posted but it was not available when we last checked.