PACE Houston Facilitates First Texas Multi-Tenant Office Building's 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
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The $1.3 million 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, while increasing tenant comfort and the property’s market position.

The building management group notes this PACE project will create an annual savings of over 1.5 million KWH and $2.9 million over 20 years.

PACE Houston assists property owners and management companies in navigating the PACE process. Services include selecting the right mix of property improvements and lender terms so as to meet the requirements of the Texas PACE Authority and the City of Houston. We also assist the property owner in vendor selection, lender evaluation and facilitating a smooth closing process. Our strategic partners can also assist in selecting the optimal combination of energy efficiency measures to implement. 

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

 

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

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 do