"Lenders are getting stingier when it comes to funding risky U.S. real estate developments ... Property owners are facing a host of challenges. Overbuilding in some areas, the protracted slump in oil prices, a strong dollar eating into tourism, declining stock values and slowing growth in China are all weighing on landlords. At the same time, the Federal Reserve is raising interest rates for the first time in nine years." Furthermore, the breakdown of the CMBS market is choking off funding for maturing debt. And borrowers are seeking out alternative sources of capital that may offer less-generous terms." Bloomberg March 15, 2016
For Houston the drop in oil prices, layoffs in the energy sector and uncertainty about near-term inventory absorption have further contributed to tighter bank and mortgage underwriting standards - constraining capital budgets; even for necessary capital improvements. Against this backdrop, many are struggling both to maintain their NOI levels and to obtain capital to finance improvements.
For those investors who can access capital, many with financing needs must now pay higher rates and put up more equity. Many must even postpone projects that would improve their NOI and property valuation.
The timing could not be better for the arrival of PACE.
PACE addresses the tighter capital market with 100% long term fixed rate financing that can improve the property's NOI and valuation; both addressing existing lender credit concerns and enabling the owner to make the needed improvements.
Since PACE allows a property owner to borrow 100% of the capital required for the weighted average useful life of the improvements (up to 30 years), the annual loan repayment is a fraction of the amount of a typical short term loan amortization. This smaller annual loan payment results in the annual energy savings exceeding the annual loan payment - resulting in improved property cash flow. The PACE loan is secured by and repaid through the property’s annual property tax bill verses the typical monthly P&I to a bank.
So instead of putting down the required equity on a traditional loan and making larger payments, consider utilizing PACE’s 100% financing to pay for your energy saving improvements.