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

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."

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

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.