PACE Funding Becomes Mainstream With $400M Milestone
DECEMBER 7, 2017 | BY LISA BROWN
FREMONT, CA—Property Assessed Clean Energy/PACE financing programs enable property owners to upgrade properties with no upfront cost while increasing property cash flows and value. It is legislatively approved in 34 states.
Commercial PACE funding (C-PACE) has been gaining ground as a mainstream funding tool for major commercial real estate improvements and retrofits, now exceeding more than $400 million, according to industry group PACENation. In fact, it’s the type of low-cost funding that is behind a multi-million-dollar research and administration facility now getting reimagined.
Sausalito, CA-based CleanFund Commercial PACE Capital and K2 Clean Energy Capital LLC, a developer of C-PACE financing, were the funding partners for the project, a new research and administrative facility for Verseon, a technology-based pharmaceutical company with a proprietary drug discovery platform. CleanFund provides property owners with the upfront capital for the improvements, which are repaid through property tax payments during a 20- or 30-year period.
And, the company is gaining traction. Just two months ago, Paul Allen’s Vulcan Capital fund and other related entities invested in CleanFund Commercial Capital Inc., with the first closing of the company’s $15 million Series B equity financing round. In addition, Vulcan Capital has committed to providing CleanFund $100 million in C-PACE capital to support the adoption of clean energy and other value-added improvements to commercial properties nationwide.
“Verseon was able to raise capital for the implementation of renewable energy and energy-efficiency initiatives while simultaneously reducing operating expenses at their new facility,” said Stephen Tsu, co-founder and managing director of K2 Clean Energy Capital. “CleanFund was selected after an extensive search process, and their perseverance and support were instrumental in closing and funding the project.”
With the announcement of the C-PACE funding for the Verseon facility, executives at CleanFund explained the transaction, the growing demand for C-PACE, the recent $15 million investment round and Vulcan’s further commitment of $100 million in this exclusive to GlobeSt.com.
GlobeSt.com: Why did an innovative biotech firm such as Verseon decide to use C-PACE financing?
Ben Dodge, director, channel management, CleanFund: Verseon’s decision, like so many other commercial property owners discovering C-PACE, is the ability to access a very low cost of capital that enables energy and infrastructure improvements. Because C-PACE is long-term, fixed-rate financing secured as a parcel tax assessment, it solves many problems that have historically prevented commercial property owners from implementing energy efficiency retrofits or renewable energy investment.
Working with the project developer, K2 Clean Energy, Verseon now has the C-PACE funds to complete refurbishment of the 85,000-square-foot facility in Fremont. The improvements provide a superior, reliable power source and offset a large portion of the electricity supplied from the grid for substantial cost savings.
GlobeSt.com: With CleanFund growing more than 400% this past year and securing the significant investment from Vulcan, what’s next?
Greg Saunders, CEO, CleanFund: Vulcan’s financial support and endorsement of C-PACE allows CleanFund to focus on the $55 billion energy efficiency and renewable market opportunity. C-PACE is a relatively new financing tool for the industry, and as more owners and operators see its benefits, it is becoming a mainstream alternative to traditional debt sources and internally financed cap-ex expenditure. With our deep expertise across real estate and investment disciplines, CleanFund has a keen appreciation for what it takes to drive value for commercial property owners. In making its recent investment with CleanFund, Vulcan Capital believes in the alignment of C-PACE with its objectives: a good investment opportunity that’s also an advancement in sustainable real estate lowering operating expenses and carbon footprint.
GlobeSt.com: What does the Verseon C-PACE transaction signal to other owners and users?
Dodge: It’s the largest PACE financing in the biotech industry to date, and speaks volumes to other industries where there are owner-occupied assets with the potential of energy-saving projects. The message is clear that C-PACE can accomplish major retrofits and improvements in a way that traditional commercial real estate or cap-ex financing can’t. Save your cap-ex dollars and use them to grow your business, not replace your HVAC system. Our partner, K2, which coordinated this financing, and is managing the energy project, really showed the depth of its capability on a complicated project. With the right partners, C-PACE can be used in accretive ways. I think we’ve only seen the tip of the iceberg of C-PACE’s use cases and we are excited by the opportunities that continue to present themselves as we march into an exciting 2018.
According to Colliers International, the headquarters was originally constructed as a research and development building in 1990. In the rebuild, the structure was stripped to just its structural elements in order to create a life science facility that is home to Verseon’s research and administrative functions. The $8.6 million financing will help fund energy-related improvements such as the installation of new HVAC systems, energy-efficient LED lighting and glass, and a natural gas-based power generation system as part of an overall facility refurbishment.
When complete, the facility will serve as the primary location for the discovery and development of new pharmaceuticals. The combination of the energy-efficiency upgrades and co-generation system will offset a large portion of the electricity supplied from the grid and result in substantial operational cost savings. The co-generation system generates heat, enabling a reduction in the natural gas and energy required for the boilers and HVAC system, and produces electricity to offset the grid loads.
The system also serves as emergency back-up for the facility during grid power outages and can operate on propane from onsite tanks in the event of an interruption in the utility natural gas supply. The ultra-low emission co-gen system replaces the typical diesel generator back-up system and will significantly reduce the facility’s carbon footprint.
The founders of CleanFund teamed up in 2008 to create the first PACE legislation in California, with their sights on the $60 billion commercial energy efficiency and solar market. Since forming in 2009, CleanFund’s growth has doubled year-over-year, now financing about 25% of all US C-PACE transactions. With the initial funding of the Series B secured, CleanFund is positioned to continue meeting commercial property owners’ demand for long-term capital in order to make vital upgrades to commercial, multifamily and other nonresidential properties in the areas of energy efficiency, water conservation, renewable energy and seismic improvements.