What is Property Assessed Clean Energy (PACE)?

Assessment financing is a public improvement finance mechanism that has been around for more than 100 years to fund public works projects. Property Assessed Clean Energy (PACE) was introduced in California in 2008 as a form of assessment financing to fund improvements to qualifying properties, namely projects that help to reduce energy and water usage, and which are deemed in the “public good” (like assessments for school bonds, fire districts, etc.)

Is PACE financed by the government?

There are various models for administration of PACE programs. Some programs are administered by public entities that use public funds and ratepayer dollars to finance projects, while others permit private capital providers like CleanFund to provide construction and term financing (or both).

What is the legislative mechanism for PACE?

To date, 32 state legislatures and the District of Columbia have adopted PACE legislation. Normally PACE legislation at the state level involves amending statewide laws related to property tax law and municipal finance. After state legislation has passed, PACE programs may be created at the state, county, or municipal level. Once programs are operational, projects can be financed by private financiers like CleanFund. For more information about whether your project is located in a qualifying jurisdiction, please see our PACE map.

Which property types qualify for PACE financing?

CleanFund Commercial PACE financing can be used for most non-residential property, including commercial office, retail, industrial, hospitality, schools, healthcare, non-profits, specialty owner-operators, and multifamily (>4 units).

What improvements are eligible for PACE financing?

Typically, all costs associated with the installation of new components that improve energy and water efficiency of a building. This applies to retrofits, routine upgrades and, in some jurisdictions like California, new construction. Also, the costs associated with seismic strengthening (in California) and storm proofing (in Florida) are eligible. See our list of eligible items for more information.

What is an Assessment Contract?

An assessment contract sets forth the property owner’s obligation to repay the PACE financing over time along with their normal property tax payments, and clarifies the various terms of the PACE financing. The contract is between the property owner and the municipality in which the property is located. In California, a Joint Powers Authority (“JPA”) often executes the contract on behalf of the municipality. CleanFund purchases a PACE bond that is backed by an assignment of the assessment contract (in California and certain other states).

What are PACE Bonds?

PACE bonds are issued in connection with PACE financing transactions in California and certain other states. The reason that PACE bonds are issued is related to the legal framework of municipal bond law and property assessment law. PACE bonds are typically limited obligation improvement bonds secured by the revenues from an assessment contract recorded on the land records of the property. PACE bonds are issued by an entity with the legal standing to do so, and are backed by an assignment of the assessment contract.

In the state of California, a Joint Powers Authority (“JPA”) typically issues PACE bonds. These entities also issue bonds for municipalities for infrastructure and other improvements. In states where PACE bonds are not issued in connection with the funding of a PACE project, the capital provider (like CleanFund) purchases an assignment of the assessment contract.


How do I pay my PACE Assessment?

This assessment is levied each tax year and included on the building owner’s property tax bill. The payments are due at the same time as ordinary property tax payments. This may vary depending on state and jurisdiction. Contact the CleanFund team for more information regarding the specific payment schedule in your jurisdiction.

Can I make a partial payment of my property tax bill?

No, in most jurisdictions, you cannot partially pay your property taxes (i.e., choosing to exclude certain line items). In the state of CA, a partial payment of property taxes or PACE assessment triggers a delinquency of the full amount of taxes and assessments due during that billing period.

Can I pay off my assessment early?

Yes. Typically a prepayment premium must be paid in connection with a prepayment, which is set forth in the assessment contract.

What is the timing of the release of PACE funds?

Within 1-2 weeks of execution of the assessment contract, the PACE bonds are issued and CleanFund funds the project improvement account, from which property owners (or their contractors) are paid for completed work upon receipt from the property owner of disbursement requests. Some programs allow for progress payments while others do not, but typically disbursements will follow the milestone payment schedule laid out in the assessment contract (and related to milestone schedule in the construction contract).

Can PACE financing be used to reimburse previous work?

Yes, PACE can be used to finance improvements that are already installed and in operation should there be written acknowledgement of PACE as a financing option. CleanFund’s Initial Questionnaire includes a clause on intention to reimburse prior to the start of construction, which preserves the Owner’s right to be remunerated for work that has already been completed. This might include engineering studies, energy audits, and other soft costs.

Does PACE financing provide for 100% of construction costs?

Yes, CleanFund can provide financing for up to 100% of costs associated with eligible improvements, including soft costs, such as engineering, site work, and energy audits.

Is there a defined time period for PACE financing?

No, once a state has enabled PACE legislation, it becomes codified in the property tax and assessment law. So long as the legislation is not repealed, and there continue to be interested capital providers, such as CleanFund, PACE financing does not have a defined expiration date. Moreover, unlike traditional government cash grants and rebates, PACE financing leverages private capital and does not come from a finite pool of dollars.


Is PACE financing considered off-balance sheet?

Certain industry observers have cited PACE financing as being “off balance sheet”. Although CleanFund does not provide accounting or tax advice, we’ve noticed that some of our clients are comfortable classifying PACE financing in an “off balance sheet” manner. Certain facts that help support this position include: (a) PACE financing does not require any property owner’s to spend any money out-of-pocket to complete a project; (b) the payment billings are included on your existing property tax bill; (c) the assessment travels with the property and is not an obligation of a “borrower”, per se. It seems that a number of property owners seek to classify PACE financing on their balance sheet in consideration of several factors: (a) the owner signs a voluntary assessment contract requiring them and future property owners to repay the assessment over time; (b) depreciating the financed improvements, or including them in the tax basis of the owner’s property, points to the need to reflect assessment contract and the asset on the owner’s balance sheet. We recommend that property owners consult their accountant for advice on such matters.

Will PACE financing cause a reassessment of my property?

In some jurisdictions, the filing of permits to perform major upgrades to properties can trigger a reassessment by the tax assessor’s office. In some locations, certain kinds of improvements are exempt from reassessment, including solar energy installations (in California).

Will PACE make it more difficult to sell my property?

PACE improvements tend to increase the value of a property through higher tenant retention rates, higher occupancy and improved cash flows. And, since most commercial leases call for tenants to help cover property taxes and other operating costs, the cost of the financing is effectively very low and not worth prepaying. In general, it is easier to sell a property without end-of-life concerns around building systems — projects that can be financed through PACE.

Why should my mortgage lender care about PACE?

In nearly all cases, PACE legislation or local PACE program rules require mortgage lender acknowledgement or consent to the PACE financing. What this means, in practice, is that before CleanFund can close on financing for PACE improvements, the Owner must first receive an acknowledgement of the PACE financing by any mortgage lender on the subject property. Because PACE financed projects increase the property value, lenders should be able to get comfortable with the financing. Although the PACE assessment is senior to all private forms of debt, including mortgages, the amount of the PACE assessment that is senior to mortgage debt is only the amount of past due PACE payments (if any). This fact alone helps many banks to acknowledge the PACE financing. CleanFund is always willing and able to assist in educating your lender on the benefits of PACE.

How does PACE work with an existing lease structure for multi-tenant properties?

Typically this will be spelled out in each lease. Under a triple-net lease, tenants will pay for their share of increase in building expenses so the cost of PACE improvements can be passed through to tenants. Some leases will have restrictions on increases in property taxes but these are generally only with respect to increases which come as a result of new property taxes related to a sale in CA.

How does PACE address the issue of split incentives?

Property Owners will benefit from PACE financing to the extent that improvements increase the value of the property by replacing or retrofitting outdated building systems. The savings for Owners will also materialize in the form of higher lease rates. Lastly, PACE improvements tend to improve lease-up rates and increase tenant retention.


Who is CleanFund and how long have you been around?

CleanFund Commercial PACE Capital, Inc., is the leading company dedicated to Commercial PACE financing. We have been around since the inception of the PACE industry and have offices in the San Francisco Bay Area and Los Angeles. The Company has now grown to more than 20 professionals with deep expertise in commercial real estate, finance, government policy, and clean energy.

How does CleanFund fit into the PACE ecosystem?

CleanFund is a private capital provider for commercial PACE projects (not residential). We identify, underwrite and fund projects for property owners across the country. CleanFund works closely with owners of qualifying properties to assess project feasibility, and to make smooth the process of getting approval by local government or private program administrators. CleanFund coordinates with PACE Program Administrators, Contractors, and Mortgage Lenders throughout the transaction approval process to take a project from conception to closing and funding.

What is the typical project timeline from Initial Application to Closing/Funding?

The transaction process can last anywhere from 6 to 12 weeks. Project timeline will vary contingent upon several factors, including the speed at which a property’s mortgage lender acknowledges or consents to the transaction.

How many projects has CleanFund completed?

To date, CleanFund has financed over 40 individual projects representing tens of millions of projects in multiple jurisdictions across the US, most notably in California and Connecticut.