Aug 23, 2017, 1:53pm EDT

An Over-the-Rhine startup has partnered with CleanFund Commercial PACE Capital Inc., the leading direct provider of commercial Property Assessed Clean Energy financing, that will bring capital to commercial real estate projects in Ohio and Kentucky.

Tim Donovan and Andy Holzhauser, partners at Donovan Energy, stand in Union Hall. The firm has partnered with CleanFund to provide PACE financing on projects in Ohio and Kentucky.

Donovan Energy LLC, an energy project development company launched in 2016, partnered with Sausalito, Calif.-based CleanFund to provide PACE financing to projects in both states, with a focus on Greater Cincinnati. This is the first partnership of its kind in the region.

Andy Holzhauser, partner at Donovan Energy, said the financing, which is relatively new in the Greater Cincinnati region, is complementary to other financing such as mortgages, equity and tax credits.

“People ask us, is it debt or equity? Really, it’s neither. It’s PACE,” Holzhauser said.

Here’s how PACE works. Once a local government creates a district, property owners are able to voluntarily sign up for financing and install energy projects or build new projects that have energy efficiency components. The PACE lender provides funds to the property owner to pay for the project and then the property owner repays the PACE loan through the property tax bill for up to 30 years.

Tim Donovan, partner with Donovan Energy, said with the increased efficiency of the building and the lower energy and maintenance costs, these projects are providing more savings than the additional cost.

“They are cash flow positive from day one,” Donovan told me.

The partnership with CleanFund has already resulted in more than two dozen potential projects looking at adding PACE financing to their capital stack. Donovan Energy’s pipeline of projects using PACE financing spans from Louisville to Cleveland. Once project development agreements are in place, these projects will be announced.

But for now, the team is focused on Greater Cincinnati. Of the 25 projects in the pipeline, about 20 are local.

Holzhauser said the average range of PACE financing for projects it is looking at ranges from $500,000 to $3 million. But the team also is working on financing part of a $65 million project, of which $5 million would use PACE financing.

PACE financing can be used both for renovations of existing buildings and new construction. For an energy retrofit of a building, which could include new heating and cooling systems, LED lights and new windows, 100 percent of that project could be financed using PACE.

The fixed rate for PACE financing varies, but is typically around 6 percent to 7.5 percent. It can be financed up to 30 years. The PACE financing stays with the building, even if it is sold.

Also, there are no personal or business guarantees. And even if the building were to go through a foreclosure for some reason, the PACE financing would stay with it through that process, eventually being paid by the next owner.

“You get the benefit of the system, you get the assessment to pay for that,” Donovan said.

While the duo expects to close some PACE financing projects this year, they expect a much bigger year in 2018. Donovan Energy is looking at closing about $35 million in PACE financing for projects next year.

Donovan Energy has a staff of five, but Holzhauser and Donovan expect that number to grow. By 2018, Donovan expects to have a staff of 15.

The firm is based out of Union Hall in Over-the-Rhine, the Cincinnati startup hub that is home to the Brandery, Cintrifuse and CincyTech. at 1311 Vine St.

Donovan Energy had looked partnering with six or seven PACE capital providers before deciding CleanFund would be the best fit. The fact that CleanFund raises and provides capital directly to deals, giving the firm more flexibility and greater speed, was one reason Donovan Energy chose CleanFund, Holzhauser said. Plus, even though CleanFund is the largest PACE capital provider in the country, it didn’t have any presence in the Midwest.

Since the partnership was finalized in mid-June, Donovan Energy has started connecting with building owners and developers about projects that could benefit from PACE financing.

Chris Jones, director of PACE financing for the nonprofit Greater Cincinnati Energy Alliance, said the partnership between Donovan Energy and CleanFund should mean more PACE-funded energy efficiency projects. The alliance is focused on improving energy efficiency, promoting renewable energy sources and reducing carbon emissions throughout the region.

“This is definitely a good thing,” Jones said.

Aside from PACE project development, Donovan Energy also provides energy procurement, distributed generation, LED lighting, energy finance and building efficiency services.

Donovan said the level of new construction and redevelopment taking place across the city makes this a good region to deploy PACE financing.

“This market is absolutely primed for energy product development work,” he said.

Tom Demeropolis

Senior Staff Reporter

Cincinnati Business Courier

Link to Article In the Cincinnati Business Courier