PACE IN THE CAPITAL STACK

Property Assessed Clean Energy (PACE) financing is the perfect tool for significantly reducing the growing need for mezzanine and equity financing, while potentially lowering your WACC. Request Financing

Owners like PACE because it improves their property and lowers their cost of capital.

 


Financing is often better than traditional.

 

Comparable Dollars in the Capital Stack:

  Rate Closing Fee Max CLTV Recourse Financial Covenants and Reporting
Typical Mezz Debt 7-12% 2-4% 80-85% Yes Yes
Typical Preferred Equity 15%+ 2-4% 90-95% Yes Yes
PACE 5.7 – 6.7% 2-4% 100% NO NO

Comparison of Typical WACC vs CleanFund’s PACE Capital:

  Typical Financing With PACE
  % of Cap Stack Interest Rate % of Cap Stack Interest Rate
Equity 10% 15% 5% 15%
Mezz Debt 15% 10% 0% 10%
First Mortgage 75% 5% 75% 5%
PACE –  –  20% 6%
WACC 100% 6.75% 100% 5.70%
Representative Capital Cost Savings on a $20MM Commercial Property
Capital Cost Savings/annum
1.05%
Annual Savings on $20MM Value Property
$210,000
Savings Over 10-Year Period
$2,100,000


Types of Deals That Make Sense for PACE


Ground-up Construction

Available in Certain Markets

  • Depends on Local PACE Program
  • Most of California

Key Considerations:

  • Must be fully entitled
  • Max loan is 20% of as complete value
  • Funds must be applied to eligible items – not land or acquisition cost
  • Must build eligible items greater than minimum code requirement (Not required in CA)
  • Much of what’s already in your budget may qualify for PACE
  • Funding draws require coordination with senior lender
  • Does not satisfy HVCRE requirements

Seismic Retrofit (CA Only)

Los Angeles Seismic Ordinance

  • Released a list of 1,450 13+ story, non-ductile concrete buildings older then 1979 that require major seismic upgrades
  • Released list of 13,500 soft story apartment buildings that require seismic upgrade

San Francisco has a similar program

  • 6,744 soft-story buildings in San Francisco – DEADLINES ARE NOW

Negative PUBLIC RECORD against property

Major liability for property owners and existing lenders

PACE Eligible!

 

Acquisition Reposition

  • Reduce operating expenses with high efficiency upgrades, financed by low cost, long term financing

PACE Loan Prepayment / Transfer of Property Ownership

  • CleanFund PACE loan can be Pre-Paid
  • NO Defeasance
  • NO Yield Maintenance
  • Some Pre-payment Premiums
  • Pre-payment premium decreases over time similar to a bank term loan
  • Property Owner has the option to pre-pay the assessment or let it run with the asset and new owner continues assessment payments
  • No assumption process or approval required

Lenders understand the value of PACE.

Bankers acknowledge PACE liens for 5 primary reasons:


  1. When a lender realized that the PACE financing does not accelerate in the event of foreclosure and is not senior itself to the mortgage financing. The passed due property tax payments is the only obligation that may be senior to a mortgage in the event of a foreclosure, which is a fraction of the value of the property and hence a very small amount of exposure and risk for a bank.
  2. PACE improvements help to increase the value of the lender’s collateral.
  3. Typically a PACE payment is 1% or 2% of the property value so a year’s missed payment does not represent a significant amount of seniority.
  4. Banks recognize PACE Financing enables improvements to properties that increase the value of their collateral and reduce their downsize risk. In many cases PACE increases the NOI of the property and modernizes the equipment so the property would be subject to fewer price concessions in the event of a sale.
  5. Most Bankers are relationship bankers and value their relationships with their borrowers, aiming to help them identify creative solutions to their property upgrade needs.

 


CleanFund makes it easy to get mortgage lender acknowledgment.

CleanFund facilitates lender acknowledgement on every transaction:

  • CleanFund seeks an acknowledgement that is not a subordination agreement, but is simply an acknowledgement by the lender that they know PACE financing is taking place and it does not violate the covenants of their mortgage.
  • CleanFund teams up with the borrower and uses special forms and templates that help to quickly educate lenders on PACE.
  • An increasing number of lenders are acknowledging PACE as a valuable tool to build property value and to support their borrower relationships.
  • PACE can finance capital improvements that increase the value and cash flow of the asset without requiring a refinance or additional funding of the senior loan.

PACENation List of Consenting Financial Institutions, May 2016
119 consenting lenders to date