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Commercial Property Assessed Clean Energy
Financing: C-PACE Structure, Documentation,
and Project Approval
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THURSDAY, FEBRUARY 20, 2020
Presenting a live 90-minute webinar with interactive Q&A
Kristen E. Burgers, Partner, Hirschler Fleischer, Tysons, Va.
Carrie Hallberg O'Malley, Partner, Hirschler Fleischer, Fredericksburg, Va.
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Commercial Property Assessed Clean Energy
(C-PACE) Financing: C-PACE Structure,
Documentation, and Project Approval
Presented by:
Carrie Hallberg O’Malley, Partner
Kristen E. Burgers, Partner
Presentation Overview
• What is C-PACE?
• How does C-PACE work?
• National C-PACE Programs
• Hirschler C-PACE Expertise
6
Presentation Overview (continued)
• What are the basic elements of a C-PACE financing?
• How does the C-PACE financing process work?
• Who are the C-PACE stakeholders?
• What are the benefits to, obligations of, and legal considerations for each C-PACE stakeholder?
7
Presentation Overview (continued)
• What types of projects and/or properties may be
financed through C-PACE?
• What types of improvements may be financed through
C-PACE?
• How does a C-PACE financing compare to a
conventional loan?
8
Presentation Overview (continued)
• Virginia C-PACE Statute
• Fundamentals of C-PACE in Virginia
• What legal documents are required in a Virginia
C-PACE transaction?
• Virginia C-PACE Program Development
9
Presentation Overview (continued)
• National C-PACE Statistics
• PACE as an Asset Class/PACE Securitization
• Case Studies
10
C-PACE: Funding Energy-Efficient Improvements through Commercial Real Estate Special Assessments
• What is C-PACE?
• How does C-PACE work?
• What are the benefits of C-PACE?
• C-PACE in 90 Seconds Video: https://www.youtube.com/watch?v=R3Ota3uvM1E
11
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C-PACE BASICS
• Alternative Financing Mechanism Secured by Voluntary
Special Assessment Lien
• Created by State Statute and Governed by Local
Ordinance
• Public-Private Partnership
13
STATES WITH C-PACE-ENABLING LEGISLATION
14
STATES WITH ACTIVE C-PACE PROGRAMS
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HIRSCHLER STATES
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C-PACE vs. R-PACE
Commercial PACE
• Commercial, multi-family residential, agricultural, industrial
• 29 states (plus D.C.) with adopted legislation
• 22 states (plus D.C.) with active programs
• Several states in process
Residential PACE
• Single-family residential
• 3 states
• Consumer protection considerations
17
Elements of C-PACE Financing
• Generally levied, billed, collected, and enforced in same manner as real property taxes.
• Program created by local government, but can be managed by 3rd party program administrator.
• Remedy through locality’s real property tax collection and foreclosure process.
• No acceleration allowed.
18
Elements of C-PACE Financing (continued)
• Runs with title to real property and freely assignable by Owner and Capital Provider.
• Transfers upon sale or foreclosure, but is not extinguished by foreclosure.
• Current/past due payments senior to existing mortgage and typically share equal lien status with real property taxes.
• Improvements must be affixed to real property.
19
C-PACE Financing Process
• Owner works with consultant/contractor to develop project scope and type of C-PACE improvements.
• Owner submits application to C-PACE program.
• Owner obtains senior lender consent to C-PACE financing.
• Owner selects Capital Provider to fund project.
20
C-PACE Financing Process (continued)
• Locality/Program Administrator verifies project eligibility.
• C-PACE financing transaction is closed, and Capital Provider funds C-PACE financing.
• C-PACE improvements installed on real property.
• Owner repays C-PACE financing over C-PACE financing term.
21
C-PACE Stakeholders
• Commercial Property Owner
• Government Sponsor (Locality)
• Capital Provider
• Program Administrator
• Program Service Providers
• C-PACE Contractors
• Energy Services Professionals
• PACE Consultants
22
Property Owner Benefits
• 100% financing (includes hard and soft costs)
• Fully amortized over extended period (up to 30 years)
• C-PACE improvements typically increase property value and cash flow and decrease operating expenses
• Costs and benefits of C-PACE financing may be shared with tenants under most leases
• May satisfy owner equity requirements
23
Local Government Benefits
• Economic development
• Environmental impact
• Historic preservation and urban revitalization
• Contributes to public goals at low/no cost
• No financial risk to taxpayers
24
Capital Provider Benefits
• Senior lien priority with senior lender consent/subordination
• No acceleration
• Default interest/penalties
• Remedy through tax foreclosure process
• Transfers with property
• Prepayment penalties
25
Legal Considerations for Stakeholders
• Sufficient and Enforceable Documents
• Payment Timing and Flow of Funds
• Property Ownership and Chain of Title
• Senior Lender Consent/Subordination
• Recorded Instrument Evidencing Lien
• Stakeholder Rights and Remedies
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Legal Considerations for Stakeholders (continued)
• Compliance with C-PACE Statute and Local Ordinance
• Transparent Contractual Obligations among Stakeholders
• Understanding Tax Collection and Tax Foreclosure Process
27
Types of C-PACE Projects
• Existing commercial property renovations
• Non-profit property rehabilitations
• New construction projects
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Types of C-PACE Properties
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Energy Efficient Improvements
• HVAC
• Solar panels
• Geothermal improvements
• Energy efficient lighting
• Water heaters
• Air sealing
• Insulation
• Replacement windows
• Electronic vehicle charging equipment
• Wind resistance improvements (Florida)
• Seismic retrofits (California)
• Resiliency; storm water management (Virginia)
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Energy Efficient Improvements
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Traditional Financing v. C-PACE
Traditional Bank Financing C-PACE Financing
Project HVAC and Lighting HVAC and Lighting
Project Cost $100,000 $100,000
Loan $75,000 $100,000
Interest Rate 5% 6.25%
Term 5 years, fulling amortizing 15 years, fully amortizing
Monthly Payment $1,415 $857
Annual Payment $16,984 $10,290
32
Virginia C-PACE Statute
• Financing Clean Energy Programs (§15.2-958.3 of the Code of Virginia 1950, as amended)
• Virginia C-PACE law (2009, 2010, 2015 and 2019)
33
Fundamentals of C-PACE In Virginia
• Commercial only (No, Virginia, there is no R-PACE)
• No condominiums
• Existing buildings and new construction projects
• Senior priority with recorded lender consent and subordination
34
Virginia C-PACE Documents
• Local C-PACE Ordinance
• C-PACE Assessment and Financing Agreement
• Amortization Schedule
• C-PACE Note
• Memorandum of C-PACE Lien
• Disbursement Agreement
• Senior Lender Consent and Subordination
• Form of C-PACE Lien Amendment
• Form of C-PACE Lien Assignment
35
Virginia C-PACE Program Development
• Arlington County ordinance adopted on November 18, 2017, and its program launched in January 2018.
• City of Fredericksburg ordinance adopted on November 13, 2018. City of Fredericksburg will self-administer its C-PACE program initially.
• Virginia Attorney General issued an Advisory Opinionon Virginia’s C-PACE law on February 1, 2019.
36
Virginia C-PACE Program Development (continued)
• Loudoun County ordinance adopted on February 21, 2019. Loudoun County selected Virginia PACE Authority (VPA) as its C-PACE Program Administrator.
• Fairfax County ordinance adopted on March 19, 2019.
Fairfax County selected VPA as its C-PACE Program
Administrator.
37
Virginia C-PACE Program Development (continued)
• City of Petersburg ordinance adopted on July 2, 2019. City of Petersburg selected VPA as its C-PACE Program Administrator.
• City of Richmond ordinance adopted on November 12, 2019, however a Program Administrator has not yet been selected.
• City of Lynchburg ordinance adopted on December 10, 2019, however a Program Administrator has not yet been selected.
38
Virginia C-PACE Program Considerations
• Flexible Underwriting Guidelines
• Streamlined, Efficient Structure
• Transparency of Fees and C-PACE Process
• Statewide Consistency
• Low-cost
39
C-PACE Around the
Country
As of December 31, 2019:
• 2,020 projects
• Over $1.1 Billion
• 16,600 jobs created
40
C-PACE: Growing at an Exponential Rate
41
C-PACE by Industry
42
Securitization: The Future of PACE
This graph represents securitization of residential PACE loans.Capital providers are also securitizing C-PACE loans, but statistics are not readily available.
43
Project at a Glance
• Aging facility (Built 1965)
• Significant load (30k Ft2)
• Failing building systems
• Tax-exempt owner
• Limited capital budget
• Robust utility savings opportunity
• Strong solar exposure
• Stable property value
• Engaged owner
Case Study 1: D.C. Elementary School
44
Case Study 1: D.C. Elementary School
Highlights
• Retrofit on existing building
• Energy and water-saving mechanical upgrades
• Rooftop solar system
• Incentive from D.C. Sustainable Energy Utility
Challenges
• Construction timing
• Incentives deadline
• Title issues
Economics
Total C-PACE Assessment $1,429,554
Assessment Term 20 years
Average Annual Energy Savings $139,000
Approximate Annual Assessment Payment $126,600
Annual Net Savings $12,400
45
Case Study 2: Wisconsin Office
Project at a Glance
• First new construction office C-PACE project in the United States
• Manufacturing facility → Class A offices
• Robust utility savings opportunity
• Strong solar exposure
• Stable property value
• Engaged owner
46
Case Study 2: Wisconsin Office
Highlights
• Revitalized brownfield site on Milwaukee riverfront
• PV solar and LED lighting
• Geothermal HVAC
• Energy efficient windows
Challenges
• Complex capital stack
• Educating project financing counterparties on C-PACE
Economics
Total C-PACE Assessment $2,231,218
Assessment Term 20 years
Approximate Annual Assessment Payment $199,346
Estimated Savings over Code 28%
47
Case Study 3: Colorado Micro-Apartment
Project at a Glance
• New construction, micro-apartment project
• First new construction C-PACE project in Colorado
• First completed C-PACE project in Denver
• Mortgage debt, C-PACE equity and developer equity
• Enhanced marketing opportunity for developers as environmentally sustainable living
48
Case Study 3: Colorado Micro-Apartment
Highlights
• PV solar and HVAC
• Lighting
• Domestic hot water
Economics
Total C-PACE Assessment $2,826,331
Assessment Term 20 years
Interest Rate 6.75%
Approximate Semi-Annual Assessment Payment $129,795
Approximate Annual Assessment Payment $259,590
Estimated Savings over Code 56%
49
Case Study 4: The Preserve at Aldersgate
Project at a Glance
• First new construction multifamily C-PACE project in the United States
• First C-PACE project in Little Rock, Arkansas
• Robust savings opportunity
• Strong solar exposure
• Engaged owner
50
Case Study 4: The Preserve at Aldersgate
Highlights
• Geothermal HVAC
• LED lighting
• Energy-efficient windows
• Roof improvements
Economics
Total C-PACE Assessment $653,213
Assessment Term 20 years
Interest Rate 6.5%
Approximate Annual Assessment Payment $61,747
Estimated Savings over Code 47%
51
Case Study 5: D.C. United Stadium
Project at a Glance
• First new construction C-PACE project in D.C.
• Largest C-PACE project in the United States
• 20,000-seat Audi Field
• Created opportunity for unique building-integrated solar system and LEED Gold certification
• Significant job creation and energy savings benefits to District
52
Case Study 5: D.C. United Stadium
Highlights
• Integrated solar panels on building canopy
• High-efficiency HVAC
• Low-water fixtures
• Storm water management to benefit Anacostia River
Challenges
• Involved late in the master transaction
• Complex capital stack
• Educating project financing counterparties on C-PACE
Economics
Total C-PACE Assessment $25 million
Assessment Term 20 years
Annual Estimated Energy Savings 25%
53
Conclusion
• Beneficial Financing Alternative to Traditional Financing
• C-PACE Law, Program Structure, and Documents Different in Every State and Locality
• Continually Evolving C-PACE Landscape
54
C-PACE Resources
• PACENation (www.pacenation.us)
• C-PACE Alliance (www.c-pacealliance.com)
• Virginia PACE Authority (www.virginiapace.com)
55
Carrie H. O’Malley540.604.2109
QUESTIONS
Kristen E. Burgers703.584.8364
56
