GRESB Greenbuild 2017 PACE Financing

Commercial Property Assessed Clean Energy (C-PACE)

Financing Session:

Strategic Opportunity, Tactical Benefits &

Practical Implementation

November 7, 2017

Keirstin Beck

Principal,

Real estate professionals that bridge the gap between “green” improvements, specialty finance, and profitable investments

Brian McCarter

CEO,

C-PACE Program Administrator in markets nationwide:

CA, CO, CT, OH, OR, RI, UT, VA

Today’s Presenters

3

New way to finance energy efficiency & renewable energy

improvements in CRE retrofits & new construction:

100% financing (no out-of-pocket expense, soft or hard costs)

Long term (up to 25 years)

Lower energy costs

Cash flow positive projects

Combine with utility & tax incentives

No personal guarantees

Payment obligation can transfer upon sale (akin to sewer assessment)

What is C-PACE?

4

C-PACE is designed as an “open source funding model”

Pre-qualified private capital providers fund eligible projects

Owner may choose a preferred capital provider; OR

Program Administrator can review pre-approved projects with pre-

qualified capital providers to determine funding interest

C-PACE requires owners to receive consent of their mortgage holder

(C-PACE assessment lien is a priority lien akin to sewer assessment)

What is C-PACE? (Cont.)

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C-PACE available in 19 states; ~$500 million in projects to-date

C-PACE Market Nationwide

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C-PACE is a voluntary special assessment-based, private financing program

Building owners choose to install eligible improvements

Costs are spread over periods up to 25 years

Repayment via a new “Special Assessment” bill from the local government

Goal: energy savings $$ > the payments; Creating cash flow positive projects

Finance payments can potentially be passed-through to tenants in NNN lease

The repayment obligation and can transfer to the new owner upon sale

How C-PACE Works?

7

Eligible Property Types (C&I)

Office

Retail

Hotel

Industrial

Healthcare

Non-profit

Multifamily (5+ units)

What’s Eligible?

Eligible Improvements (examples)

Automated building controls

Boilers, chillers & furnaces

Building envelope (insulation, windows)

Combined heat & power (CHP)

High efficiency lighting

Hot water heating systems

HVAC upgrades, VRF installs, controls

Solar PV systems, incl. roof upgrades

Pumps, motors, drives

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Owners can tap C-PACE financing to:

Replace aging energy-consuming equipment & install solar PV systems

Fund capital intensive building modernization projects that:

Require NO owner out-of-pocket expense

Generate IMMEDIATE positive cash flow

Solve for short-term payback & fix-at-failure challenges

Existing Building Retrofit Benefits

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Developers can tap C-PACE financing to:

Construct more efficient buildings, i.e. lower operating costs

Increase tenant comfort

Include improvements often “value engineered” out of a project

Potential benefits to developer:

Reduce owner equity contribution or other high-cost capital

No personal guarantees required

No impact on working capital or developer’s credit

New Construction Project Benefits

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Leverage energy savings to pay for necessary capital improvements

Redirecting existing asset costs from utility payments to C-PACE

payments to improve underlying asset

Accelerate company sustainability goals with improved building performance

Reposition underperforming assets with C-PACE by addressing capital

needs

Stabilize balance sheet with additional operation/maintenance savings,

improved building performance and reduction of impact from rising energy

costs

C-PACE for REITs

11

Retail

Case Study – Simon Properties

12© 2017 Integro, LLC

How C-PACE Works…

Office Building1. Needs new Windows (Capital Needs

Item)

2. Install AHU

3. Install upgraded LED lighting

STEP 1: Energy Star Score- Establishes

Baseline

STEP 2: Energy Audit – Analysis of Building

to establish energy savings and costs of

upgrades

STEP 3: Take Energy Savings and Cost to

implement the improvements and establish

the amount of the PACE loan

STEP 4: Source loan provider

STEP 5: Secure 1st Lienholder Consent

STEP 5: Close PACE Loan

STEP 6: Implement improvements

STEP 7: Pay Property Taxes


Denver

Office

Building –

Windows/

Glazing*Colorado PACE does not have a

Savings to Investment Ratio (SIR)

so larger capital improvements

can also be addressed

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Office - Denver8/28/2017 Energy Score 77 After PACE Energy Score 92

Total Square Feet 144,500

Energy Use Current Energy Costs Current Cost $/sf Projected Energy CostsProjected $/sf Projected Savings $ / SF

Gas -$ -$ -$ -$ -$

LED Lighting -$ 66,759.00$ 0.46$

Air Handling Unit - 1 1,350.00$ 0.01$

Controls 5,764.00$ 0.04$

MAU-1 2,597.00$ 0.02$

Garage EF's 480.00$ 0.00$

Roof 1,691.00$ 0.01$

Glazing 1,613.00$ 0.01$

Garage Lighting 468.00$ 0.00$

Saved Lighting Maintenance -$ -$ 20,181.00$

$194,869 $1.34 -$ 100,903.00$ 0.70$

Hard Cost Cost

LED Lighting 438,673.00$

Air Handling Unit - 1 21,936.00$

Controls 55,261.00$

MAU-1 18,600.00$

Garage EF's 1,200.00$

Roof 32,264.00$

Glazing 897,000.00$

Garage Lighting 7,200.00$

Total Hard Cost 1,472,134.00$

Soft Cost Lender Legal 5,000.00$

Program Administrator 38,745.13$

Loan Fee 1% 15,158.79$

Other (MEP design, permits, engagement 57,533.00$

commissioning)

Total Soft Costs 116,975.96$ 0.81$

PACE Loan Total Loan Amount 1,589,109.96$ 11.00$

PACE Term 20

PACE Interest Rate 5.00% ($125,849.07)

Annual Assessor Fee (1,258.49)$

Annual PACE Payment 125,849.07$ 0.87$

Annual Energy Savings 100,903.00$ 0.70$

Assumed Increase to Op Expense 24,946.07$ 0.17$

Assumed Savings/Value

Assumed Xcel Rebate 75,000.00$

Total Hard Cost Improvements 1,472,134.00$

TOTAL VALUE ADDED 1,547,134.00$


Denver

Office

Building

Needs New

Building

Controls –

Neutral NOI

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Office Building

Denver - Energy Score 74 Energy Score After PACE 91

Total Square Feet 97,395 Energy Use Current Energy Costs Current Cost $/sf Projected Energy Costs Projected $/sf Projected Savings $ / SF

Electric 203,555.55$ 2.09 154,891.55$

Air Handling Unit -1 -$ -$ 0.10$ 9,800.00$ 0.10$

Building Controls 0.10$ 9,390.00$ 0.10$

Upgrade LED Lighting 0.20$ 19,444.00$ 0.20$

Lighting Maintenance 0.09$ 8,875.00$ 0.09$

Roof 0.01$ 1,155.00$ 0.01$

Natural Gas 948.00$ 0.01$ 948 -$ -$

Water -$ -$

204,503.55$ 0.01$ 155,839.55$ 0.50$ 48,664.00$ 0.50$

Cost Cost Per Square Foot

Hard Cost Air Handling Unit -1 47,782.00$ 0.49$

Building Controls 159,000.00$ 1.63$

Upgrade LED Lighting 84,056.00$ 0.86$

Roof 188,820.00$ 1.94$

Other -$ -$

Total Hard Cost 479,658.00$ 4.92$

Soft Cost Loan Origination 1% 4,796.58$ 0.05$

Program Administrator 2.50% 11,991.45$ 0.12$

Other (Project development fees, MEP 83,594.00$ 0.86$

Permits, Commissioning, Lender Legal)

Total Soft Costs 100,382.03$ 1.03$

PACE Loan Total Loan Amount 580,040.03$ 5.96$

PACE Term 20

PACE Interest Rate 5.60%

Annual PACE Payment 48,274.24$ 0.50$

Annual Assessors Fee 482.74$ 0.00$

TOTAL PACE LOAN PAYMENT 48,756.98$ 0.50$

Annual Energy Savings 48,664.00$ 0.50$

Assumed Increase to Op Expense (389.76)$ 0.00$

Current Property Taxes Current Assessment 248,310.62$ 2.55$

PACE Assessment 48,756.98$ 0.50$

New Property Taxes 297,067.60$ 3.05$

Assumed Savings/Value

Total Hard Cost Improvements 479,658.00$

Incentives/Rebates 95,423.00$

TOTAL VALUE ADDED 575,081.00$

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Questions & Answers

© EnerNOC, Inc. All rights reserved. www.enernoc.com

November 7, 2017

Navigating the New Energy Economy

17© EnerNOC, Inc. All rights reserved. www.enernoc.com

Click to edit Master title styleEnerNOC is Now an Enel Group Company


Click to edit Master title styleThe Enel Group’s Global Reach


Click to edit Master title styleAssembling Capabilities: Enel’s Acquisitions in 2017

January

2017

August

2017

October

2017


Click to edit Master title style

Source: The Economics of Grid Defection, The Rocky Mountain Institute, 2014

Confluence of Challenges Facing Energy Providers


Source: Commercial and Industrial Energy as a Service Applications and Deployment Models: Global Market Analysis

and Forecasts | Navigant Research, 2017

“To operate a decentralized

grid and otherwise adapt to

these changes, utilities

must open new channels

of interaction with

customers that want to

install DER and intelligent

controls, participate in DR

programs and join new

markets, and generally flex

their power of choice.”

– Navigant Research

Transforming the Business Case

C&I businesses are looking to capitalize in this new environment


Source: Clean Disruption of Energy and Transportation, Tony Seba, 2014

When a market disruption occurs…

It leverages new technologies

It eliminates efficiencies

It is inevitable

“The age of film photography did not end because we ran

out of film.” – Tony Seba, 2014

A Familiar Opportunity

Where have we seen this before?


Challenges

Fragmented suppliers

Financing capital projects

Volatile energy prices

Maintaining productivity

Opportunities

Investor demand

Sustainability pressure

Creating value from assets

Improving resiliency

Ample Opportunity, Complex Challenges


Assembling energy

expertise and

technological

capabilities

Leveraging Enel

Group’s extensive

global resources

Connecting C&I

businesses to new

energy opportunities

Enabling Customers to Create Value and deliver outcomes

Partnering with our customers to provide energy management as a service “EaaS”


What: Networking, drinks, snacks

Where: Row 34, 383 Congress Street, Boston, MA 02210

When: 6 pm

Join us Tonight: Greenbuild Kickoff Happy Hour

© EnerNOC, Inc. All rights reserved. www.enernoc.com

Regional Sales Manager

EnerNOC

[email protected]

Kevin McSweeney

Real Estate

GRESB Greenbuild 2017 PACE Financing