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Rich Chien LEED APDepartment of the EnvironmentCity and County of San [email protected](415) 355-3761
San Francisco Tax Lien Financing Program for Commercial Building Clean Energy Upgrades
2010 SF Citywide CO2e Emissions by Sector
*preliminary
Source CO2e (MT)Cars & Trucks 2,116,126 Commercial Electricity* 861,559 Residential Natural Gas 777,114 Commercial Natural Gas 605,381 Residential Electricity* 358,033 Waste 244,625 Municipal Electricity* 216,548 Municipal Natural Gas 119,843 Rail (BART & Caltrain) 89,530 Ferry 34,103 MUNI 25,650 Total: 5,448,513
Residential Electricity6.6%
Residential Natural Gas14.3%
Commercial Electricity15.8%
Commercial Natural Gas11.1%
Municipal Electricity4.0%
Municipal Natural Gas2.2%
Cars & Trucks38.8%
MUNI Buses & Rail0.5%
Rail (BART & Caltrain)1.6%
Ferry0.6%
Waste4.5%
5.4 million metric tons (12% below 1990)
~27% of total emissions
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GreenFinanceSF – Overview• Property Assessed Clean Energy (PACE) Program
– Extension of traditional municipal land-secured financing (example: burying utility lines)
• Financing secured by lien/assessment on property• Paid off via property taxes
• Under PACE framework, GreenFinanceSF can provide secure project financing for energy efficiency, renewable energy & water conservation projects for existing privately owned buildings
• 26 U.S. states now have specific enabling legislation
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Repaid on Tax Bill
Upfront Capital
• Creates financing district & approval process
• Attaches repayment obligation to the building via property taxes
• Private investors provide upfront capital
• Identifies work & chooses contractor• Repays financing as a line item on the
property tax bill (up to 20 years)• Repayment obligation transfers with
ownership
Government Sponsor Property Owner
PACE Financing Basics
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Why PACE• Collateral is property not owner credit• Up to 100% upfront financing• Preserve capital for core business investments• Long term – up to 20 years• Lower rates than other available products • Tax lien structure can mean minimal covenants• Obligation stays with property in event of sale• Improvement costs & benefits align under most lease
structures (e.g. property tax pass-through)• Long financing term + moderate interest rates = cash flow
positive energy improvements5
Open Market PACE Features• Flexible (not one size fits all)• Bonds purchased by Qualified Institutional Buyers, or Accredited
Investors, as defined by SEC (“PACE Lenders”)• Each building/project consists of an individual “improvement area,” backed by
single privately-placed special tax bond
• Tenor: negotiated• Maximum term determined by program• Shorter of equipment working life or 20 years
• Rate: negotiated• Illiquid nature of PACE securities mean rates in the 6-9% range
• Fees• Program fees listed• PACE Lender fees negotiated
• Project specific underwriting criteria: vary widely by lender and by project6
Property Eligibility• Program underwriting requirements
– Property located in City/County of San Francisco– Equipment/materials permanently affixed to property– Currently pay (or be eligible to pay) property taxes– Lien holder consent/acknowledgement– Current on mortgage debt and property taxes– No recent defaults, bankruptcies or late property taxes– Property can’t currently be “underwater” on debt
• Using currently assessed OR recently appraised value of property
– Title search to confirm eligibility and ownership
• Project investor may have additional underwriting requirements
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Project Eligibility• Common and custom EE, RE, WC measures*• Professional energy audit• RE projects to be paired with EE
– Reduce energy use 10% as a condition for financing RE
• No effect on ability to take advantage of applicable incentive/rebate programs
• Use of ENERGY STAR Portfolio Manager– Free service to track and benchmark energy usage– Comply with Existing Commercial Buildings Energy Performance Ordinance
*EE=Energy Efficiency, RE=Renewable Energy, WC=Water Conservation8
Will depend on investor, owner, and project. Typically quoted as a "spread" on index, i.e. 20-year Treasury
Value = Net Operating Income / Capitalization Rate
Assuming a capitalization rate of 7.5%, the excess savings translates into a value increase of $533,000 without coming out of pocket for the cost of the upgrade. While these numbers do mirror those of actual projects, this example is provided for illustrative purposes only. Actual savings, rates and terms will vary.
Project Cost $1,000,000
Interest Rate 7%
Term 15 years
Annual Payment $110,000
Annual Energy Savings $150,000
Cash Flow Savings $40,000
VALUE INCREASE $533,000
Example Project Economics Scenario
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350,000 sq. ft. multi-tenant commercial office~$3.00/sq. ft. retrofit cost (after rebates), includes:
– New cool roofing, insulation, window film– HVAC (new chiller, VFD’s, motors, pumps)– Lighting and lighting controls– Toilets, urinals, faucets
Rich Chien [email protected]
(415) 355-3761
Simón [email protected]
(510) 451-7906
(415) 937-7223
Thank You!
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