PACE Act: Valuable tool for commercial owners
Energy efficiency is on the minds of many commercial real estate owners, as it provides a way to lower energy costs, increase property values, reduce operating expenses, and enhance the comfort of their tenants. However, there are two main obstacles that can prevent owners from making energy improvements to their properties: a lack of capital and the ability to find financing sources.
To overcome these barriers, commercial property owners in Illinois can now utilize Property Assessed Clean Energy (PACE) financing, which provides funding for energy efficiency, water conservation, and renewable energy projects.
PACE is a voluntary energy conservation program that provides up to 100 percent financing for approved energy-efficiency projects. While PACE is a national initiative, programs are established locally and tailored to meet specific regional needs. State legislation must be passed in order to authorize municipalities to create local PACE programs. As of this writing, 37 states have commercial PACE enabling legislation, with programs active in 22 states.
PACE provides competitive long-term financing for energy-efficiency projects, such as installing solar panels, HVAC improvements, roof repairs, updating insulation, and installing LED lighting. This funding is available for a variety of commercial real estate properties including retail, multifamily (five units plus), industrial, office, hospitality, self-storage, affordable housing, student housing, and senior housing.
The PACE financing is secured by an assessment lien on the property, which remains until the financing is repaid. If the commercial real estate property is sold before the PACE assessment is fully paid, the lien stays with the property remaining the responsibility of the new owner, to be repaid through the assessment listed on the real estate tax bill, as savings from the energy-efficiency project continue to benefit the new owner.
There are many benefits of utilizing PACE financing for a property owner. PACE offers up to 100 percent financing; therefore, the owner has no upfront outlay and can reallocate funds previously reserved for energy projects. The energy savings from PACE projects can also increase a property's value and cash flow. In addition, it provides access to energy-efficient technology that may not have been otherwise available to the property owner.
Municipalities also see benefits from PACE in terms of economic development, job creation, increased property values, benefits to the environment, all at zero net costs to the government body.
Awareness of a PACE option for the capital stack, working side-by-side with utility rebates and tax incentives, gives an Architect, General Contractor and/or specialized Service Provider, a value-add client service, allowing for easier client approval on projects, helping meet schedules for industry-mandated and code-required upgrades, as well as enabling the coordination of building systems not otherwise possible, due to financial constraint.
Illinois' PACE law applies only to commercial, not residential properties, and is presently active in DuPage, Kane, and McHenry Counties. The introduction of PACE in Illinois should spur more energy-efficient projects within the commercial real estate market, improve property values, and create jobs in the clean and renewable energy industries.
• Mark Pikus is President of Inland Green Capital, LLC.