Multifamily can Pick up the PACE for Improving Energy Efficiency
The greening of America comes at a price. The cost to make buildings – commercial or multifamily – and homes more energy efficient can be steep and payback feel like forever.
Energizing Energy Efficiency
Fannie Mae recently announced a program to give discounts on interest rates for financing multifamily projects if buildings are energy-certified. And a once bruised energy financing program that rolled out in 2008 is making the rounds again.
At the Crittenden Conference in Fort Worth, Texas, recently, panelists talked up the Property Assessed Clean Energy (PACE) program which offers energy and utility upgrade financing through private lenders. Moderator Glenn Adams of AEI Consultants said the program is gaining momentum and presents a viable option for multifamily operators to boost energy and utility efficiency without huge capital outlays.
The program, which went through a rough patch a few years ago, no longer limits participation to only clean energy initiatives and provides financing to pay for energy efficiency, renewable energy and water conservation upgrades to buildings. That includes new heating and cooling systems, lighting improvements, solar panels, water pumps and insulation for homes, commercial and industrial buildings. The program even applies to non-profits and agricultural applications.
Loans, which can be made for as many as 20 years, are repaid through tax assessments. There are no upfront costs and loans transfer when the property is sold, according to PACE.
PACE getting new traction with help from California
A number of state and local governments sponsor PACE financing, which is drawn from a network of funders that include the Energy Foundation, the Rockefeller Brothers Fund, the Kresge Foundation, and the Tilia Fund, as well as from grants and contributions from private individuals. Adams, who is national director of energy services for AEI Consultants, says a PACE loan may make more sense for major upgrades, especially for a property that is cash poor and needs an energy or utility overhaul.
“It’s going to be a little more expensive because the energy upgrades are a little bit more expensive, but not that much,” he said. “The biggest advantage outside of reducing capital expense is the reduction in operating expenses. The money you save on your utility bills will pay for that loan.”
PACE was created about seven years ago as a way for homeowners and commercial building operators to make upgrades in renewable energy, like solar panels, and reduce utility costs.
Before nearly coming to a halt, PACE financing began getting new traction last year after California re-instated it as part of its CaliforniaFIRST program aimed helping homeowners with energy upgrades. Recently, the Bay Area Regional Energy Network announced that C-PACE is available to all commercial, multifamily and non-profit building owners in San Francisco and Oakland, as well as eight adjacent counties in the North and South Bay Area.
High savings-to-investment ratio will help pay for upgrades
While PACE is attracting more attention, Adams said multifamily housing hasn’t been onboard just yet with the program. But he and panelists who oversee energy programs at some of the country’s top apartment management firms are looking into the program.
They agreed that benchmarking of energy and utility spends is a critical first step to determining where a potential upgrade may be necessary.
Adams said it’s important to work with a service provider to identify energy and water conservation measures that will improve a property. Along the way, the property has to arrive at a savings-to-investment ratio that will justify the upgrades to lenders. The goal is to pay for the loan with the utility savings from the upgrades.
“Theoretically the savings-to-investment ratio is high, which means you can actually pay for these capital improvements to the property with the energy savings. Lenders look at that when they are approving the loan,” he said. “They look at your savings-to-investment ratios and your paybacks so they can determine if it’s a good fit.”
One PACE case study documents a multifamily community that used the financing program. An affordable housing project in Washington D.C., secured a $340,000 PACE assessment over 10 years and is yielding $41,000 in benefits each year from solar, lighting, water conservation, and other energy efficiency upgrades.
‘If you model it, measure it and verify it, then you can be successful’
Adams said it’s going to take some time for PACE to spread its wealth in the multifamily industry, which has been traditionally slow to adopt new things. But the opportunity for sustainability measures continues to grow, especially as municipalities get tougher on energy and utility standards.
“We know that as we move forward and all these municipalities are trying to meet their emission goals, there are going to be more standards,” Adams said. “The biggest factor would be in the money savings.” So long as the savings are proven. It’s difficult, Adams says, to get someone to put that capital up front even when they know they’re going to get it back.
“It’s just hard to let go. It’s hard to change habits,” he said. “When you look at something on paper, it’s really good. All of these energy savings and renewable projects look really good, but there have been hiccups in the past. There have been issues. They haven’t performed as well as predicted. But if you model it, measure it and verify it, then you can be successful.”
(Image Source: Shutterstock)