Keeping-PACE-in-Texas

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Keeping-PACE-in-Texas
Keeping PACE in Texas
Texas Housing Conference
July 28-30, 2014
Hilton Hotel
Austin, TX
Presenters:
John Fleming, Texas Mortgage Bankers Assoc.
Tom Gouris, TDHCA
Steve Minick, Texas Assoc. of Business
David Robins, Thompson & Knight
Moderator:
David Mark Koogler, Mark-Dana Corporation
Texas Housing Conference
July 2014
Creating Economy
With Water and Energy Retrofits
to Commercial and Industrial Property
Charlene Heydinger
[email protected]
www.KeepingPACEinTexas.org
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Steve Minick
[email protected]
www.TXBiz.org
PACE in a Box
• SB 385, Sen. John Carona and Rep. Jim Keffer
• The coalition:
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County Judges and Commissioners Association of Texas
Independent Bankers Association of Texas
South-central Partnership for Energy Efficiency as a Resource
Texas Association of Business
Texas Association of Counties
Texas Bankers Association
Texas Building Owners and Managers Association
Texas Combined Heat and Power Initiative
Texas Manufactures Association
Texas Municipal League
Texas Renewable Energy Industry Association
US Business Council for Sustainable Development
US Green Building Council
Dozens of other organizations and companies
Energy in Texas Today
● Texas leads the nation in energy consumption,
accounting for 12% of the nation’s energy use and is
the fifth largest energy consumer in the world
● Demand for electricity has increased 20% since 2000
U.S. v. Texas Energy
Consumption
U.S.
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Texas
Think Industrial: Texas vs. Nationwide
Energy Consumption By Industry
Texas
19%
Remainder of U.S.
81%
Texas’ industrial sector is a huge, untapped market
for energy saving retrofits.
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Texas Drought Impact
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Texas’ Projected Water Demands
and Existing Supplies
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Projected Texas Population
“More than 1,000 people…move to Texas every day.” Gov. Rick Perry, 12/29/2012.
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STOP: talking about the problem.
START: talking about the solution!
● Texas Leadership is investing in water and power
infrastructure – Water, Energy, Roads
● Investing in Building infrastructure – part IV of the
solution
● By far the cheapest and most affordable supply we
find will be the existing supply we can reallocate
because of conservation
● Old approaches called for mandates or tax and
incentive policies that distorted the market and
reduced revenues to local governments
● New approach…
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SB 385 - PACE Offers Solutions
Barriers
Scarce internal capital budget
No access to, aversion to financing
• No investment-grade credit
rating
• Lack of collateral assets that
don’t fall under first mortgage
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PACE Solutions
No down payment and costs
spread over time w/ savings
• Repayment security through
senior lien position
• Backed by property, not by
owner or equipment collateral
Uncertain holding period
PACE obligation transfers to the
new owner upon sale
Owner / tenant split incentives
Qualifies as NNN pass-thru cost
Skepticism savings/ROI will be
realized
ESCO/contractor guarantees or
third party insures performance
Example: Retrofit Bid for 5-Star Hotel
ECM Description
Annual Dollar Savings
Electric
Gas
Water
O&M
Total
Project
Cost
Payback
$5,000
$10,000
$720,000
72.0
$5,000
$7,000
2.5
Replace two 350 ton Chillers
$5,000
Add Cooling Tower Isolation
Valves
$5,000
BAS for Central Plant
$1,000
$4,000
$5,000
$65,000
10.8
$15,500
$4,000
$19,500
$97,500
5.0
$750
$3,000
$3,750
$50,000
13.3
$31,000
$255,000
8.2
$20,000
$80,000
4.0
Convert penthouse DX
systems to CHW
VFDs on 4 AHUs Economizer
Water Conservation Retrofits
Convert PIB/VAV boxes to
EMCS Control
Add DC Controls to AHUs in
Penthouse
Lighting Retrofits
BAS Night Setback for Meeting
Rooms
Totals
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$1,000
$5,000
$25,000
$20,000
$3,000
$1,500
$4,500
$60,000
13.3
$92,000
$1,500
$93,500
$221,000
2.9
$4,000
$230,250
$4,000
$5,000
$25,000
$20,500
$280,750
0.0
$1,806,000
6.4
PACE in a Box
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Timeline
Legislation
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• June 19, 2013 Gov. Rick Perry signed
legislation allowing PACE Programs
Design Phase
• May 2014, Collaboration completes “PACE
in a Box” resources
• http://www.keepingpaceintexas.org/pacein-a-box/
Implementation
• 2014 - “PACE in a Box” resources available
and cities and counties can begin steps to
implement a PACE program
Status of PACE in Texas
“PACE in a Box” is a toolkit of recommendations and
templates for counties and municipalities to:
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►
Create viable, cost effective, user friendly, scalable, and
sustainable PACE programs
►
Encourage and support local discussions about forming
regional or multi-jurisdictional programs
PACE in a Box Working Groups
Program Underwriting
• Building Owner
Qualifications
• Building Qualifications
• Project Qualifications
• Savings to Investment
Ratio
Program Design
• Templates for Municipal
Resolution
• Application Process
• Collection Process
• Overview / Flow Chart
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Technical Standards
• Energy Saving M&V
• Water Savings M&V
• Third Party Review
• M&V Resources
Funding Platform
• Responsible Loan
Making
• Attracting Capital
• Bonding
Education and Training
• Education to
Municipalities
• Marketing Campaign
to Building Owners,
Lenders, and
Contractors
• M&V training
Regional PACE is best for Texas
1,200 Municipalities
254 Counties
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24 Regional Councils of
Government
PACE is a Win-Win-Win
● Property Owners – lower utility bills, energy independence (CHP)
energy efficiency, property value increase
● Contractors – source of increase in business, more local hiring,
best practices, keeping up with technology advancements
● Lenders – new loans, steady & stable process, fully
collateralized, 1st lien position, improved asset value
● State of Texas – reduced peak demand, improved grid loading,
renewables as source, improved air quality, better water
conservation
● Communities – increased economic development and jobs,
improved building infrastructure, more appealing building stock
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[email protected]
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WHY PACE?
● Need for long term financing of energy and water
saving projects for businesses and other nongovernmental entities
● PACE Act Passed June 2013
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PACE Project Underwriting and Technical
Standards
● Eligible Properties – Existing Improvements
►
Privately owned commercial real property - including not for profit
real property such as private schools, medical facilities, churches,
etc.;
►
Privately owned industrial real property - including privately owned
agricultural real property; or
►
Privately owned residential real property with five or more dwelling
units.
● Properties that are statutorily ineligible for PACE
assessments include:
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►
Undeveloped lots or lots undergoing development at the time of
the assessment; and
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Government owned real property.
PACE Project Underwriting and Technical
Standards
● Eligible Property Owners
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►
Legal property owner;
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Current on mortgage and tax payments;
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Not insolvent or bankrupt;
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Holds a title to the property to be subject to a PACE assessment
that is not in dispute; and
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Has consent of any preexisting mortgagee to the proposed PACE
assessment through a written contract.
PACE Project Underwriting and Technical
Standards
● PACE in a Box Checklist Adds:
►
Ad valorem taxes not delinquent in the previous three years.
►
Property owner is in good financial standing:
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No bankruptcy in the previous 5 years
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No outstanding final judgment.
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Not had any property sold at foreclosure in the previous 5 years
−
Good standing with the Secretary of State of Texas
−
Good standing with the Texas Comptroller of Public Accounts
● Current credit report
● Current title report and property not subject to mechanics
liens.
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PACE Project Underwriting and Technical
Standards
● Eligible Projects
►
Permanently fixed to the real property
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Demonstrated capacity to decrease –
− Water consumption or demand; and/or
− Energy consumption or demand; and
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Useful life that exceeds the term of the PACE financing.
● Ineligible Improvements – Improvements that are
not permanently fixed - For example, screw-in
fluorescent light bulbs removable low-flow
showerheads and faucet aerators.
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PACE Project Underwriting and Technical
Standards
● Length of Assessment term
● Useful life must be longer than the assessment
term.
● Savings to Investment Ratio
►
Projected savings must be greater than the cost of the
PACE assessment over the life of the assessment (i.e., the
SIR should be greater than one).
● PACE Assessment Cost to Assessed Building
Value Ratio
►
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PACE assessment cannot exceed twenty percent (20%) of
the assessed value of the property (Pace in a Box).
PACE Project Underwriting and Technical
Standards
● Eligible Expenses Included in PACE Assessments
►
Statutorily authorized expenses:
− Permit fees
− Inspection fees
− Lender’s fees
− Program application and administrative fees
− Project development and engineering fees
− Third party review fees, including verification fees
− Any other fees or costs that may be incurred by the property
owner incident to the installation, modification, or
improvement on a specific or pro rata basis not to exceed 20%
of the overall project cost
− Less any applicable government or utility provider rebates or
instant manufacturer discounts, or other upfront cost
reductions.
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PACE Project Underwriting and Technical
Standards
● Energy/Water Savings Calculations
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►
Baseline measurement of a property’s existing water and
energy consumption;
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Measure the projected water and energy savings; and
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Verify that the work is operating as intended.
PACE Third Party Lending
● Two sources for financing PACE assessments
secured by a property assessment lien
● Third-party lenders and public financing (bonds).
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PACE Third Party Lending
● Third Party Financing
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PACE Act requires the local government to:
− Develop a model Owner Contract (399.009(a)(2);
− Develop a model Lender Contract (399.009(a)(3; and
− Adopt a plan for ensuring sufficient capital for third-party
financing (399.009.(a)(6)).
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PACE Third Party Lending
● PACE in a Box third-party financing consists of:
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►
Model agreement between the local government and
property owner regarding the qualified project and
imposition of the assessment (the Owner Contract);
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Model Notice of Assessment Lien that will be filed in the
real property records (either as a separate document or
incorporated in the Owner Contract);
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Model participation agreement between the local
government and third-party lender (Lender Contract); and
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Model certificate from the local government to the thirdparty lender certifying that the financing is for a qualified
project and the assessment is authorized under the PACE
Act (either as a separate document or contained in the
Lender Contract.
PACE Third Party Lending
● Note and Credit Agreement - Interest rate, financing
terms, and repayment terms
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Interest may be a fixed rate or a variable rate.
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Term may not exceed the useful life of the Qualified
Improvements.
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No balloon payments.
►
Payments may be monthly, quarterly, semiannual or annual.
►
Delinquent installments incur interest and late penalties in the
same manner as delinquent property taxes (Section 399.014(d))
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Pre payment of PACE assessment financing may not be
prohibited.
● Construction Advances
►
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Resemble the construction loan documents used by commercial
lenders.
PACE Third Party Lending
● Participation Agreement (Lender Contract)
● Without recourse of the PACE loan by the local
government to the third-party lender.
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The participation agreement:
− No modification without the consent of the third-party lender;
− Payments received in trust by the local government (or its
representative) and segregated from the general revenues;
− Timelines for local government (or its representative) to remit
payments to the third-party lender;
− Timelines for enforcement by foreclosure ;
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PACE Third Party Lending
● The PACE Lien
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Notice of Assessment Lien (section 399.013) filed in the
real property:
− Exists from the date on which the notice is recorded until fully
paid;
− Same priority status as a lien for any other ad valorem tax;
− Runs with the land (the unpaid portion transfers to a new
owner upon sale);
− Is not eliminated by foreclosure of a property tax lien; and
− Does not accelerate.
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PACE Third Party Lending
● Existing Mortgage Lender Consent
►
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Existing holder of a mortgage lien must receive at least 30
days advance and must consent before the PACE loan is
made.
PACE Third Party Lending
● Ensuring Sufficient Capital From Third Party Lenders
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In the PACE in a Box model eligible third-party lenders include:
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Any federally insured depository institution such as a bank, savings
bank, savings and loan association, federal or state credit union;
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Any insurance company authorized to conduct business in one or
more states;
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Any publicly traded entity;
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Any private entity that:
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Is an "Accredited Investor" as defined by the Rule 501 of Regulation D of the
Securities Act of 1933.
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Can provide independent certification as to availability of funds.
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The Local Government may consider requiring an entity in this category to
demonstrate the ability to fund an established minimum number of PACE
loans or an aggregate total transaction dollar minimum, such as: such as the
lesser of funding a minimum of five projects or a minimum of $ 5 million over
a three year period.
Resources:
● www.KeepingPACEinTexas.org
● www.PACENow.org
● www.TexasPACEupdate.com
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