Property Assessed Clean Energy (“PACE”) has been maturing into a distinct asset class over the last decade. Foley has been involved in PACE since its early days, from highlighting the three early models program developers used to raise capital and build programs to helping the City of Milwaukee build out its own to helping develop Wisconsin’s statewide PACE program PACE Wisconsin. More recently, Foley helped the Illinois Finance Authority develop and implement a statewide approach to PACE financings and refinancings that has been deployed in the City of Chicago as well as rural Illinois. Foley maintains a regular practice representing PACE capital providers, program administrators and local governments to get PACE deals done.
Before taking a look at some of the ways the market has used PACE over the last few years, here’s a synopsis of just what exactly PACE is.
PACE is real estate, construction and project financing secured by a special assessment (or special charge in some jurisdictions, such as Wisconsin) that is imposed by a local unit of government. The funds must be used for improvements that increase the building’s energy or water efficiency, or that generate renewable energy (or, in the case of California, mitigate seismic impacts). The source of funds is typically a private capital provider, though governments may also make PACE financings. In most cases, the PACE borrower repays the financing through its tax bill, though in Wisconsin and some other jurisdictions, the capital provider is permitted to arrange repayment outside of the tax collection process while the PACE financing is performing.
PACE programs typically require that the term of the financing extend to the useful life of the equipment being financed, which in the case of a new roof, boiler, or solar panels, can reach 20 years or beyond. Furthermore, the financing usually must be cash-flow positive for the borrower, meaning that the amount of utility bill savings achieved by the borrower due to the improvements must be greater than the debt service paid on the PACE financing. PACE financings are underwritten against the benefitted property, usually non-recourse to the property owner’s personal assets and transferrable to subsequent owners of the same property. Ultimately, if a PACE financing is paid in full, the PACE lien is released. Delinquent PACE financings can trigger the tax foreclosure process.
As the PACE has matured, market participants have found numerous and diverse applications for PACE financing including the following. (This post focuses on commercial PACE applications.)
In addition to the evolving number of applications for PACE, the number of PACE markets is growing around the country. Thirty-four states and the District of Columbia have legislation in place that make it possible for municipalities and counties to form PACE programs. From that group, 24 states and the District of Columbia currently host active programs. Foley has experience working in many of these PACE markets, and is available to assist in PACE financings of all varieties for all participants in the PACE market.