New Opportunities in Property Assessed Clean Energy (PACE) financing

November 17, 2016

2016 Governor's Housing Conference

•  Overview of Commercial PACE

•  C-PACE in Virginia

•  PACE in Play: Case Studies

Agenda

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Background: Abacus Property Solutions

•  Independent real estate advisory firm, developing and financing energy solutions in commercial buildings.

•  Provides PACE project development and consulting on national basis.

•  Works closely with capital partners to identify PACE opportunities and develop PACE programs.

•  Key stakeholder in amending 2015 PACE legislation and developing underwriting guidelines.

•  New origination platform, Atlantic PACE, created to drive demand and consistency.

Overview of Commercial PACE

Fundamentals of C-PACE

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•  Innovative way to pay for energy efficiency, renewable energy and water efficiency upgrades for commercial, multifamily and non-profit properties.

•  Owners receive 100% project funding and pay it back as a line item on their property tax bill.

•  Lien is senior to existing mortgage and typically equal status to property taxes.

•  PACE assessment runs with the land so it transfers upon sale and does not accelerate.

•  Owners receive funding principally through private capital providers.

•  Set up by a locality and managed typically by third party contractor.

Eligible Improvements

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Where is PACE ?

7 Source: PACENation

PACE Structure

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3 Primary Parties Involved: 1.  PACE Lender 2.  Property Owner 3.  Taxing Authority (or program administrator)

Assessment Pmts.

PACE Lender

Property Owner Taxing Authority / Program Admin

PACE Financing

Approve Project

Assessment Pmts.

What if you could build this?

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Or this?

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Instead of replacing this?

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Property Owners: Benefits

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No Money Out of Pocket: 100% financing + soft costs

Immediate Savings: Cash-flow positive on day one

Capital Budget: Paid with operating savings

Longer Term (20 + Yr.): Lower annual payments

Comprehensive Financing: Fills Capital Gaps

Replaces Equity or “Mezz” Debt: Frees Up Cash

Non recourse: Limits owner personal liability

Contractors: Benefits

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•  Increase sales volume, improve profit margin

•  Add staff, partner with other aligned companies like energy engineers

•  Help customers reduce costs and improve value of their properties, allowing them to spend more money on even more building improvements

Local Governments: Benefits

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•  Local business owners with critical capital improvements to their buildings – tangible retention strategy

•  Creates local employment opportunities for G.C.s, trades, engineers, vendors, etc.

•  Cap Ex improvements makes “tired” buildings more marketable

•  More marketable buildings leads to better tenant retention

•  Increased property values & construction fees yield more revenues for jurisdictions

•  3rd party administrator carries cost of starting and running program

C-PACE in Virginia

C-PACE in Virginia

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•  Law originally enacted in 2009 and amended in 2015 to make C-PACE attractive to investors (lien priority)

•  Law went into effect July 1, 2015 •  DMME provided uniform financial underwriting

voluntary guidelines, released December 2015 •  Active programs expected in 2017 including Arlington

County and potentially other interested localities including other Northern Virginia counties, Norfolk, Richmond, smaller localities (Roanoke, Charlottesville)

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•  Loan secured by a voluntary special assessment lien, equal in priority to real estate taxes and senior in priority to pre-existing mortgages

•  Locality must adopt an ordinance to create a PACE program

C-PACE in Virginia

•  Locality can set up its own program or contract through a third party administrator

•  Both existing buildings and new construction projects eligible under the law

•  C-PACE includes all commercial, industrial, and multifamily residential over 4 units

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What’s coming in 2017? •  Arlington County expected to select program

administrator by year end •  DMME awarded DOE grant to Virginia, DC and

Maryland to drive consistency and cohesion •  Virginia Energy Efficiency Council (VAEEC) awarded private

foundation grant to provide outreach to Norfolk, Charlottesville, and Richmond, and hired Jessica Greene to lead this effort

•  City of Richmond has set up PACE working group to explore implementation in 2017

•  Norfolk Chamber of Commerce promoting PACE in Hampton Roads

•  Abacus providing technical expertise to these cities, DMME and VAEEC

PACE in Play: Case Studies

“Capital Gap” Project

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•  Redevelopment of Historic Building in St. Louis

•  Built in 1920’s as movie theater and office space

•  Conversion of 158,000 sf. to a 150 room hotel with 2 floors of office and retail space.

•  Improvements included roof & insulation upgrades, LED lighting, high efficiency HVAC and low flow plumbing

“Capital Gap” Project: Financials

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•  Eligible for $8,500,000 in PACE

•  Savings-to-Investment Ratio of 1.4

•  20-year term, 6% rate, 1 year of capitalized interest

•  PACE LTV = 16.5%; CLTV = 73%

•  Decreased owner equity by $500,000

•  Financing by Twain Financial Partners

“Bread and Butter” Project

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Owner: 100% fixed rate long term financing Municipality: Prop. value increase, no city funding Contractor: greater deal flow, new financial product Mortgage Holder: prop. value increase, less loan risk Environmental: reduces carbon footprint B

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Project total: ~ $800,000 Term: 20 years Capital Provider: Inland Green Capital Program Admin: Greater Cincinnati PACE Mtg. Lender Consent: Yes O

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Solar panels LED lighting Elevator modernization HVAC upgrades Energy savings: ~37% Electricity savings: $12,000/year

Up

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Thank You! Abigail Johnson, President

415.307.7777

Abacus Property Solutions abby@abacusprop.com

Atlantic PACE abby@atlanticpace.com