The View From Here
by Ric Jackson
March 6th, 2017

PACE Picks Up Momentum, But Challenges Remain

The Property Assessed Clean Energy program, or PACE, has been a hot topic in my blogs over the past nine months. This movement, which has already created 30,000 jobs and saved $5 billion in energy, has the potential to make a big impact on local job creation, economic development and promoting healthy air. And it’s growing, with 19 states having active PACE programs in place at varying levels.

This year’s PACENation Summit, held February 13-15, was indicative of the support PACE is garnering with more than 450 attendees representing 38 states and D.C. and 260 organizations. There is even international interest with attendees from Canada, Spain and Netherlands there to learn more about how programs like this can be applied in their areas and used to drive adoption of Passive House.

Why the Hype?

PACE is essentially a financing program that property owners can use to fund improvement projects with no upfront/out-of-pocket costs. Financing terms extend up to 20 years, allowing owners to do major projects that result in energy savings and other bottom-line improvements that usually surpass the assessment payments. Additionally, the program lowers the cost of doing business and creates jobs in the local workforce.

It’s a win-win for both property owners and local governments. Learn more about the benefits of the program from my earlier blog, “PACE Yields Opportunity for Window Contractors.”

A Behind-the-Scenes View

At PACENation, I had the opportunity to network and struck up an interesting conversation with a finance expert. I asked him what drives a building owner to make improvements for tenants? His response was that the tenants are paying for the improvements through the tax assessment and offsetting that increase with energy savings.

I then asked him how are PACE funds available at such low interest rates? He answered that since the assessment is applied to property taxes it will be the first to be settled in the event of a default or foreclosure, so there is virtually zero risk for lenders.

It was an enlightening conversation and all makes good sense. But, during my time at the summit, I realized that a few challenges do exist and need to be addressed in some way:

  1. All PACE contractors are regarded as a single entity. One shady contractor has the potential to tarnish the reputation for all PACE contractors.
  2. Primary Lender Consent. If the property has a mortgage, the primary lender must approve PACE assessment much like a second mortgage.
  3. Payment Schedules. The final obstacle is the nature of accounting for payments that are made only two times a year and potential delays of payment routing, which first must clear the tax office and then the PACE administrator. Add to this the potential for taxes to be paid a day late, which usually means they are deferred for six months till the next tax payment. All of this has kept big banks out of this market for now.

The View from Here is that this is a powerful financing tool for anyone selling into PACE markets and states. The key is to develop an understanding of how it works since it’s not the same in every tax district. Find out what PACE programs are available in your area.

What’s your View? Email me directly at eric.jackson@quanex.com.

This blog is from Door and Window Market [DWM] magazine's free e-newsletter that covers the latest door and window industry news. Click HERE to sign up—there is no charge. Interested in a deeper dive? Free subscriptions to [DWM] magazine in print or digital format are available. Subscribe at no charge HERE.

Tags:

Leave Comment