United States: PACE Funding Can Create Fundamentally Found Money For Your Buildings
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Do you know about PACE financing? If not, you should know that this can be a simple and effective way to create economic advantage out of your business and non-corporate real estate. It cannot be overstated that PACE financing offers a multitude of benefits to homeowners, financiers and others. There are definitely dollars here.
Here’s the quick background:
First, what is PACE funding?
Property-rated clean energy financing (i.e. PACE financing) allows homeowners to secure private, long-term, fixed-rate, fully amortizable financing for up to 100% of qualifying energy efficient building upgrades. This financing is reimbursed by a contribution to the property tax account. PACE funding must be permitted by law and is currently available in 37 US states as well as Washington DC
PACE financing can be an extremely attractive option for homeowners looking to construct new buildings or renovate their buildings, as PACE offers the ability to fund up to 100% of the material and incidental costs of qualifying improvements at a rate of Fixed interest fully amortized over the useful life of the improvement (typically 20-30 years). Because the PACE loan repayment is done alongside property taxes, a homeowner only needs to make payments a few times a year rather than on a monthly basis like a traditional loan. Additionally, in some jurisdictions, PACE is even available for upgrades that have been recently completed (i.e. they may be funded retroactively). Thus, PACE is one of the best possible ways to free up capital otherwise trapped in certain real estate.
In summary, PACE financing allows an owner / developer to obtain very advantageous financing for the energy improvement of buildings, sometimes even retroactively.
It is important to note that what is considered an “energy efficient building improvement” varies from jurisdiction to jurisdiction at windows, doors, heating systems, cooling systems and insulation – as long as this element makes the building more energy efficient. PACE is designed to be a self-sustaining program, so the theory is that the PACE loan will be amortized by the energy savings the owner receives from the energy efficiency upgrades funded with PACE.
What are the financial conditions for PACE funding?
Although the specifics vary and are tailored to the circumstances of each project as with any loan transaction, most PACE funding is roughly as follows:
- Up to 10% -20% of the value of the property concerned
- Interest rate between 5% and 6%
- Duration about 20-30 years
- Auto-liquidated payments over time
Where can PACE funding be done?
To date, 37 states have adopted PACE funding – here’s a link to the list. If you own a property in these states, depending on your situation, you may be able to put PACE financing on these properties. If your state does not currently have PACE, fear not! Efforts are being made to bring PACE to all fifty states and these efforts can be accelerated if your proposed project warrants it.
Is there an ESG component in PACE financing?
Yes, there are – and a big one too! PACE funding fits perfectly with the great trend towards eco-responsibility that is sweeping through the United States and other countries. Indeed, the main reason PACE exists in the first place is to make it easier – and cheaper – for companies to finance green improvements in order to limit and reduce their carbon footprint. PACE borrowers are mainly do well while doing good.
Is it useful if you are not a real estate company?
Absoutely!!!! If you own real estate, you can benefit significantly from PACE financing.
And this might be even truer if you’re publicly traded, as the long-term, low-cost nature of funding will likely increase your ROIC and other financial metrics, which are appreciated – and rewarded – by equity investors and the steps.
Not to mention that in addition to being good for the environment, energy efficiency upgrades also benefit a homeowner’s bottom line by lowering operating expenses through improved energy efficiency.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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