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Overcoming Up-Front Cost Barriers to Efficiency via PACE Financing for Commercial Real Estate

Written by: Joseph Werner

Although utilities commonly offer incentives and rebates to significantly ease the implementation process of energy efficient projects in commercial buildings, large up-front costs can still be a pervasive barrier. Waypoint Energy’s work with utility programs such as Connect encounters this barrier all too frequently. Luckily, several solutions exist to mitigate this financial obstacle, one of which is PACE financing.

Property-Assessed Clean Energy (PACE) financing is a unique, off-balance financing option for building owners who are considering implementing clean energy projects. In addition to financing energy efficiency projects, PACE funds can also be used toward renewable energy projects, such as installing solar panels, and water conservation building upgrades. PACE is still a fairly new financing concept, and is picking up traction all over the United States especially within the commercial building sector: C-PACE. C-PACE, or Commercial Property-Assessed Clean Energy, is the subsect of PACE that deals with commercial properties and is the most common use of the PACE financing opportunity.

Commercial properties are prime for leveraging PACE financing for capital projects. Through PACE, local and state governments can fund 100% of the up-front costs of building upgrades.  Building owners and tenants have the opportunity to completely avoid the steep initial costs of these projects, and instead, owners pay back these costs through their property tax bills over a period of 5 to 20 years. Owners can utilize their energy savings from their new projects to pay back the investment each month. Once the value of the investment is covered, owners are free to capture their utility savings entirely.

Unlike traditional loans from a bank, PACE financing does not incur debt on behalf of the property owner, and therefore the balance sheet and credit level are not altered. Moreover, owners are not subject to interest on this financing. This is because the financing process is categorized as a “debt of property” meaning the debt from the investment is tied to the property, not the owner. For example, if a commercial property owner installs a new, high-efficiency HVAC system via C-PACE financing and decides to sell the property before the investment is paid back in full, the monthly charges stay with the property and transfer to the new owner. This eliminates the disincentive to implement projects if the owners don’t plan to hold a building long enough to experience savings that cover the project costs and obtain a full return on the investment.

As PACE financing continues to be adopted by more and more local governments as a method of increasing energy efficiency, more and more commercial buildings will elect to participate; it truly is a low-risk practice that brings about substantial benefits both financially and environmentally. If your commercial real estate firm is looking to implement clean energy measures but doesn’t have the capital available to do so, consider working with Waypoint Energy to further explore PACE financing for the project.


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