Post written by Rob Shear, CEO of PACE Sage Capital, LLC
Did you know we can retroactively finance energy projects up to 3 years after completion (we are considering up to 5 years)? This feature of PACE and IDEAL™ (IDEAL™ is for Kansas and Oklahoma) financing is unprecedented.
When we tell developers and property owners about Retroactivity, we usually hear “You’re kidding me?!” PACE and IDEAL™ are meant to finance energy efficiency which is what State PACE laws typically say is the good public purpose for the law.
Because PACE and IDEAL™ are relatively new, many commercial property owners didn’t have access to or weren’t informed about PACE or IDEAL™ when they did their project. Retroactivity solves that for them.
For PACE financing, the reimbursed costs (hard and soft) are Energy Conservation Measures, i.e. any measure that was installed and creates energy cost savings (and related maintenance and operating cost savings) in Missouri, or energy and water cost savings (and related maintenance and operating cost savings) in the other PACE enabled states where we currently operate, Nebraska and Arkansas.
For IDEAL™ financing in Kansas and Oklahoma, it’s any cost that is authorized by a Municipality (and approved by us for funding) under a new or amended Community Improvement District (Kansas) or Improvement District (Oklahoma) for a specific project. Our approved costs are mostly Energy Conservation Measures with some exceptions on a project by project basis.
These measures and costs are for long useful life (15 to 30 years) energy efficiency items that have much of their useful life remaining when PACE or IDEAL™ funds are obtained retroactively.
What does this mean?
It means that funds can be withdrawn from commercial properties post completion on a non recourse, long term and fixed rate basis and used elsewhere for a myriad of reasons. Some of these prudent reasons are:
- Raise equity for other projects and to diversify risk;
- Withdraw cash from existing properties to repay equity investors;
- PACE and IDEAL™ are pass-through financing tools. If a commercial property owner obtains a PACE or IDEAL™ financing post completion, they have a way to pass-through some or all of the costs of the completed energy project to their tenants who are receiving some of the benefit of the reduced energy cost. This solves the split incentive of a landlord paying for energy efficiency measures that benefit the tenants but the landlord cannot recover any of the costs;
- When PACE or IDEAL™ are passed through to tenants or hotel guests, some or all of the PACE or IDEAL™ net financing proceeds can be used to reduce existing senior debt and to lower the overall debt service of the property;
- If the business in an owner occupied building used cash generated by the business to upgrade its building, the business can use PACE or IDEAL™ funds to put the cash back in the business where it can earn a higher return;
- Some of the PACE or IDEAL™ funds can be used to create a reserve account that will pay for unexpected expenses and vacancy costs, re-leasing costs and future capital costs.
This blog post is meant to inform commercial property owners of the Retroactivity option with PACE and IDEAL™. If this sounds like a good solution today for any of your properties, contact PACE Sage Capital at firstname.lastname@example.org or call 913-667-0971 to further explore the cost-benefit of this retroactive solution.