A multifamily building at 400 M Street in southeast Washington, D.C. recently financed various energy-related improvements with a new commercial financing approach that does not increase the building owner’s debt, the D.C. Department of Environment announced yesterday.
It was “the nation’s first PACE-financed affordable housing endeavor,” said D.C. Housing Authority Executive Director Adrianne Todman in a prepared statement released by the Department of Environment. It was also the first completed PACE financing for the D.C. PACE program, the statement said.
PACE stands for Property Assessed Clean Energy. Under a PACE program, the homeowner or business gets the up-front use of money – a loan – to finance energy-related retrofits and pays the loan back through a special tax assessment.
D.C. enacted the Energy Efficiency Financing Act in 2010, which provides D.C. Pace Commercial with authority to operate the D.C. program. D.C. officially launched its commercial PACE program in April of 2012.
The D.C. program is part of broader trend toward new financing approaches for commercial energy-efficiency projects. PACE represents one of a handful of new financing methods available.
Residential PACE programs ran into problems during the 2010 housing market crash when the Federal Housing Finance Agency, the federal agency that oversees key parts of the secondary mortgage market, raised concerns about the seniority of residential-PACE property liens. But commercial PACE programs are now starting to spread across the country.
As of February 2013, 26 states and D.C. had PACE-enabling legislation in place with PACE programs active or on the verge of becoming active in seven of them, according to a February 2013 paper from the Institute for Building Efficiency, a collaborative effort led by Johnson Controls.
PACE relies on city involvement to help people or businesses obtain money for energy improvements. The money can come from city bond issues or private lenders selected by the PACE program under differing approaches.
The PACE repayment obligation can extend up to 20 years and attaches to the property by a special surcharge added to the real estate tax bill. A 20-year amortization is far longer than the more common one to 10 year amortizations of private commercial debt, according to the Institute for Building Efficiency paper.
“DC PACE Commercial gave the owners of 400 M Street SE…a great way to finance energy efficiency improvements, including solar power, LED lighting, and water conservation for our residents,” said David Levey, Executive Vice President of Forest City Residential Group, a nationally-known real estate company and one of the owners of the M Street property.
Improvements to the 400 M Street property include lighting, low-flow water fixtures and a 37-kilowatt rooftop solar array, expected to provide over $40,000 in annual benefits from avoided costs and tax credits, according to a prepared statement of the D.C. Department of Environment.
“With the help of PACE financing, we are cutting our energy usage by 15% and will realize substantial saving on our energy bills each year. These same measures are also cutting our carbon footprint and protecting the District’s natural environment. PACE is a big win for our tenants, the owners and for Washington, D.C.,” Levey said.