How PACE Funding Can Help Real Estate Companies Finance ESG and Sustainability Initiatives

Currently, 11% of total global greenhouse gas emissions come from building materials and construction, while 28% come from operating buildings.⁽¹⁾ Therefore, the total greenhouse gas emissions attributed to the construction and operation of real estate account for 39% of the total global greenhouse gas emissions, outweighing both the transportation and industrial industries. The operation and construction of real estate is also responsible for one third of the entire world’s energy consumption.

As a result, governmental policies are being implemented with net zero targets set for new construction by 2030 and all buildings by 2050. With these new policies, real estate companies will look for new funding options to help them meet the upcoming net zero goals.

What is PACE Funding?

One of these options is called Property Assessed Clean Energy, aka PACE. PACE funding is a financing tool that enables building owners to borrow 100% of funding needed upfront to make a property more sustainable, efficient, and resilient. PACE can be used for several projects including implementing energy efficiency, renewable energy, water conservation, and/or resiliency projects. For example, it can be used to upgrade lighting, heating and cooling systems, insulation, motors and/or water pumps, as well as used to install new solar panels and other property technology (“Proptech”). Borrowers then repay PACE through their property tax bill over an extended period that is determined by the borrower and following state regulations. Because PACE financing is repaid through the property tax bill, it mirrors tax code, meaning the loan remains with the property, and therefore:

• The financial obligation is transferable at time of sale
• Is amortized over the lifetime of the improvement (some states allow up to 30 years)
• It cannot be accelerated, meaning even if the owner defaults, they are only accountable for the payment(s) currently due, not the entire loan balance

PACE offers long-term financing terms (10+ years) with lower monthly payments that can enable companies to be cash flow positive from day one and requires zero out of pocket costs. PACE is either funded by private investors or government programs but is only available in specific states with enabling legislations and active programs. It can also be combined with other utility, local and federal incentive programs.

PACE is issued as an assessment to a property’s real estate taxes and, under most commercial leases, the repayment expense can be shared with tenants. It can also increase property value and attract more tenants and/or buyers by making a building more energy efficient.

Unfortunately, PACE legislation is only active in 38 states, and depending on the state, PACE can only be used for either commercial (CPACE), industrial, agricultural, or non-profit. Residential PACE is currently only offered in California, Florida, and Missouri. Additionally, for properties with a mortgage, mortgage lender consent is likely to be required.

To find state specific PACE Programs as well as approved capital providers, please visit PACENation.

1 Source: Global Alliance for Buildings and Construction 2018 Global Status Report: Towards a zero-emission, efficient and resilient buildings and construction sector