Focus PACE on Commercial Property

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Dan Probst - Jones Lang LaSallePosted by:
Dan Probst
Energy and Sustainability Services

Property Assessed Clean Energy (PACE) programs in more than 20 states have hit a roadblock in recent weeks, but energy advocates are determined to regain momentum.

PACE programs allow communities to issue bonds and use the proceeds to finance energy efficiency and alternative energy projects in homes and buildings. The money is repaid by an increased tax assessment on those specific properties. The annual energy savings are greater than the incremental tax. So property owners and tenants win, and cities reduce energy demand and greenhouse gases.

Opposition came from the residential side.  The Federal Housing Finance Authority, which regulates Fannie Mae and Freddie Mac, agreed with the opinion of those organizations that PACE adds risk to mortgages. Fannie and Freddie have said they won’t make loans on homes with a PACE tax burden. Since those two lenders control more than half the home-loan market, cities with PACE programs are taking this threat seriously.

Supporters of PACE are calling on Congress and the President to break the gridlock. Several states have suggested ways to work around the issue. A Colorado senator is preparing to introduce a bill requiring loan agencies to factor energy cost savings into home mortgage underwriting, in the same way that property taxes and insurance are factored in. Whatever the outcome of these efforts, there should be no dispute that PACE programs can move forward with commercial buildings.

If anything, FHFA’s opposition should accelerate the program’s focus on commercial properties, which present the greatest opportunity for energy reduction in cities. PACE solves the difficult issue of how to finance energy retrofits in a way that aligns the cost with the energy benefit. Tenants typically pay both taxes and operating costs. Projects funded by PACE would lower their aggregate cost while helping cities by reducing greenhouse gases and easing peak energy demand.

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