Pick up the PACE in Alexandria

Could city’s environment, economy benefit from new financing?

At a meeting hosted by the Sierra Club on May 30, activists, real estate professionals and city staffers discussed a potential new financing option for building improvements. If authorized by city government, it could help make Alexandria’s buildings more environmentally friendly and economically competitive, proponents say.

Commercial Property Assessed Clean Energy (C-PACE) financing is an “innovative way to pay for energy efficiency, renewable energy and water efficiency upgrades,” says Abby Johnson of Abacus Property Solutions, a firm. Eligible buildings include office, retail, hotel, industrial, multifamily residential (five or more units) and nonprofits. Eligible improvements include, among others, upgrades to HVAC systems, boilers, chillers, furnaces, water heating systems, lighting, insulation, windows. Certain adjacent improvements, such as roof improvements to support solar, are also eligible.

“C-PACE financing may unlock projects that otherwise wouldn’t happen, or simply present the owner with a financing scenario they find more appealing,” said Scott Dicke of Sustainable Real Estate Solutions (SRS), a C-PACE program administrator. This is because it offers certain financial advantages over paying in cash or taking out a conventional loan.

C-PACE debt attaches to the building, not the owner. It’s repaid through a special assessment on the property, either directly to the private capital provider, or through the local government as a tax bill addition. So the debt passes to the new owner if the building is sold.

“This can address a key disincentive to investing in energy improvements because many property owners are hesitant … if they think they may not stay in the property long enough for the resulting savings to cover the upfront costs,” according to the Department of Energy.

Additionally, C-PACE is 100-percent-financing, so there are no up-front costs. And the terms are long and repayments relatively low, enabling owners to reap from energy savings right away.

“Since PACE financing terms extend to 20-plus years, it’s possible to undertake deep, comprehensive retrofits that have meaningful energy savings and a significant impact on the bottom line. The annual energy savings for a PACE project usually exceeds the annual assessment payment, so property owners are cash flow positive immediately. That means there are increased dollars that can be spent on other capital projects, budgetary expenses, or business expansion,” according to the C-PACE Alliance, a coalition of firms.

These factors “increase the property value with zero capital outlay,” said Keith Derrington of Recurrent Innovative Solutions, a firm.

He offered the example of a 38-year-old office building in Rockville. With a $1.8 million C-PACE investment, its owner realized $1.3 million in net cash flow; $3.8 million in savings on energy, water and maintenance; and $4.2 million in increased property value.

Last year Arlington County adopted an ordinance establishing Virginia’s first C-PACE program, following on 2015 state legislation. Certain Proponents at the May 30 meeting think Alexandria should follow suit.

“Our real target market is Class B and C buildings,” though C-PACE also applies to Class A buildings and new construction, said Richard Dooley, Arlington’s community energy coordinator. A, B and C generally describe building quality and rent level, A being highest.

“Alexandria has a large stock of Class B and Class C buildings,” said Don Simpson, Jr. of Simpson Development Company. “We’re talking 60 or 70 percent of existing buildings that aren’t being touched. It’s great to talk about the new buildings, and [how they] can have a great impact. But we have such a negative impact from the old infrastructure, buildings that are [already] here. [C-PACE] gives us an opportunity … to take a look at this. It is about economic development ….” Alexandria’s older buildings “all need to become more competitive, economically, and become more attractive. Most new tenants are looking at new green building technology before they make their decision to relocate ….”

According to Dicke, C-PACE also contributes to economic development by increasing cash for building owners to spend; creating jobs for contractors; and creating financing opportunities for regional capital providers, like local banks and credit unions.

The cost to local governments is “very minimal by design. … Typically, no public money is used to provide PACE financing,” said Johnson in an email.

Arlington’s program cost the county staff time, but neither a large capital infusion to set up nor an operating line item to keep running. Building owners pay SRS, the county’s third party administrator, directly through administrative fees attached to their projects. Other Northern Virginia jurisdictions could join Arlington’s contract.

Jim Kapsis, the city’s Environmental Policy Commission (EPC) chair, suggested that setting up an Alexandria program might piggyback on the already slated overhaul of the city’s green building policy.

For more information, visit www.arlington-pace.us or www.c-pacealliance.com; or contact Don Simpson at 703-299-0029 or dsimpson@simpsondev.com.

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