How can social-service organizations tap into property-assessed clean energy (PACE) and achieve substantial savings? PACENation offered a webinar on April 27, “PACE for Nonprofit-Owned Buildings,” in which speakers outlined case studies of the success stories they have put in motion.
“There is a strong interest in using PACE in the context of nonprofit properties,” said Bracken Hendricks, president and CEO of Urban Ingenuity. “Often, these are very high-returning projects.” Property owners are frequently paying inflated energy bills due to having old appliances.
“We thought it would be most helpful to understand how to make PACE transactions work,” Hendricks said. “If you put PACE in as a stack in the capital project, there’s really no delay.”
A set of synergies makes PACE a good fit for the nonprofit sector, according to Hendricks. Nonprofits often have limited access to capital, aversion to debt, and unconventional cash flows. PACE can help to engineer financially profitable retrofits for these properties.
“Because they are not paying a tax bill, it’s counterintuitive that they’d be taking on a tax-based financing solution,” Hendricks said. Stakeholders can sometimes be skeptical.
Urban Ingenuity is working on developing the PACE pipeline in the DC area and assisting with technical support elsewhere, Hendricks said. He described two case studies from his company’s experience.
One of these retrofit projects involved redoing the HVAC, heat-recovery lighting, and water conservation at the Phyllis Wheatley YWCA, a house for homeless women.
“The project froze off $73,000 in utility savings annually. It reduced the rent for the women living in the facility,” Hendricks said. “They structured a PACE payment that went close to that utility savings number and allowed a modest free cash flow.” The nonprofit reaped $7,000 per year in savings and had a $66,000 annual PACE payment.
The project ran into some logistical challenges that led developers to create a “simple, clean inter-creditor agreement,” Hendricks said. “They needed a restrictive covenant that said this property would always be affordable housing.”
This agreement met with approval from the United States Department of Housing and Urban Development – where, according to Hendricks, a staffer said it set a precedent.
In a second case study, Hendricks said a large church improved its credit by accessing PACE, which simplified its underwriting and eliminated the need for personal guarantees.
“Their cash flows were somewhat unusual,” Hendricks said. “We ended up working with a local, somewhat-regional tax-equity investor. They initially declined to offer a power-purchase agreement. Capital was made available through the PACE financing.”
The results, Hendricks said, were better than a blue-chip investment. “This was very helpful at the corporate level for their overall credit profile.”
Mark Thielking, executive director of the Energy Improvement Corporation at Energize NY, outlined examples of nonprofit projects from the state where he works.
Energize NY was founded by New York State Energy Research and Development Authority. It is a nonprofit development corporation that is owned by municipalities.
“The credit of the PACE structure here in New York is so secure that we can attract quite a bit of capital at lower rates,” Thielking said. “When a tool like PACE is let loose, it equates public benefits… with improvements to building stock.”
Energize NY provides capital through a grant from the United States Department of Energy, a municipality-reimbursement fund, a cash-flow-stabilization fund, a program-administration fund, a reserve fund, and other assets.
At Wainwright House, in Rye, New York, a PACE project yielded 100-percent financing over a 20-year term with a 6.13-percent interest rate. The savings were estimated to be $34,471 per year with a positive cash flow of $3,926 annually.
“They needed a finance tool that would allow them to extend the amortization over a long period,” Thielking said. “They’re really under the burden of trying to maintain this large building which is very old. We strongly encouraged them to include an operations and maintenance contract.”
Saint Christopher’s Church, in Buchanan, New York, was inspired to engage in a PACE retrofit by the papal encyclical.
“We helped them to achieve their mission, which was to be good environmental stewards,” Thielking said. “They didn’t have access to cash or credit.”