Category: Energy News

PA C-PACE Expansion Opening the Door to Millions of Dollars in Investment in New and Existing Buildings

Multifamily buildings and indoor air quality and resiliency added to list of financeable projects

Harrisburg, PA – Today, Governor Wolf signed into law Senate Bill 635, expanding eligibility for Commercial Property-Assessed Clean Energy (C-PACE) financing to include multifamily commercial buildings, indoor air quality and building resiliency improvements. The bill, SB 635, expands on Act 30 of 2018, which first enabled C-PACE financing in Pennsylvania for commercial buildings in Pennsylvania.

Sponsored by Senator Yudichak, SB 635 extends eligibility to multifamily commercial buildings of 5 or more units, indoor air quality improvements (such as COVID-19 mitigation), and building resiliency improvements. Representative Heffley sponsored the House companion bill, HB 1760.

“We are grateful to Senator Yudichak and Representative Heffley for their sponsorship of expansion bills SB 635 and HB 1670, respectively,” said Emily Schapira, President & CEO of the Philadelphia Energy Authority, Philadelphia’s C-PACE Administrator. “This expansion provides additional opportunities to finance critical new and existing building resilience upgrades, help mitigate the spread of airborne contaminants in indoor environments, and create good paying jobs across Pennsylvania.”

Prior to the expansion, C-PACE financing allowed for investments in energy efficiency, water conservation and renewable energy that are paid back over time through special property assessments. This expansion builds on the existing C-PACE Program to expand the types of projects eligible for financing.

“C-PACE financing can be used for both hard and soft costs associated with constructing new buildings  and retrofitting existing ones, making it an invaluable tool for structuring a capital stack for efficient buildings,” said John Costlow, President of the Sustainable Energy Fund, Pennsylvania’s C-PACE Administrator. “We are excited to deploy this tool for upgrades to make the buildings we live and work in safer and healthier for decades to come.”

“We and our members are enthusiastic about the opportunity to expand financing to multifamily buildings and support additional measures. Multifamily property owners have been eager to access C-PACE financing and we expect significant growth in Pennsylvania’s C-PACE market,” said Cliff Kellogg, Executive Director of the C-PACE Alliance, whose members include C-PACE capital providers and transaction experts.

To date, C-PACE has facilitated $88 million of private capital investment in the Commonwealth for more efficient and healthier buildings that are less expensive to operate. C-PACE programs are active in 19 counties throughout Pennsylvania.

“We are excited to deliver policy that helps County governments support resilience efforts and expands C-PACE financing as part of their economic development tools and leverages private dollars. We look forward to continuing to educate and support those considering new C-PACE programs, along with existing C-PACE counties across the Commonwealth,” said Jeaneen Zappa, Executive Director Keystone Energy Efficiency Alliance.

The expansion will take effect in 60 days, contingent on individual counties approving the program expansion in accordance with their local adoption rules.

About Philadelphia Energy Authority

The Philadelphia Energy Authority (PEA) is an independent municipal authority created in 2010 to advance energy affordability and sustainability. PEA has facilitated over $291 million in clean energy projects in Philadelphia since launching the Philadelphia Energy Campaign in 2016, creating more than 2,500 jobs. As Program Administrator, PEA reviews and approves applications, manages the billing and lien processes, engages in market education, and supports the growth of the Philadelphia C-PACE program. For details, visit www.PhiladelphiaCPACE.org.

About Sustainable Energy Fund

Sustainable Energy Fund (SEF), a nonprofit organization, assists energy users in overcoming financial, educational and regulatory barriers to a sustainable energy future. SEF provides a variety of services including financing energy conservation, energy efficiency and renewable energy projects; educating the leaders of today and tomorrow to create a passion for sustainable energy; and representing the interests of energy conservation, energy efficiency and renewable energy in proceedings before the Pennsylvania Public Utility Commission. Visit www.thesef.org.

About C-PACE Alliance

C-PACE Alliance (CPA) is a coalition of capital providers and technical experts who have invested in or professionally advised the vast majority of capital for C-PACE financing nationally.  CPA provides technical assistance and education to state and local governments to drive more investment that makes building more energy efficient and resilient and, in turn, creating jobs and economic development.

About Keystone Energy Efficiency Alliance

Along with our affiliated 70+ business members, the Keystone Energy Efficiency Alliance trade association educates, partners and advocates to collaboratively advance policy that prioritizes and increases deployment, funding and market adoption of energy efficiency — the least-cost energy resource and the largest and fastest-growing industry in the energy sector.  Started in 2006, KEEA’s work saves energy, grows the workforce, promotes equity, and decarbonizes buildings.

By Lennal Kalawa and Lisa Shulock

Philadelphia Energy Authority held a webinar on November 5, 2020 about Philadelphia’s Building Energy Performance Policy, commonly known as Building Tune-Up, and how C-PACE can be used to achieve compliance. The final Building Tune-Up regulations were issued in October 2020. The law was motivated by the need to reduce the carbon footprint of commercial buildings. The law mandates that all large buildings must submit a certification of high energy performance to the city’s Office of Sustainability or conduct tune-ups.

Lisa Shulock from the Philadelphia Energy Authority moderated the panel and she was joined by Zach Greene from the City of Philadelphia’s Office of Sustainability, the City agency responsible for overseeing Building Tune-Up, Dave Ferro from Pennoni, an engineering firm, and Stephen Bevilacqua from REVL Capital Group, a C-PACE capital provider.

C-PACE is a financing tool that provides long-term funding for energy efficiency, renewable energy, and water conservation projects. C-PACE financing may be of interest to commercial building owners who want to upgrade their energy systems to achieve high energy performance as an alternative to conducting regular tune-ups.

This bill is directed at all non-residential buildings with indoor floor space of at least 50,000 sq. ft. This includes office buildings, retail stores, municipal buildings, hospitals, schools/universities, and more.

Greene explained that the first compliance deadline is September 30, 2021 for buildings larger than 200,000 Sq. Ft. However, they are granting 6-month extensions due to COVID. The last group of buildings which are between 50,000 and 70,000 Sq. Ft. will need to comply by September 30, 2024.

The first way to comply with this new requirement is to conduct a tune-up every five years. Tune-ups must address base building systems including:

• Building System Maintenance & Repairs
• HVAC Operations and Controls
• Lighting System Assessment
• Domestic Hot Water and Water Usage
• Building Envelope

The tune-ups must be overseen by a “Qualified tune-up specialist” – defined as a licensed Professional Engineer or Certified Energy Manager with at least 7 years of experience. The specialist must be a third-party to the building, unless it is within a large portfolio.

The second pathway is through several high-performance compliance options including ENERGY STAR certification, gold rating or higher for USGBC LEED Operations and Maintenance v4, net zero certification, and many others.

Greene wrapped up by sharing key takeaways: the policy is focused on the operations and maintenance of a building and its existing systems, it does not require capital improvements, it does not require buildings to meet specific levels of efficiency, and the policy aims to increase tenant comfort and decrease energy costs and carbon emissions.

Dave Ferro from Pennoni stated that tune-ups “are all about an effort to control costs, improve occupant comfort, reduce wasted energy and, in many cases, improve cash flow.” Ferro stated that when evaluating a building, they like to start with an ASHRAE level 1 walk-through. “As an engineer, you should be able to walk into a level 1 building and find all the low hanging fruit.” Once you get the level 1 understanding, you can proceed to level 2 and identify no-cost/low-cost energy efficiency measures that can provide payback. One thing that certain engineering companies offer including Pennoni is ongoing monitoring of energy usage and identification of potential problems as an additional way to manage energy use.

If buildings have not yet achieved any of the qualifying high-performance standards, owners and managers have the option of investing in systems to attain one of the compliance options and use C-PACE as the financing tool. Bevilaqua noted the key features of C-PACE include the term of the loan can be up to the maximum useful life of the equipment up to 30 years; the first payment can be delayed two years; the lien stays with the property, not the building owner; financing rates are in the “high 4’s” to 7%; the long term assessment allows for deeper investments in energy efficiency and/or reduces monthly payments for borrowers; and PACE requires no upfront cash and can be treated as an off-balance sheet item. Bevilaqua stated that C-PACE typically will cover up to 30% of a project’s hard cost for new construction and up to 100% of the costs of energy upgrades.

To obtain an energy survey to develop the C-PACE financing package, building owners can reach out to Qualified Engineers listed on the Philadelphia C-PACE website. The owner also needs to select a Capital Provider to provide a term sheet and work with the owner throughout the process of obtaining C-PACE financing.

To qualify for C-PACE in Philadelphia the project must be a commercial or industrial property. C-PACE can be used for upgrades to existing buildings or for gut rehab and new construction projects. The minimum financing amount for a C-PACE project in Philadelphia is $100,000. There is a maximum 95% Lien-to-Value limit and up to a 30-year financing term. There is also the option of retroactively using C-PACE financing with a two year look back.

Shulock wrapped up the webinar by discussing the first two Pennsylvania C-PACE projects which are located in Philadelphia. The first was J-Centrel  in which Twain Financial provided $1,500,000 in financing to Shift Capital for a gut rehab project. The Olde City Day School obtained $519,000 in C-PACE financing from Greenworks Lending to install rooftop solar. It was the first solar project in Pennsylvania to use C-PACE financing.

The Building Tune-Up website can be found here. To watch the recording of the webinar, click here. The slides can also be found on the Philadelphia C-PACE program resources page in the Philadelphia C-PACE webinars section.

Repost from BisNow – October 25, 2020 Matthew Rothstein, Bisnow East Coast

A new development and its use of a new financing tool have the potential to be a template for introducing more environmentally sustainable elements to nearly all forms of commercial real estate.

Shift Capital last year announced the beginning of its J-centrel project in the Harrowgate neighborhood, on the opposite side of Kensington from Fishtown. Like all of Shift’s projects to date, J-centrel is the redevelopment of a historic but rundown factory building into a mixed-use project with multiple features designed to proactively benefit local residents. 

Shift realized upon gaining access to the building to begin work that it would require more time and money than initially estimated, Shift Vice President of Development Maria Sourbeer said at Bisnow’s Philadelphia C-PACE: How To Close A Deal webinar on Thursday. Meanwhile, Philadelphia City Council had recently passed legislation allowing the use of C-PACE, or commercial property-assessed clean energy, financing. Sourbeer sensed an opportunity.

“Coming from a nonprofit background, I’m used to having my ear to the ground for different financing [opportunities],” Sourbeer said.

C-PACE, the commercial-specific form of the more general PACE program, is a funding idea generated at the national level that requires statewide legislation to enact and local governments to execute. C-PACE passed Pennsylvania’s Legislature in 2018 and Philadelphia City Council last year, and J-centrel is the first project in the city to take advantage of it.

C-PACE loans are available to banks and other private lenders, which would pay all of the hard and soft costs associated with improving a commercial building’s environmental sustainability. The borrower pays back the cost through an additional assessment similar to what determines a property tax, which is passed back to the lender. The sum that a project can be loaned through C-PACE is determined by an auditor hired by the borrower, which panelists agreed is a relatively painless process.

“We worked hard with our general contractor to see what would qualify in the energy audit, and we worked through that before we even brought in the auditor,” Sourbeer said. “So when we hired the auditor, we were able to hand them our analysis.”

The term of a C-PACE loan is as long as the improvements remain in place and operational for up to 30 years, in accordance with Philadelphia’s iteration of the program.

Twain Financial Partners had already purchased historic preservation tax credits to help finance J-centrel and agreed to add C-PACE to its agreement with Shift. Since the assessment portion of C-PACE loans occupy the same part of the capital stack as property taxes and do not accelerate in the case of non-payment, senior lender Fulton Financial was comfortable including the new loan despite its technical position in front of the senior mortgage lender in the capital stack, Twain Business Development Officer Paul Thompson said. Functionally, C-PACE repayments occupy a similar place to a mezzanine loan in the repayment order.

“[J-centrel had] some cost overruns, understandably so because it’s an adaptive project,” Thompson said. “So how do you cover that gap while still keeping your senior lender happy? C-PACE makes a lot of sense in that situation because it’s used in qualifying costs that help improve the efficiency of the building.”

J-centrel is the redevelopment of a two-warehouse complex with connecting walkways on J Street, a block away from the Tioga station on the Market-Frankford Line. Three floors of apartments totaling 116 units will sit atop 30K SF of ground-floor commercial space, including retail and a local business accelerator. Two of the apartments will be reserved for those making 40% of the area median income, and 31 will be priced for 70% AMI.

The residential portion doesn’t qualify for C-PACE under Pennsylvania’s version of the program, which meant Shift was forced to split J-centrel into a commercial condo and a residential one. The Philadelphia Energy Authority, the local agency administering the program, is lobbying the state government to add multifamily to the list of qualified projects, PEA Program Manager Lisa Shulock said.

Shift pursued C-PACE financing to shore up a capital shortfall when costs on J-centrel went up, but a building owner can apply at any phase of a project’s life, from design to two years after completion of construction. Even a long-completed building renovating any qualifying building systems can qualify within two years of the process.

Fulton’s traditional senior loan to Shift for J-centrel was for $14.5M, and Twain purchased $2.5M in historic preservation tax credits. By incorporating the $1.5M C-PACE loan into the operating expenses portion of its balance sheet, Shift was able to take on the loan with a 25-year repayment period and not stress its loan-to-value ratio, Fulton Vice President of Commercial Community Development Jeanne Fields said.

“It’s an easy way to bring some additional capital into the project,” Fields said. “We knew the project that needed to be completed, and we were happy that it was able to cover the cost of completion without requiring more money from us.”

Because repayment is based on a tax assessment rather than something more prone to fluctuation, the funds are held in escrow, which takes away from the building’s cash flow, Fields mentioned as a caution to prospective users of the program. Otherwise, C-PACE provided a means to avoid the type of pitfalls common with social impact-focused projects that operate with thin margins.

C-PACE is structured similarly to tax increment financing packages, only with the beneficiary of repayment being a private lender rather than the state or local tax rolls, Thompson said. He believes the familiarity much of the development community has with TIF will help accelerate the adoption of this program.

“[It’s] a TIF structure with a fancy new name, but it will quickly become ubiquitous, not just in Philadelphia but across the country,” Thompson said.

CORRECTION, NOV. 5, 3:45 P.M.: A previous version of this article misstated C-PACE loans’ place in the capital stack. This article has been updated. Contact Matthew Rothstein at matt.rothstein@bisnow.com

Original article: https://www.bisnow.com/philadelphia/news/sustainability/new-green-financing-program-c-pace-shift-capital-106452?utm_source=outbound_pub_20&utm_campaign=outbound_issue_43446&utm_content=outbound_link_11&utm_medium=email

Click here & log-in to Bisnow to view the Philly C-PACE: How to Close a Deal Webinar from October 22, 2020.

For immediate release: October 23, 2019 
Contact: Maryrose Myrtetus, mmyrtetus@philaenergy.org, 215-686-4483

Philadelphia, October 23, 2019 – Council President Darrell L. Clarke (5th District), Councilmember Derek S. Green (At Large) and the Philadelphia Energy Authority (PEA) announced the launch today of Philadelphia’s Commercial Property Assessed Clean Energy (C-PACE) program. C-PACE lets commercial and industrial building owners finance energy and water efficiency improvements and renewable energy installations through a special assessment similar to a property tax assessment. C-PACE will help kickstart the commercial solar market in Philadelphia and support both new construction and retrofit projects to install more energy efficient equipment.

C-PACE will help the City meet its carbon reduction goals, create jobs, and provide significant utility savings for participating buildings. The voluntary program allows property owners to access long-term financing that matches the useful life of the installed improvements generally at lower costs. Participating projects must be located within the boundaries of Philadelphia and engage in eligible energy and/or water savings projects or renewable energy projects.

“C-PACE is another example of how the Philadelphia Energy Authority works with different stakeholders to drive private investment in Philadelphia that creates the jobs of the future and opportunities for our young people, all while creating cost savings and carbon savings for the city,” Council President Clarke said. “C-PACE is good for business and good for the environment – it’s a win-win.”

“C-PACE is a game-changing initiative for our City,” said Councilmember Green. “Philadelphia now has a new financing tool to build a robust clean energy economy that will fight climate change, improve public health and well-being, and save our commercial sector money. I’m proud to have led the charge to establish this important initiative.”

PEA is the Program Administrator for Philadelphia’s C-PACE Program. It has been engaged in a yearlong statewide stakeholder process to facilitate feedback and ideas from residents, lenders, commercial property owners, other government entities and others. As Program Administrator in Philadelphia, PEA will review and approve applications, manage billing, file liens, and perform other general administrative duties.

“Philadelphia is once again showing its leadership in the green economy,” said Emily Schapira, Executive Director of PEA. “Over $1 billion in C-PACE deals have been executed nationwide, and we are proud to join our peers in enabling this important tool.”

Pennsylvania was the 36^th state to authorize the creation of C-PACE financing when Governor Tom Wolf signed it into law on June 12, 2018. With the leadership of Councilmember Green, Philadelphia City Council authorized C-PACE for the City of Philadelphia on July 20, 2019 and assigned PEA as Program Administrator. The bill was signed into law by Mayor Kenney on August 14, 2019.

PEA will host a webinar on October 30, 2019, at 1pm ET to review the program guidelines. For more information on the webinar and the Philadelphia C-PACE program in general, visit cpacephiladelphia.org.

The Philadelphia Energy Authority was formed in 2010 to support the city on energy affordability and sustainability, including developing long-term energy programs and policies. Visit philaenergy.org for more information.