Making 800 Pound Gorillas Less Intimidating

Some of the 800 pound gorillas that I've spoke on as standing in the way of sustainable practices now look much smaller and less intimidating. PACE bonds are a relatively new, exciting way to help cut the herd of gorillas standing between building owners and sustainable initiatives down to a manageable size. PACE, which stands for Property Assessed Clean Energy, is a mechanism whereby property owners can finance energy-efficient retrofits with low-cost, off-the-balance-sheet debt. Municipalities can set up funds to provide loans for energy efficiency improvements financed by issuing bonds.

Below is a list of some "gorillas" blocking sustainable initiatives and how PACE can help.

Gorilla # 1 - Focus on Short Term ROI

• Many people are unwilling or unable to make capital investments in energy saving measures with a less than very short term return on investment, especially in challenging economic times such as these.

• PACE loans provide an opportunity to finance capital improvements for energy efficiency directly through energy savings, over time.
  

Gorilla # 2 - Risk Aversion

• Recessions make investors more risk-averse, so unsecured loans are increasingly hard to come by and mortgage holders are unwilling to approve anything that would increase the debt on buildings.
  

• PACE bonds have minimal risk, since the underlying loans are repaid through property tax assessments. And because PACE loans show up on balance sheets as tax obligations, rather than debt, mortgage holders may not have to approve such loans.
  

Gorilla # 3 - What Happens When the Building is Sold?

• Buyers may not be willing to pay substantial premiums to offset the cost of energy efficient improvements when buildings are sold.

• PACE obligations remain with buildings when they are sold. Buyers do not need to pay a lump sum premium for the energy efficient measures. Although tax assessments may be higher than for comparable properties, they should be more than offset by lower energy costs.

Gorilla # 4 - Timing of Incentives

• Tax breaks and incentives are often only available after the energy efficiency improvements are installed and operating. Short-term bridge loans for capital improvements can be hard to come by.
  

• PACE loans can make funding available before capital improvements are undertaken.