This post is part of a blogging series by economics students at the Presidio Graduate School’s MBA program. You can follow along here.
By Joey Christiano
Property Assessed Clean Energy (PACE) financing is a mechanism that allows renewable energy, water conservation, and energy efficiency projects to be financed at reasonable rates. PACE works by attaching a senior lien to the property, not the installed equipment. The lien is usually repaid over the life of the installed equipment, anywhere from 5 – 20 years. Using a senior property lien has many benefits:
Commercial markets were not affected
While residential PACE is at a standstill, commercial PACE was not affected by the FHFA statement because the majority of commercial real estate mortgages are not owned by Fannie May or Freddie Mac. Commercial PACE has been developing slowly over the past year due to concern that a statement from a governing body could freeze commercial PACE, but since nearly a year has passed since the FHFA statement, commercial PACE markets are starting to pick up.
A report co-authored by the Clinton Climate Initiative states that several commercial PACE programs are in development, in markets such as San Francisco, Los Angeles, Ann Arbor, MI, and Washington D.C. Some programs are expected to launch as early as the second quarter of 2011.
In June 2010, prior to the FHFA ruling, Pike Research estimated that the commercial PACE market could reach $2.5 billion by 2015. That estimate seems a little high, given that as of March 23, 2011 only $9.69M had been approved for commercial PACE funding according to the Clinton Climate Initiative co-authored report referenced above.
Given the nearly $10M currently approved, and the potential to reach $2.5B according to Pike's estimates, and with markets in large metropolitan areas coming online this year, there could be huge potential for growth. If commercial PACE takes off construction jobs will increase, banks will do more business, and commercial property owners stand to save money by reducing utility expenses.
Who are the commercial PACE players?
For breaking news check out www.pacenow.org
Joey Christiano is an energy efficiency enthusiast and 2012 MBA candidate at Presidio Graduate School.