The First PACENation Summit Ever

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Originally published on the ECOreport

There are almost 400 registrants, from 35 or 36 states, all keenly aware that the US government is about to partially remove a hindrance that has kept residential Property Assessed Clean Energy (P.A.C.E.) financing from spreading throughout the nation. George Caraghiau said, “I’ve been to so many conferences in my life, but I cannot believe the excitement I am feeling at this conference.” David Gabrielson, Executive Director of PACENation, added, “People are excited about the impact this will have on job creation, climate change…”  They were speaking from the First PACENation Summit ever, in Denver, Colorado.

Close to $2 Billion In Financing, to date

PACE programs have provided close to $2 billion worth of financing since the Mayor of Berkeley’s Chief of staff, Cisco DeVries, came up with the idea in 2007.

Financing companies partner with communities to provide homeowners with the funds for renovation projects, which they can take up to 20 years to pay for improvements through their property taxes, at no cost to taxpayers.

There has been a flaw from the perspective of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac-backed mortgages, and the Federal Housing Authority (FHA) which backs mortgages itself. Since property taxes are senior to mortgages, should the owner default, the PACE assessment would be repaid before the mortgage holder. As a result, any remaining balance on a PACE assessment may not be able to transfer to the new homebuyer, as PACE law intends, when a home is sold or refinanced if and FHA or Fannie or Freddie mortgage is involved..

This slowed down the spread of PACE programs everywhere but California, where 95-99% of existing residential projects have been. (There is also activity in Florida)

A Contractual Subordination

That is about to change. The FHA has announced it will issue guidance on how a PACE assessment can exist in conjunction with its mortgages. The PACE industry is hopeful Fannie and Freddie would also take a look at such a solution.

This is PACENation (video).

“We believe this will allow a lot of capital to come into the market. By the end of the year, we expect to see residential PACE in a number of other states. Five years from now, I think you’re going to see it throughout the United States. I think the numbers are potentially enormous, scores of billions of dollars,” said Gabrielson.

He added, “Most of California’s PACE projects have been since 2014, so it is an accelerating market. That is about 100,000 homes. Most of the homes in California would benefit from an upgrade, then you add in the rest of the country.”

There will bring  a lot of jobs and substantial cuts to the nation’s greenhouse gas emissions.

Commercial PACE

“To the extent that we see more of an awareness of PACE, because of the explosive growth of residential PACE, that should have a very positive effect on PACE commercial,”  said Caraghiau.

There have been no regulatory obstacles in this sector, which is already approved in 32 states and operating in 16. Over 700 commercial projects, with more than $230 million in financing, have been completed. They are found on almost every type of building imaginable: churches, shopping centers, apartment buildings, businesses, farms etc. While the average residential project is $20,000, commercial projects have ranged anywhere from  from $10,000 to $8 million.

“About 30% of the projects in commercial PACE are $750,000 or more, about half are from $75,000 to $750,000,” said Caraghiau.

A New Asset Class

“The overall size of the residential market, in terms of capital markets, establishes what they call on Wallstreet a new asset class. People that buy fixed income securities know what a New York City bond is and a structured finance that packages up mortgages and credit cards. They understand all those asset classes. Now they have an understanding of a PACE asset class that is large and liquid. You can trade in and out (of it). That has the effect of lowering interest rates because you have a lot of volume. With a bigger market, interest rates are lower and that will be beneficial to commercial (PACE) as well,” said Gabrielson.

America’s first PACENation Summit was in Denver, Colorado, March 1 & 2, 2016. Representatives from the nation’s leading PACE companies were there. Colorado Governor John Hickenlooper gave the keynote address, “Helping Coloradans help the environment – Innovative ways to become more energy-efficient.”

Photo Credits: (top) R-PACE discussion with PACENation Executive Director David Gabrielson (speaking) and Ari Matusiak (Renovate America), Cliff Staton (Renew Financial), Candace Vahlsing (White House, Domestic Policy Council) on the panel; (middle) Plenary Session “PACE Works” with PACE leaders: Jeff Tannenbaum (PACENation), Jessica Bailey (Greenworks Lending), Cisco DeVries (Renew Financial), Ari Matusiak (Renovate America), Mike Lemyre (Ygrene), and John Kinney (CleanFund Commercial PACE Capital); (bottom) Colorado Governor John Hickenlooper delivers keynote address, “Helping Coloradans help the environment – Innovative ways to become more energy-efficient”