Originally published on The ECOreport.
By Terri Steele
State and local governments embrace PACE because of its ability to create jobs, promote economic development, meet sustainability standards and improve local building stock using no public monies. According to PACENation, 32 US states and the District of Columbia have enabled PACE financing in their respective jurisdictions.
As with HERO’s residential PACE offering, the funds that support commercial PACE improvements are delivered via private sector investors. Commercial PACE provider Figtree arranges PACE financing (and mortgage lender consent) for commercial, industrial, agricultural and multi-family property owners by aggregating and selling the projects as municipal bonds.
Now operating in over 155 California jurisdictions, Figtree Financing was the first in California to successfully aggregate projects among multiple markets and finance them in a single bond issue. Figtree finances projects ranging from $5000 to those in the millions of dollars (all contingent upon qualified property values).
HVAC, solar PV, boilers, chillers, roofs, new windows and doors – even xeriscaping — are among the money-saving improvements financed. Clients run the gamut from owners of Class A office structures to hotels-motels, apartment complexes, REITs and agricultural interests.
Figtree was also the first commercial PACE provider to receive state-wide judicial validation – a California ruling that legally vetted Figtree’s financing model, providing cities and their legal counsel confidence in the operational integrity of its financing model while saving municipalities the unwelcome expense of devoting staff time to vet what was then a virtually unknown (and misunderstood) economic development tool.
Despite successful assurances and financing successes, commercial PACE providers simply haven’t realized the runaway growth that residential firms like HERO have trail-blazed. Across the US, PACENation estimates the value of commercial PACE projects at 12% the valuation of its residential PACE counterparts.1
Merger With Dividend Solar
Seeking an uptick in interest and investment, Figtree has again broken new ground — this time by diversifying its product menu outside the PACE space. Last month, Figtree announced a definitive merger agreement with Dividend Solar, whose self-described sweet spot is providing $0-down loan financing for credit-worthy homeowners interested in the benefits of solar ownership (and the healthy 30% investment tax credit (ITC) solar ownership provides). Dividend Solar is a consumer finance company specializing in unsecured solar financing; they lend money based on FICO scores.
The yin to this sustainable yang is that Figtree Financing specializes in commercial PACE, offering property owners a unique, $0-down, off-balance sheet financing solution that frees them to enjoy the economic benefits of energy efficiency, renewable energy and water frugal improvements without encumbering their credit capacity.
The merger represents the first ever combination of a residential solar lender and PACE financing provider.2
“This is a merger of complementary products and talents that gives us remarkable marketplace traction while providing a more complete solution set to businesses and consumers,” said Figtree Financing CEO Mahesh Shah.
Figtree operates in California and has developed a national PACE platform that it’s been eager to roll into other PACE-friendly states for over a year. Dividend Solar is a sustainability-focused consumer finance company that operates in 28 US states. Dividend’s footprint will come in handy for Figtree as it works to expand its commercial and residential PACE offerings across the US. Dividend itself offers a ready-made contractor network eager for financing options for prospects who want to realize the value proposition of solar ownership regardless of their credit capacity.
And Figtree’s PACE expertise, distribution network and market acumen will afford the merged entity a valuable platform from which to launch its residential PACE (and non-PACE) offerings in California before expanding into the company’s broader 28-state footprint.
The merger comes with yet another ‘dividend’: a commitment of up to $200 million from LL Funds.
“Figtree’s experience in non-solar energy efficiency products presents an adjacent expansion opportunity for Dividend. The merger establishes product diversity that is not only more attractive for customers, but lessens reliance on factors beyond the company’s control such as government and regulatory policy,” noted Shivraj (Raj) Mundy, Operating Partner for LL Funds.
So how will this new company position itself? Shah says that decision is not final, but the newly-merged company is leaning toward retaining the Figtree brand for its commercial PACE offerings and maintaining the Dividend name for its unsecured and residential PACE offerings. And unlike most mergers, the newly-combined company is hiring. Plans are underway to expand Figtree’s offices in San Diego – and Dividend’s San Francisco and Austin, Texas locations as well.
Whether in the commercial or residential space, the PACE momentum inspired by HERO and FIGURE deliver extraordinary reach – and ubiquitous rewards.
$4 million Investment Generates $10 million In Revenues
On a macro level, an econometric study conducted by the ECONorthwest found that $4 million in PACE funding generates $10 million in gross revenue, $1 million in combined federal, state, and local tax revenue, and 60 clean, green jobs.
And if that weren’t enough, the IRS has just ruled that PACE interest falls within its mortgage deductibility guidelines i.e. the interest portion of a PACE payment can be treated as a deduction to personal income taxes.
According to PACE Nation’s Mike Centore, “The guidance solidifies PACE’s position as one of the most economically competitive financing tools for home energy and water upgrades – interest rates comparable to and often better than Home Equity Loan rates, repayment terms aligned with the useful life of eligible measures, and the possibility of interest payments being tax deductible.”
With a simple vote of approval by a local municipality, PACE’s unique financing architecture allows property owners to reap the energy savings, federal, state and local tax incentives of energy improvements on demand.
It’s a deal-closer for contractors, an economic win for property owners, a catalyst for clean energy job creation and a boon for investors — or municipalities looking to improve aging building stock as they work to meet regional, state and federal water conservation and clean energy mandates using (can we really say this enough?) no public monies.
And as the Figtree and Dividend partnership suggest, tilling new industry soil can bring a bountiful harvest of choice, savings and sustainable economies of scale.
- $2.065M v. $250M, based on data from 76% of PACE programs, www.PACENation.us/pace-data/.
- LL Funds, LLC is an independent investment manager focusing primarily on the mortgage market and currently managing $1.4 billion for endowments, foundations, individuals and family offices.
Reprinted with permission.