Leads Missouri with 23 Property Assessed Clean Energy (PACE) Funded Transaction Engagements
St. Louis-based RAHILL Capital is poised to close by the end of March 2017 on more than $40 million of Property Assessed Clean Energy (PACE) funded commercial real estate construction and renovation projects across the St. Louis area as the popularity of this public/private energy efficiency financing package grows among real estate developers and property owners here and across the country. Started in July, RAHILL Capital is already the leading developer and funder of PACE deals in St. Louis, Kansas City and outstate Missouri that partners with PACE capital providers to deliver property assessed energy improvement financing via the owner’s property tax bill at no upfront cost to the owner and with no personal guarantees. RAHILL Capital has already been engaged by the owners or developers of 23 PACE funded transactions and has closed on four of those deals worth more than $16 million with plans to close on another $30 million in the next five months.
St. Louis area PACE deals closed to date by RAHILL Capital include The Lafayette Lofts in Soulard, 4534 Olive LLC in midtown, and Cambridge Engineering’s headquarters in Chesterfield.
PACE legislation in Missouri allows for building improvements that result in utility savings to be funded by private capital and repaid via a long-term tax assessment. PACE can be used to fund a wide variety of energy improvements, from HVACR and controls, lighting and electrical systems to building envelopes, plumbing, tuckpointing, drywall, insulation and more. State legislation has no cap on the amount of PACE funding, and most capital providers are comfortable with a 20-25 percent loan to value.
“PACE financing is proving to be an extremely viable option for commercial real estate developers and building owners,” sad Anne Murphy Hill, President of RAHILL Capital. “PACE is long term, low cost financing that can partner with mortgage debt and other incentives to close the gap in the capital stack. We can take a customer’s original construction design and determine what aspects of the current design can qualify for PACE in order to maximize the qualified PACE funding. The possibilities go well beyond typical energy improvements.”
In The Lafayette Lofts project, developer Advantes Group utilized construction financing and a bridge loan from Peoples Bank to convert a historic school building on Ann Street in Soulard into 36 loft residential units. RAHILL’S management team helped secure $600,000 of PACE funding to reduce the owner’s equity investment and fund a retrofit of the 110-year-old building with energy efficient systems, water conservation systems and related professional services. RAHILL obtained consent from the project’s mortgage lender to the PACE assessment, worked with the PACE Program Administrator (Set The Pace St. Louis), negotiated with the PACE capital provider, conducted engineering reports and worked with the contractor to identify eligible energy efficiency measures and expenses.
In St. Louis County, RAHILL’S management team helped Cambridge Engineering to significantly lower energy costs, increase property value and create a more attractive workplace for its employees at its headquarters building by coordinating the entire process in securing more than $600,000 in PACE funding for the project.
“Because PACE functions as an assessment on the property, similar to a property tax, the program is a true public-private funding partnership which allows building owners to pay off energy improvements on their property assessments over a 20 year period at competitive interest rates,” Hill added.
Dozens of states and hundreds of municipalities have passed legislation encouraging PACE financing because it allows building owners the luxury of time to pay. With funding from private capital, the PACE program is modeled after other funding methods used to fund public benefits and infrastructure.
How PACE Works
The process of securing PACE funding takes approximately two months and requires the following analysis and approvals:
Mortgage Lender Consent – The senior lender on the property is required to sign a consent form agreeing to placement of an additional assessment on the property.
Energy Engineering Report – This report is required by the district and the PACE lender. The key components of the report are the Savings to Investment Ratio (SIR) and the weighted average useful life of the PACE funded measures. The weighted average useful life must be greater than or equal to the term of the assessment, and the savings generated by those measures over that term must be greater than the upfront investment.
District Approval –Each municipality selects a third party PACE administrator. The administrator must review each application to ensure they meet the intent of the PACE legislation and oversee the process of placing the assessment placed on the property tax bill, collecting and remitting payments to the PACE lender.
Financial Underwriting & Term Sheet Negotiation – The underwriting process for PACE is different than that of a mortgage. There are no personal guarantees, the primary focus on loan to value ratios (less emphasis on DSCR and the annual assessment amount as a percentage of property value). PACE terms typically include annual payments, the ability to capitalize 1-‐2 years of payments, and a fixed rate fully amortized payment. Because PACE lenders are focused on long term deals, pre-‐payment penalties are normal.
Founded in July, 2016 by Anne Murphy Hill and Robert J. W. Hill, RAHILL Capital works with Property Owners and Developers looking for a cost effective, streamlined process of securing PACE funding.