(The 36-unit project proposed by Roost Development on 4th & Olney in Bend’s Midtown area intends to utilize favorable CPAC financing, further to adoption of a new ordinance by Deschutes County, to fund energy efficiency improvements towards achieving net zero goals | rendering courtesy of ten over)
CPACE Move Paves Way for Financing Commercial Building Energy Improvements
Thanks to sustainable policy advocates and county commissioner support, Central Oregon commercial building owners will soon have access to low-cost long-term financing to fund up to 100 percent of clean energy improvements.
The Deschutes County Board of Commissioners recently unanimously voted to approve a “Commercial Property Assessed Clean Energy” (CPACE) Ordinance, essentially fast-tracking incentives to upgrade new or existing facilities in ways that reduce energy consumption or generate energy.
The program opens the door to using an innovative financing model that is increasingly being offered by cities and states throughout the U.S. whereby up to a period of 20 years, building owners repay the cost of eligible improvements through a “benefits assessment” on their property tax bill.
The annual energy savings for a CPACE project usually exceeds the yearly assessment payment, so property owners can potentially be cash flow positive immediately, meaning increased dollars can be spent on other capital projects, budgetary expenses, or business expansion.
As the repayment obligation is tied to the property, it automatically transfers to the next owner if the property is sold, effectively facilitating long-term investments in building performance.
The move means building owners are no longer restricted by limited capital budgets to improve building function and can borrow money upfront for energy efficiency, renewable energy, or other applicable projects. CPACE may be funded by private investors or government programs, but it is only available in states with enabling legislation and active programs.
To be eligible, a project must be located in a county or municipality that has approved CPACE programs within a state that has passed PACE-enabling legislation. Oregon has put the framework in place, but Deschutes County is only the second municipality in the state after Multnomah County to formally adopt the option and administration process, in the commercial sphere.
The ordinance comes into formal effect on May 4 of this year, and will allow owners of, for instance, commercial, industrial and multifamily (five or more units) properties to make energy improvements to existing facilities and finance the improvements over a long term (up to 20 years).
“The Commissioners’ leadership creates a triple win for commercial property owners and developers who want to reduce operating costs, improve cash flow and meet sustainability and public health goals,” said Paula Latasa, of climate education and outreach group 350Deschutes. “Commercial businesses and local leaders are genuinely eager to make this program available.”
Following the initiative, several developers and property owners locally will soon implement efficiency and renewable energy improvements they hope to finance with CPACE. Roost Development will be using CPACE to finance two “Net Zero” commercial projects, including a three-story 36-unit highly energy-efficient multi-family housing development slated for a site off 4th & Olney in Bend’s popular Midtown area.
Roost manager Perry Brooks says the project, designed by the Bend office of Ten Over Studio, will bring a “new and exciting living experience” to the neighborhood, with the net-zero goal at the heart of creating a safe and sustainable environment.
The residential High Density (RH) Zoned project will feature efficient materials, assemblies and solar on the roof, and Brooks said the design and construction elements mean the project will actually be giving back to the electrical grid at the end of the day. Everything from well-insulated panelized construction systems and high-performance interiors that don’t leak, to a large photovoltaic array will play a part in achieving such net zero goals.
CPACE has received widespread support in Central Oregon from 114 stakeholders including more than 55 businesses, commercial property owners and local leaders. Notably, the program has been endorsed by: the Cities of Bend, Redmond and Sisters, Central Oregon Association of Realtors (COAR), the Bend and La Pine Chambers of Commerce, Brightwood Corp., First Interstate Bank, Brooks Resources, Sunlight Solar, Peter Baer Architecture, Neil Kelly and Merete Hotel Management.
The program creates access to private capital for developers and commercial and multi-family property owners for efficiency, clean renewable energy and resiliency projects. Participants can secure up-front financing for water conservation, energy saving or generating measures, energy storage and even Electric Vehicle (EV) charging.
Financing can be for new or existing developments and can include hard and soft costs (hard costs being those associated with physical building construction, while soft costs typically refer to the planning, permitting and financing of a construction project).
Advocates say CPACE financing preserves owner equity and fills funding gaps in the “capital stack” — the layers of capital that go into purchasing and operating a commercial real estate investment, outlining who will receive income and profits generated by the property and in what order.
CPACE can align incentives for landlords and tenants, as both the tax assessment and cost savings from the project can be shared with tenants under most lease structures.
The main characteristic that differentiates C-PACE from other financing methods available to property owners is that this “loan” is placed as a lien on the property tax assessment. Among other advantages, this means that C-PACE financing runs with the land and therefore does not accelerate or become due upon sale. This mechanism also allows for long-term financing, often at fixed rates.
Over the last 12 years, the PACE initiative has grown exponentially across the country to meet demand for long-term financing that both improves building performance and reduces operating costs and emissions.
The program is being used successfully in almost all commercial sectors: hospitality, industrial, office, retail, healthcare, nonprofits, churches, agriculture and multifamily (five units+). Stakeholders are particularly excited about successful CPACE projects in affordable multi-family housing, homeless shelters, nonprofits and the agricultural sector.
The local effort to authorize CPACE has been driven by 350Deschutes in alignment with its mission “to accelerate a just transition to a clean energy economy” utilizing a policy that stimulates the economy, creates clean energy jobs, reduces building related emissions and can reduce energy burden in low income and workforce housing projects.
Latasa said that reducing the energy burden is also seen as an essential component of making housing truly affordable.
She added, “Many key stakeholders have been engaged in this process and we hope there will be a wider uptake of this tool to improve building performance and benefit properties in almost every asset class, from hospitality groups to nonprofits.
“It is exciting, for example, to see how the agricultural industry can benefit in terms of water conservation, through building and infrastructure improvements, or having a real opportunity to electrify operations.
“There has been a huge amount of collaboration between business and county leaders to help move the needle in terms of achieving climate and sustainability goals. Also, more local as well as national entities can become qualified CPACE lenders to boost the overall effort to transform communities by enabling property owners to make buildings more efficient and resilient.”
Latasa said PACE helps communities increase resilience to natural disasters, such as seismic events, reduce carbon emissions and meet climate change goals while also generating significant local economic activity and job creation.
Nearly half the energy consumed, and three quarters of the electricity generated in the United States is used to heat, cool, light and otherwise operate buildings. Most of this energy is created by burning fossil fuel, so reducing its consumption in a meaningful way will depend on reducing energy use in buildings.
A number of barriers have thus far limited wide-scale adoption of energy efficiency and renewable energy measures, but the introduction of PACE aims to overcome the challenges that have hindered adoption of energy efficiency and related projects.
PACE financing is repaid as an assessment on the property’s regular tax bill and is processed the same way as other local public benefit assessments (sidewalks, sewers) have been for decades. It is a national initiative, but programs are established locally and tailored to meet regional market needs, such as in Deschutes County and can be combined with utility, local and federal incentive programs.
Energy projects are permanently affixed to a structure and the PACE assessment is filed with the local municipality as a lien on the property.
Property owners are supporters of the initiative because they can fund projects with no out-of-pocket costs. And since financing terms extend to long terms, it becomes possible to undertake deep, comprehensive retrofits that have meaningful energy savings and a significant impact on the bottom line.
Local governments are also in favor as it is an economic development initiative that lowers the cost of doing business in their community, encourages new business owners to invest in the area and creates jobs using the local workforce.
Subject projects also have a positive impact of air quality, creating healthier, more livable neighborhoods, as well as improving building stock and boosting property values, and property tax basis.
The parties involved in a C-PACE deal usually include:
- A PACE administrator that manages the project and ensures adherence to program requirements;
- A local government that collects the property tax assessment and remits payment to the capital provider(s) if necessary;
- A contractor or energy services company (ESCO) that installs the equipment;
- The building owner (customer) receiving the upgrade, or tenants working in concert with their landlord; and Private investors, bondholders, or a government to provide the capital.
Before financing is disbursed, the project must be approved by the PACE administrator. For properties with a mortgage, consent from the mortgage lender is usually required.
Depending on state statute, capital for CPACE projects may come from the government through reserve funds or bond issuances, from private investors, or a mix of the two. Once the project is approved and financing is secured, the contractor installs the equipment and the customer begins to realize energy savings.
EcoNorthwest estimated that a $1 million PACE investment generates $2.5 million in economic activity and USC researchers estimated that in one program, a similar investment created approximately 12 jobs.
Advocacy group PACENation says the initiative has proven to be an essential public policy to scale up investment in U.S. energy efficiency, clean energy and resilience upgrades to homes and commercial buildings. To date, over 300,000 building owners have used PACE to invest more than $9 billion in necessary improvements to their properties.
PACENation is the national nonprofit association that works alongside policymakers and community stakeholders to strengthen and expand access to assessment-based financing for residential and commercial projects that increase energy efficiency, clean energy, clean drinking water and resilience against natural disasters. Its membership community includes state and local governments, environmental and faith-based organizations, energy efficiency and climate policy experts, small businesses, PACE administrators and PACE lenders with shared goals to create resilient and resource-efficient communities.
350Deschutes is part of the Global Network of 350.org and engages in climate education, outreach and policy to accelerate a just transition to a clean low carbon economy, with special consideration for the needs of the most vulnerable communities. It is a separate nonprofit organization from 350.org and located in Deschutes County of Oregon, yet follows a similar purpose to build awareness, educate, organize and stop new fossil fuel infrastructure and further actions for climate stability. 350Deschutes’s work is supported by Meyer Memorial Trust. 350 was named after 350 parts per million (ppm) — the safe concentration of carbon dioxide (CO2) in the atmosphere. 2021 records hit 419 ppm and yearly average are rising.