The NYC PACE Financing Program has finally released its program guidelines! Prospective qualified PACE lenders are now carefully reviewing the guidelines, applying for approval to be a PACE lender in New York City, and seeking projects that may benefit from PACE financing. It is time to get ready, but the official launch date for the program is being delayed a bit and has not yet been set. We expect the launch soon.
New York’s Law Will Motivate Building Owners to Reduce Greenhouse Gas Emissions
While PACE financing has been available throughout the country for years, the PACE program for New York State was enacted in 2019 as part of the Climate Mobilization Act. As part of that law, Local Law 97 (which has been subsequently amended by Local Law 147 and Local Law 95), established greenhouse gas emission limitations for certain large buildings in New York City. Buildings covered by the law will be required to report greenhouse gas emissions commencing in 2024, and penalties will be assessed for exceeding the established limitations. The legislature enacted the law with the expectation that it will be more expensive to pay the penalties than to renovate the building to reduce emissions.
New York’s PACE Program Will Provide the Financing to Retrofit Buildings The State’s Commercial PACE Program was then concurrently implemented to provide building owners with a low-interest (usually around 6+/-%), long-term (usually 20-30 year amortization) financing option to support the required energy efficiency retrofits and to support renewable energy projects generally. It is also a form of financing that will result in significant mortgage tax savings (there is not mortgage recorded with PACE Financing) and other benefits.
NYC PACE Program Loan Requirements:
The NYC PACE Program Loan Requirements (directly from the Program Guidelines) provide:
- The subject property must be an Eligible Site (as defined below).
- The PACE loan must fund Energy Efficient Improvements or Renewable Energy Systems (as defined below).
- All Energy Efficiency Improvements must be recommended by an Energy Audit; all Renewable Energy Systems must be recommended by a Feasibility Study.
- The project must have a Savings-to-Investment Ratio (SIR) of 1.0 or greater [this means that the present value of all savings must equal to or greater than the cost].
- The PACE loan term must be less than or equal to the weighted average useful life of the measures financed.
- All holders of mortgages or deeds of trust on the subject property must provide consent to the PACE loan and the terms thereof.
- All required PACE loan application materials must be submitted to the Administrator by the Lender through the Online Application System.
Among other things, an “Eligible Site” must be an “existing building,” so at this point, the program is not available for new construction (which is inconsistent with the PACE programs in most other states – we expect the guidelines will be further amended to allow new construction). In general, such existing building may be commercial, industrial, office, multifamily (three or more units), or residential condominiums currently owned in common by a commercial entity.
“Energy Efficient Improvements,” in general, cover any renovation or retrofit “intended to reduce energy consumption.” “Renewable Energy Systems” essentially means an energy generation system that generates electricity through various means, including, for example, solar, fuel cell technologies, or other renewable energy technology.
Retroactive PACE Financing is Approved and Contemplated:
Though the NYC PACE Program guidelines do not currently allow the financing of new construction at this time (again, we expect the guidelines will at some point be amended to allow new construction), it does specifically allow retroactive PACE Financing. This is great news for property owners that recently completed a qualifying project/new construction of a building. Qualifying projects must have been completed “after the later of: May 19, 2019 or 3 years prior to the date on which the PACE financing agreement between the borrower and lender is signed.”
The Value of Retroactive PACE Financing
We have found retroactive financing to be in greatest demand, and the majority of the financing we are handling, in the current distressed market. PACE Financing has been the lifeline for many property owners seeking to refinance, to pay down their existing loan balances, or to establish much-needed reserves and working capital.
Mortgage Holder Consent Required While it is common practice to seek the consent of the secured lender before closing a PACE Financing (even in jurisdictions where this is not a specific requirement), the NYC PACE Program specifically requires securing this consent. There have been a fast-growing number of local and national secured lenders that have consented to PACE, and we expect that PACE will be widely accepted by local NYC-based lenders once they understand the features of the PACE financing.
Fee Simple Ownership
The definition of “Eligible Site” above indicates that the subject property must be “owned in fee simple by the PACE applicant.” While this is not unusual (for example, in California, the fee simple property owner must agree to the voluntary tax assessment), it will be interesting to see if and how this may limit the number of PACE financings, as so many New York City properties are on leased land. A long-term ground lessee will need the fee simple owner of the property (the ground lessor) to serve as the applicant for purposes of the requested PACE financing.
As described in our prior postings, PACE financing (an acronym for Property Assessed Clean Energy) allows property owners to place a voluntary tax assessment (as opposed to a mortgage or deed of trust) on their real property to fund qualified improvements (e.g., those that would reduce energy consumption).
Free webinar program on PACE Financing by industry leaders — June 22, 2021
WHAT: Free online program “Is PACE Financing an opportunity for YOU now?”
WHEN: Thursday, June 22, 2021, at 10:30 am Pacific | 12:30 pm Central | 1:30 pm Eastern.
WHO: panel moderated by Jim Butler, featuring two of the most experienced leaders in PACE Financing in the United States
- Jared Schlosser, Senior VP and Head of Stonehill PACE
- David Sudeck, Partner, Senior Member of JMBM’s Global Hospitality Group® and leader of PACE Financing team at JMBM.
REGISTRATION AND PROGRAM DETAILS: coming soon to our PACE Financing link here on HotelLawyer.com