PACE Financing

Buildings consume 43 percent of energy in the United States and 30 percent of this consumption is wasted due to inefficiency. However, the payback period is simply too long on many energy efficiency and renewable energy measures - so businesses continue wasting energy and money! PACE solves this problem by offering long-term financing at a fixed rate, leading to no upfront cost and immediate positive cash flow.

• Comfort Inn & Suites - Case Study
• Hatchery Road Apartments - Case Study
• Strand Theatre - Case Study
• The Atrium Apartments - Case Study
• The Laurels of Lake Orion  - Case Study
• Birmingham Towers   - Case Study

• Long-term Financing Up to 25 Years or the Useful Life of the Project
• No Upfront Cost - 100% Financing
• Immediate Positive Cash Flow
• Runs with the Land, Transferring to Subsequent Owner Upon Sale of the Property
• Solves Split Incentive Problem - Payments Can Be Passed Easily to Tenants
• Fixed Interest Rate (Negotiated on Each Deal)

Qualifying Properties

• Commercial, Agricultural & Industrial Properties: Hotels, restaurants, office buildings, senor living facilities, multifamily (4+) & more
• Non-Profit Properties: Churches, private schools, cooperatives, & more

Qualifying Measures

• Energy Efficiency: Lighting, HVAC, windows, building envelope & more
• Water Efficiency: Low flush, low flow, gray water systems, & more
• Renewable Energy: Solar, CHP, geothermal & more
• Environmental Hazard Projects:  mitigation of lead, PFAS, flood, drought, severe weather

The PACE Administrator runs the PACE financing program on behalf of the local government.  In Michigan,  Lean & Green Michigan operates 58 local jurisdiction PACE programs covering 75% of the state’s population. The PACE Administrator leads efforts to educate all parties on PACE, while also managing the approval and execution of a PACE project. The PACE Administrator is the backbone of the PACE market - - without a PACE Administrator no one can do a PACE project.

The Property Owner is the ultimate customer and the PACE borrower. The Property Owner will realize the cost savings from the PACE project and will use those savings to pay back the PACE loan. Every project starts (and ends) with a Property Owner.

The PACE Contractor is the company that does the actual work of the project. They are responsible for performing or subcontracting an energy audit for the property in question and for performing or subcontracting the PACE funded work. Importantly, this work can be backed by a guarantee by the PACE Contractor that the Property Owner will save more money on reduced maintenance and utility costs than they will pay on their PACE payments. This guarantee does not apply to new construction and can be waived by the owner for a retrofit. You can think of the PACE Contractor as the "GC" for the entirety of the project that is financed via PACE.

The PACE Lender is a private lender and the source of funds for the PACE project. The PACE Lender enters into a special assessment agreement with the property owner and the local government, making the PACE Lender the beneficiary of a tax lien on the property. With this added security, the PACE Lender will lend 100% of the project cost at a fixed interest rate for up to 25 years. The PACE Lender is the key to making the PACE engine run!

The PACE Administrator runs the PACE financing program on behalf of the local government. In Michigan, there are 33 County PACE programs and 25 city and township PACE programs via Lean & Green Michigan. The PACE Administrator leads efforts to educate all parties on PACE, while also managing the approval and execution of a PACE project. The PACE Administrator is the backbone of the PACE market -- without a PACE Administrator no one can do a PACE project.

Here are some key questions that help determine PACE Project Eligibility include the following criteria for PACE financing.

• Is the property a privately owned commercial, industrial, agricultural, non-profit building, or new construction project?
• Is the property value greater than $400,000?
• Is the project planning to use energy efficiency, water efficiency, renewable energy technologies and/or mitigate environmental hazards?
• Is the Property Owner current on all property tax obligations?
• If the answer to all of these questions is “yes,” the project meets the initial eligibility.

It’s not guaranteed - there’s still more underwriting to be done, but that comes later.

Next, it’s time to get a better understanding of the property’s potential energy savings. If the PACE team doesn’t include a PACE Contractor at this point, this is the time to find one and Lean & Green Michigan can help.

A PACE Contractor will complete an initial energy analysis to see exactly how inefficient the building is and what opportunities exist to improve it. This includes an analysis of the last two years of utility bills, any anticipated changes to the building and its use, and a walk through of the building. 

Once it is clear that a property is eligible and there is a good potential PACE project, the next step is thorough underwriting by a PACE Lender. If the PACE team doesn’t include a PACE Lender yet, it’s time to find one. Lean & Green Michigan can help.

The PACE Lender will conduct an initial underwriting, typically asking for, among other items, the past three years of financials for the Property Owner, a title report on the property, a recent appraisal or another form of property valuation, and the existing mortgage on the property should one exist. The PACE Lender then will issue a term sheet for the Property Owner to review and sign. Typically, this will include information regarding the amount of financing available, the term length, interest rate, and other details of the prospective PACE loan.

With a signed term sheet in hand, it’s time to conduct a full energy audit and finalize the scope of the project, including costs and savings. The PACE Contractor will typically perform an ASHRAE Level II energy audit (or an equivalent energy model) as a part of their services. At this point, the PACE Contractor will typically ask for a contract from the Property Owner. The cost of this contract will usually be bundled into the finalized PACE project. If the PACE project doesn’t go forward, the Property Owner will pay the PACE Contractor for its engineering and design work.

Once this contract is signed, the PACE Contractor will finalize the energy audit and project engineering. The contractor uses the final projected costs and savings to provide a Savings Guarantee to the Property Owner that the savings from the PACE project will be greater than the payments made to the PACE Lender.  The property owner may waive the savings guarantee and new construction projects do not require a savings guarantee.

If there is an existing mortgage on the property, the Property Owner will need to obtain consent for the project from the mortgage lender. Once the energy project or environmental hazard project and the financial underwriting are squared away. It should be easy sailing with the mortgage lender. It’s important to include Lean & Green Michigan in the consent process to make sure the bank understands the legal and financial ramifications of PACE financing for the property.

Once lender consent is secured, we’re in the final stretch. Any final supporting documents are gathered and the final financing documents are exchanged between Property Owner and PACE Lender.

The next step is to submit an application to Lean & Green Michigan for the PACE special assessment agreement. This application consists of the basic information about the property and Property Owner, the energy project, and the PACE loan. Lean & Green Michigan will then work with all parties to finalize the documentation, coordinating with the respective local government.

Lean & Green Michigan will work with the local government to issue final approval of the PACE special assessment agreement.

Once the PACE project is approved, the Property Owner, PACE Lender, the local government, and Lean & Green Michigan meet to sign the necessary documents. Once the special assessment agreement and loan documents are signed, Lean & Green Michigan will record the PACE special assessment agreement with the Register of Deeds and notify the PACE lender. The PACE lender will then wire the money to the property owner that day or the following morning.

Once the financing is in place, the PACE Contractor will oversee the work included in the PACE project budget. Payments are typically handled in a manner similar to a construction loan payment schedule.

Once the project is complete, PACE Contractor and Property Owner send a letter to Lean & Green Michigan stating that the project has been installed successfully.

To make sure projects are performing as anticipated, Property Owners agree to enter their utility data into Energy Star Portfolio Manager for the PACE financing term and link their account to Lean & Green Michigan account.

Property Owner will start payments on the PACE loan according to the payment schedule outlined in the loan agreement. The PACE loan is typically paid back directly to PACE Lender, meaning that only in the case of nonpayment would the local government need to be involved.

Nothing! Now that Oakland County has joined the Lean & Green Michigan PACE program, local governments don't need to take any action for businesses and nonprofits in their community to take advantage of the program.

Property owners use the money saved on their utility bills and operating costs from the PACE project to repay the loan. The property owner can pay the PACE lender directly or the property owner can pay via their property tax bill, which would require a city or township to collect the PACE payment in the same manner as property taxes and then remit the payment to the PACE lender. In most cases, the property owner will pay directly. In the case that they don't, Lean & Green Michigan will help the city or township set up the collection process.

No government funds are used for PACE financing.  The capital comes from private lenders specializing in PACE financing.  Lean & Green Michigan maintains an active roster of lending partners and matches property owners with appropriate PACE lenders.

PACE financing is available for commercial, industrial, multifamily, and nonprofit properties.  Single family homes and government properties do not qualify.

PACE financing is for energy efficiency, water efficiency, renewable energy measures and environmental hazard mitigation projects.  Nearly any upgrade that reduces utility costs and/or generates renewable energy qualifies.  Everything from windows, doors, and roofs to electric vehicles, lighting, and solar.

PACE works great for retrofits of already operating properties, new construction developments, and adaptive reuse projects.  PACE can even be used to refinance projects that have already been completed within the last 3 years.

As early as possible! PACE can have implications on how a project is designed and how it's financed, so it's best to start the conversation on PACE as early in the process as possible.

While there are no formal limits on the size of a PACE project, there are practical ones.  On the low end, PACE projects are generally larger than $150,000.  There is no upper limit for the amount PACE financing.  The size of a project is only limited by the value of the property (financing cannot exceed 25% of property value), the potential utility savings from the project, and the existing debt on the property. 

Lean & Green Michigan is a statewide PACE program that local governments join for free, creating one big and efficient PACE market with uniform rules. Lean & Green Michigan is the go-to place for all things related to PACE in Oakland County.

Contact Lean & Green Michigan via phone at 313-444-1474 or info@leanandgreenmi.com.

 Yes. In April 2024, the HUD regional office officially approved the Lean & Green Michigan PACE program.  It was determined that the PACE program is compatible with HUD’s multifamily housing projects.  Call Lean & Green Michigan at (313) 444-1474 if you would like to discuss your HUD project.