Lender FAQ

TX-PACE (Texas Property Assessed Clean Energy) is a proven financial tool that enables commercial, industrial, agricultural, nonprofit, and multifamily property owners to upgrade facility infrastructure with little or no upfront capital outlay. The program is designed so that owners lower their operating costs and pay for eligible improvements with the savings generated, taking advantage of affordable, long-term financing.

PACE assessments are attractive to lenders because they are very secure investments. A TX-PACE lien has the same priority status as a lien for any other ad valorem tax and runs with the land. Therefore, the risk of loss from non-payment of a PACE assessment is insignificant compared to most other types of financing.

PACE assessments provide lenders with an attractive new product to assist existing and new customers in addressing an almost universal pent-up demand for needed commercial and industrial property equipment modernization. In order to protect the interests of holders of existing mortgage loans on the property, the PACE Act requires written consent by the mortgagee to the PACE assessment as a condition to obtaining PACE financing.

The following are some but not all requirements that assist in the protection of the investment:

A TX-PACE lien has the same priority status as a lien for any other ad valorem tax and runs with the land (the unpaid portion transfers to a new owner upon sale); and is not eliminated by foreclosure of a property tax lien.

Delinquent installments of the assessments are collected by the local government in a suit to collect a delinquent installment of an assessment in the same manner as in a suit to collect a delinquent property tax.

As Keeping PACE in Texas began researching best practices, it noted a California trend in which hundreds of early adopting adaptor local governments were opting into one or more state‐wide competing administrative programs with each providing an exclusive or favored funding mechanism that relies on privately or publicly funded municipal bonds. The competition among these government‐selected program administrators and the differing program requirements can be confusing and expensive.

The case for a state-wide, uniform program model was made in 2013 by Connecticut’s new PACE statute, which is the only one that created a single governmental state-wide agency to administer a PACE program on behalf of local governments. In its first eight months of operation, Connecticut accounted for one‐half of all commercial PACE financing in the U.S. in 2013.

Although a state‐administered TX-PACE program is not an option in Texas, the Keeping PACE in Texas coalition recognized that uniform programs covering large areas provide economies of scale. This vision created the PACE in a Box toolkit that is being utilized throughout the state, and serving as a nationwide model. The program enables local governments in Texas to utilize a uniform turnkey program that provides underwriting and technical standards best practices and model documents. The program was designed by over 130 stakeholders including local and national lenders.

Texas PACE Authority administers the uniform PACE in a Box model on behalf of local governments as a public service and guides applicants through the TX-PACE process.

If there is an existing mortgage lien on the property, the mortgagee must be given thirty days advance notice and must provide written consent prior to including the property in the PACE program.

If a client wants to do a PACE project, he/she will need the mortgagee’s consent to the PACE assessment. A solid business plan may include several factors outlined in A Case for Lender Consent linked below. In short, PACE can both increase a borrower’s ability to repay (Debt Service Coverage Ratio) and increase the value of a mortgagee’s collateral (lowering LTV).

An overview of why a lender would consent: A Case For Lender Consent

Finally, a list of institutions nationally that have consented: List of Consenting Lenders

The goal of TPA is to have a well-resourced, efficient, and financially stable organization while keeping costs to a minimum and operating in a lean fashion. To that end, TPA charges two types of fees as part of administration, an application fee and an ongoing interest rate residual. These fees cover the basic administrative service to complete a PACE project as well as the ongoing oversight and program reporting to local governments that enact a PACE region.

For detailed information about our fee structure, visit the Program Documents page >>

Texas PACE legislation requires TX-PACE programs to ensure that property owners demonstrate the financial ability to pay the annual PACE assessments. That demonstration must be based on particular statutory underwriting factors, including verification that any participating owner:

Has consent of any pre-existing mortgagee to the proposed TX-PACE assessment through a written contract

• Is the legal property owner
• Is current on mortgage and tax payments
• Is not insolvent or bankrupt
• Holds a title to the property to be subject to a TX-PACE assessment that is not in dispute

Each lender sets their own financing parameters. The amount of PACE financing a project qualifies for depends largely on two things:

1. Savings: We expect your project to be cash-flow positive, meaning that you have a Savings to Investment ratio of greater than 1. In effect, your project should save you more over its lifetime than it costs you.

2. Property value: Lenders underwrite your loan based on the value of your property, as the loan is secured by an assessment on the property. In general, we expect the assessment to be no more than 35% of your property's value.

To fix the length of the assessment, the property owner first determines the total cost of the TX-PACE project and the projected utility savings. The assessments term should be stretched long enough to ensure that the savings resulting from the project exceed the cost of the assessment.
Texas legislation requires that the assessment term must be shorter than the useful life of the improvement or, in a multi-measure project, the weighted average useful life of the improvements.

Depending on the improvements, this often ranges from 10-25 years or longer.

Once all documents and materials required as part of a PACE project application have been submitted, please allow 10 business days for review and evaluation. If approved, TPA will then issue a notice to proceed to closing.

Rates are dependent on a variety of factors. Project rates thus far hover around 6%.

PACE in Texas is open-market, and consequently a wide range of parties can underwrite PACE assessments. Eligible third-party lenders may include:

• Any federally insured depository institution such as a bank, savings bank, savings and loan association, and federal or state credit union;
• Any insurance company authorized to conduct business in one or more states;
• Any registered investment company, registered business development company, or a Small Business Administration small business investment company;
• Any publicly traded entity; or
• Any private entity that:
  • Has a minimum net worth of $5 million;
  • Has at least three years’ experience in business or industrial lending or commercial real estate lending (including multifamily lending), or has a lending officer that has at least three years’ experience in business or industrial lending or commercial real estate lending; and
  • Can provide independent certification as to availability of funds.

All lenders must have the ability to carry out, either directly or through a servicer, the bookkeeping and customer service work necessary to manage the assessment accounts.

Note that the Texas PACE Authority neither recommends nor endorses any particular PACE Service providers. This directory is provided solely for convenience in consolidating a list of PACE service providers. If you would like to be listed as a PACE lender, please contact Texas PACE Authority.

Lender List

If you want to be listed on the TPA website and meet the requirements outlined above, fill out Texas PACE Authority’s Request for Qualifications and submit. That RFQ can be downloaded: PACE Lender Request for Qualifications