1. What is TX-PACE?
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.
2. What are the benefits of using TX-PACE to a property owner?
TX-PACE allows a property owner to properly maintain the property and access operational savings while preserving the company’s capital and credit line for core business investments.
A typical capital stack falls short of the funds necessary to cover the additional up-front cost of energy and water saving equipment that lowers the property’s operating costs. TX-PACE financing replaces more expensive partner equity with low cost, long-term financing that has many additional benefits:
- Assessments do not accelerate; if the property is sold, the remaining payments transfer to the new owner
- Operational savings exceed the cost of repayment
- 100% financing with no down payment
- Complements historic grants, economic development incentives, rebates, tax incentives, etc.
- Increase net operating income
- Mitigate split incentive issues between landlords and tenants, as to investments in energy efficiency and water conservation improvements
- Long-term financing (up to 20 years or more)
- Lower energy and water costs
- No personal guarantees
- Competitive rates
- Preserves capital for core business
- Adds value
- Healthier and more comfortable buildings
- Increase eligibility for building certifications such as ENERGY STAR ® and LEED
- Reduced environmental impacts
- Increased occupant productivity
3. How is TX-PACE property assessment financing different than a traditional loan?
TX-PACE property assessment financing differs from a traditional loan for the following reasons:
- Assessment is tied to the property, instead of the owner
- Terms are based on the length of useful life of improvements, as opposed to typical credit qualifiers
- The assessment automatically transfers to the subsequent owner
- The savings are structured to exceed the repayment cost
4. What types of properties are eligible?
Commercial, industrial, agricultural, nonprofit, and multifamily properties, including:
Multifamily housing (5+ units)
Houses of Worship
5. What types of improvements are eligible?
HVAC systems and controls
Chillers, boilers, and furnaces
Water heating systems
Energy management systems and controls
Building enclosure and envelope improvements
Wastewater recovery and reuse
Combustion and burner systems
Heat recovery and steam traps
On site power generation (CHP, microgrids, solar, etc.)
Water management systems and controls (indoor/ outdoor)
Rainwater collection systems
6. How does an owner qualify for financing?
Texas PACE legislation requires TX-PACE programs to ensure that property owners demonstrate the financial ability to pay the annual TX-PACE assessments. That demonstration must be based on particular statutory underwriting factors, including verification that any participating owner:
- 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 PACE assessment that is not in dispute
- Has consent of any pre-existing mortgagee to the proposed PACE assessment through a written contract
7. What are the upfront costs?
Improvements financed using TX-PACE can generate positive cash flow upon completion, with little to no up-front, out-of-pocket cost to property owners.
8. How does the assessment impact the future sale of the property?
The voluntary assessments are connected to the property and will transfer to the subsequent owner when a property is sold. The successive owner will continue to realize the savings and utilize those savings to make the obligated assessment payments. The upgrades will improve the appeal of property and its value and often assist with the sale.
9. What are typical TX-PACE interest rates?
Rates are dependent on a variety of factors. Project rates thus far hover around 6%.
10. How much financing am I eligible for?
The amount of PACE financing you qualify for depends largely on two things:
- Savings: Projects are designed to be cash-flow positive, meaning that the Savings to Investment Ratio (SIR) is greater than 1. In effect, the project should save more over its lifetime than it costs.
- Property value: Capital providers underwrite the PACE assessment based on the value of the property, as the funds are secured by an assessment on the property. In general, the assessment should be no more than 20% of the property’s value. Because assessed property values can vary, the property owner and capital provider may request a variance to this rule based on specific market factors.
For an idea of how much financing you might qualify for, CLICK HERE and answer a few questions to generate a report.
11. How is the length of the repayment period decided?
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 assessment term should be stretched long enough to ensure that the savings resulting from the project exceed the cost of the assessment up to the projected life of the improvements.
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 even longer.
12. Can I use the capital provider and contractor of my choice?
Yes, property owners may use the contractor and capital provider of their choice. PACE in Texas is open-market, and as such accommodates participation of a wide range of parties selected by the property owner. Texas PACE Authority (TPA) does not endorse any particular TX-PACE capital provider nor any contractor. The information herein is provided for convenience if you need help finding a vendor who is interested in working on TX-PACE projects and meets the PACE in a Box recommendations.
PACE in a Box is a toolkit that 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 and is being utilized throughout the state, and serving as a nationwide model.
Texas PACE Authority partnered with the US Green Building Council Texas Chapter in providing a list of possible TX-PACE service providers, which may be found by clicking here:
Eligible third-party capital providers 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 capital providers 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.
A list of possible TX-PACE capital providers can be found here: https://www.texaspaceauthority.org/home/capital-provider-list/
13. Can TX-PACE projects qualify for rebates and tax incentives and other funding programs from governmental entities?
Yes, TX-PACE projects can qualify and should receive additional rebates and incentives. All applicable government, utility provider or manufacturer rebates, and other upfront cost reductions should be applied as a credit against the total project cost for purposes of calculating the amount of the TX-PACE assessment.
14. Can the assessments be passed through to tenants?
Yes, under most commercial operating leases, TX-PACE assessments can be passed to tenants because a property assessment owed to the local government is an operating expense. Under the leases, tenants will enjoy the resulting decrease in utility bills that will place them in a cash flow positive position.
15. What is the mortgage holder consent 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 TX-PACE program.
The process to get mortgage consent requires the property owner to lead the effort with a solid business plan that can be prepared by the PACE capital provider and TPA.
16. Why would my mortgage holder consent?
Any TX-PACE proposal should be submitted to a mortgagee with an overview of PACE assessment and a solid business plan demonstrating improvement to the property value and a cash flow positive position for the customer with improvement to the net operating income of the property.
Capital providers benefit from TX-PACE financing in multiple ways:
Collateral is protected:
- The property is protected from devaluation and income losses from delayed maintenance, end-of‐life of infrastructure;
- TX-PACE improvements modernize the property and increase value;
- Existing customers are better served because the cash flow positive nature of TX-PACE assessments improve the financial position of the customer over a traditional second mortgage and do not impair the net operating income of the mortgaged property;
- TX-PACE is a new product that mortgagees can offer to attract new customers and increase the flow of capital into the market.
TX-PACE can both increase a borrower’s ability to repay (Debt Service Coverage Ratio) and increase the value of your collateral (lowering Loan to Value ratio).
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
17. How am I protected?
A coalition of 130 Texas stakeholders created a uniform PACE in a Box ‘Best Practices’ toolkit, ensuring a high-level of consumer protection is included.
These include standards, such as:
- Savings to investment ratios greater than 1 – The savings have to be greater than the cost of the project
- Uniform technical standards of developing, measuring, and verifying project savings
- Independent third-party reviews by a licensed engineer
- Assessment obligation remains with the property and transfers upon sale of the property
18. Why is a lien placed on the property?
The senior lien status of PACE assessments substantially reduces the risk of nonpayment, making TX-PACE assessments very secure and attractive to long-term, risk averse capital providers. This enables owners of commercial and industrial properties to obtain low-cost, long-term financing for energy efficiency and water conservation improvements, overcoming financial barriers that typically discourage investment in water conservation and energy efficiency retrofits to existing properties.
19. What type of lien is placed on the property?
A PACE lien placed on the property is a first and prior lien against the property itself. The lien does not take effect until recorded in the property records and runs until the assessment, interest, and any penalty are paid in full. The PACE lien has the same priority status as a lien for any other ad-valorem tax. The lien runs with the land (the unpaid portion transfers to a new owner upon sale) and is not eliminated by foreclosure on the property.