A primer on how Property Assessed Clean Energy (PACE) works and why to use it.

1. A
Property Assessed Clean Energy
(PACE) Financing
A Primer for Commercial Real Estate Companies

2. WHAT IS PACE?
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PACE is a tax-assessment based
financing mechanism for energy
efficiency, renewable energy, and water
conservation projects.

3. PACE: OLD CONCEPT – NEW APPLICATION
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1736 – First Assessment
District in Philadelphia
Today – 37,000 Assessment
Districts nationwide
 Water & Sewer Service
 Parks
 Sidewalks
 Lighting
 Downtown renewal
 Energy Efficiency (PACE)

4. PACE BASICS
 Assessment-based financing
 Enabled by Statewide legislation
 Sponsored by a “local” government – a taxing jurisdiction
 PACE assessment collected with and like any other property
tax and assessment
 PACE assessment survives sales, including foreclosures
 PACE assessment in arrears is senior to mortgages - but only
the past due assessment
 Future PACE assessments are paid by future building owners
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5. HOW PACE WORKS
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• Energy project construction proceeds exactly as it typically
would.
• Rather than using equity and/or debt for project financing,
property owner uses a PACE provider.
• PACE provider directs the local taxing authority to add a line
item to the property’s regular tax bill, in annual repayment
amounts for duration of the financing.
• PACE repayment is collected with the property tax payment,
with no additional paperwork for the property owner.
• Municipality remits the PACE assessment payment to the
PACE provider.

6. WHO CAN USE PACE?
Most Buildings, Even Non-Profits
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7. WHAT CAN BE FINANCED THROUGH PACE?
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Projects that Save or Generate Energy

8. PACE LEGISLATIVE MAP
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32 States + DC, 80+% of US Population
2009
2009
2009
2013
2009
2009
2009
2009
2009
2009
20152008 20132013
2013
2011
2010
2010
2010
2010
2010
2010
2012
2010
2009
2009
HI Existing Authority
2016 legislative initiatives
2013
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2014
2015
2015
PACE enabled
2015

9. 9
C-PACE PROGRAMS TODAY
730+ Projects – $230+ million
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PACE programs with funded projects
Early stage PACE program development
Launched PACE programs
PACE enabled
RI
DC

10. WHY PACE FINANCING?
 The secure nature of PACE enables up to 20-yr funding:
projects with simple paybacks as long as 12 years can be
implemented on a positive cash flow basis
 Increases NOI.
 Increases Property Value.
 Allows comprehensive projects
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 No payoff on sale – PACE automatically transfers to the
new owner, like any other real estate tax
 No residual encumbrance and easy exit.
 Takes the risk away from investing in needed CAPEX.
 PACE funds 100% of hard and soft development costs
 Recovery of overhead expenses and development fees.
 No money down

11. WHY PACE FINANCING?
 The benefits AND the cost of projects can be shared with
tenants
 Aligns landlord and tenant interests (eliminates the split
incentive issue)
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 Provides one or more benefits under all lease types
 Increases NOI
 Increases property value
 Improves aging infrastructure with no residual encumbrances
 Increases cost recovery by aligning landlord and tenant
interests
 Increases sustainable development

12. SIMON PROPERTY GROUP – GREAT LAKES MALL, OH
“We hope to serve as pioneers
in this arena, encouraging
others to explore the many
ways to reduce energy use
now, rather than delaying
sound financial and
environmental decisions.”
George Caraghiaur, former SVP for Sustainability
at Simon Property Group
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$3.4M PACE Energy Efficiency Project

13. PROLOGIS, INC. HEADQUARTERS – SAN FRANCISCO, CA
“Prologis is participating in the
PACE program in order to
promote new, innovative
solutions for financing sustainable
building improvements. It
provides the flexibility to drive
more energy improvement
programs and that’s something
everyone should embrace.”
Jack Rizzo, Managing Director, Global
Construction and Renewable Energy, Prologis
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$1.4M PACE Energy & Solar Upgrade

14. MOUNTAIN VILLAGE – SONOMA COUNTY, CA
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Sonoma Mountain Village used
PACE to finance a 1 MW solar
electric system in Rohnert Park
(CA) that allowed SMV to cover
100% of its electric needs from
on-site renewable power.

15. THE FINANCIAL IMPACT OF PACE - AN EXAMPLE
 Property where the Landlord provides common area
cooling and lighting
 Project involves a $200,000 energy efficiency retrofit
 Annual energy and maintenance savings of $33,000 (6.1
years simple payback)
 PACE funding available for up to 20 years
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16. SCENARIO 1 – OWNER-OCCUPIED BUILDING
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Key Attributes of owner-occupied buildings
• The owner is responsible for the payment of real estate taxes,
building insurance, and common area repair and maintenance
expenses
• Recovery of these expenses is through base rent
Similar to owner-occupied buildings: Gross leases; Hotels; multi-family.
• Any energy efficiency savings flow directly to the owner's
bottom line
• Energy efficiency projects – versus required infrastructure
improvement projects - are evaluated on the basis of cash-on-
cash return on investment

17. FINANCIAL IMPACT OF PACE – OWNER-OCCUPIED BUILDING
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Simplifying Assumptions
Annual Energy Cost Increase: 0%
Annual Maintenance Cost Increase: 0%
PACE financing interest rate: 6%
10-yr horizon for NPV and IRR calculations

18. FINANCIAL IMPACT OF PACE – OWNER-OCCUPIED BUILDING
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PACE increases property value with no capital investment by the owner
Self Funded PACE 20 years PACE 8 years
Investment by owner ($200,000) $0 $0
Decrease in energy cost $33,000 $33,000 $33,000
Increase in real estate tax $0 ($17,440) ($32,200)
EBITDA impact $33,000 $15,560 $800
Cash flow year 1 ($167,000) $15,560 $800
Cash flow year 2 thru PACE term $33,000 $15,560 $800
Cash-on-cash IRR 13.4% N/A N/A
NPV of cash flow (8% discount rate) $36,000 $104,000 $5,300
Property value increase at 6%
cap rate (during financing term)
$550,000 $225,000 $11,000

19. SCENARIO 2 – TRIPLE NET LEASES
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Key Attributes of Triple Net Leases
• Real estate taxes, building insurance, and common area repair
and maintenance expenses are "passed through" to tenants on a
pro-rata basis based on the relative size (square footage) of the
area occupied by each tenant
• The tenants are typically directly metered and responsible for
utilities in their own space
• All energy efficiency savings in the common area generated
from investments by the landlord go directly to the tenants'
bottom line
• Any increase in real estate taxes can be passed through to the
tenants

20. FINANCIAL IMPACT OF PACE – TRIPLE NET LEASES
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Simplifying Assumptions
Annual Energy Cost Increase: 0%
Annual Maintenance Cost Increase: 0%
CAM Expense Recovery Rate: 100%
Real Estate Tax Recovery Rate: 100%
Green Lease Clause for CAPEX Recovery: Not applicable
PACE financing interest rate: 6%
10-yr horizon for NPV and IRR calculations

21. IMPACT OF PACE – TRIPLE NET LEASES
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Financing energy efficiency through PACE improves the asset and can
lower costs for tenants with no capital investment by the landlord
Self Funded PACE 20 years PACE 8 years
Investment by landlord ($200,000) $0 $0
Decrease in energy cost for LL $33,000 $33,000 $33,000
Increase in real estate tax for LL $0 ($17,440) ($32,200)
EBITDA impact $0 $0 $0
Cash flow year 1 ($200,000) $0 $0
Cash flow year 2 thru PACE term $0 $0 $0
NPV of cash flow (8% discount rate) ($200,000) $0 $0
RET recovery from tenants $0 ($17,440) ($32,200)
Energy savings shared w/tenants ($33,000) ($33,000) ($33,000)
Tenant annual net savings $33,000 $15,560 $800

22. PACE FINANCING – IN SUMMARY
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Proven: Assessment districts have been use in the US since 1736, and PACE
assessment districts are underpinned by the principle that energy efficiency
and renewable energy projects on private property have a public purpose
Voluntary: interested owners opt-in a PACE District to receive private market
financing for improvements
Senior: PACE has the same senior standing as non ad valorem taxes. As with
taxes, there is no acceleration upon default. Well accepted by mortgagors.
Tax Assessed: property owners who use PACE to finance retrofits pay for the
improvements through annual assessment payments on their property taxes
Availability: 32 States with PACE law. 15 States/DC with PACE programs in
place.
Transferability: Assessments are linked to the property and transfer to a new
owner upon sale. No residual encumbrances and easy exit
Beneficial: Covers 100% of costs, increases NOI and property value, improves
aging infrastructure, and aligns landlord and tenant interests

23. PACENATION
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Supporting the PACE Marketplace
PACENation is a non-profit with a mission to promote PACE
financing by providing leadership, support, resources, advice,
networking and problem solving for a growing universe of
PACE market participants.
We’re here to help!
Please reach out to us at
www.PACENation.us or
info@pacenow.org