San Francisco Tax Lien Financing Program for Commercial Building Clean Energy Upgrades


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  • The next few slides look at emissions and reduction goals for the entire city of San Francisco, including government, businesses, and residents. Emissions from energy use are in blue, emissions from fossil fuels used in transportation are in red and orange, and emissions from landfill waste are in purple. 56% of emissions come from natural gas and electricity use in buildings (note:electricity supplied by PG&E for city businesses and residents is not as clean as what SFPUC delivers for city operations). 39% are from cars and trucks. 5% emissions are from waste decomposition in landfill. Note: 5.4 million metric tons (12% below 1990). Can show percent to one decimal point?
  • Optional intro slide…
  • You might stress that it’s one bond backed by one project; 144 A transaction; and that the City is not guaranteeing the obligation, other than its promise to collect property taxes per usual procedures. Or this could all just go into your notes.
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  • I would give some stats on a building size/type that could see a project like this one- how many square feet, multi-tenant? Also, show the types of EE or RE measures, if you have enough space
  • San Francisco Tax Lien Financing Program for Commercial Building Clean Energy Upgrades

    1. 1. San Francisco Tax Lien Financing Program for Commercial Building Clean Energy UpgradesRich Chien LEED APDepartment of the EnvironmentCity and County of San 355-3761
    2. 2. 2010 SF Citywide CO2e Emissions by Sector Rail (BART & Ferry Waste Residential Caltrain) 0.6% 4.5% Electricity 1.6% 6.6% MUNI Buses & Rail Residential Natural 0.5% Gas Source CO2e (MT) 14.3% Cars & Trucks 2,116,126 Commercial Electricity* 861,559 Residential Natural Gas 777,114 Commercial Natural Gas 605,381 Residential Electricity* 358,033Cars & Trucks Waste 244,625 38.8% Municipal Electricity* 216,548 Commercial Electricity Municipal Natural Gas 119,843 15.8% Rail (BART & Caltrain) 89,530 Ferry 34,103 MUNI 25,650 Commercial Natural Total: 5,448,513 Municipal Natural Gas *preliminary Gas Municipal Electricity 11.1% 2.2% 4.0% ~27% of total emissions 5.4 million metric tons (12% below 1990) 2
    3. 3. GreenFinanceSF – Overview• Property Assessed Clean Energy (PACE) Program – Extension of traditional municipal land-secured financing (example: burying utility lines) • Financing secured by lien/assessment on property • Paid off via property taxes• Under PACE framework, GreenFinanceSF can provide secure project financing for energy efficiency, renewable energy & water conservation projects for existing privately owned buildings• 26 U.S. states now have specific enabling legislation 3
    4. 4. PACE Financing Basics Government Sponsor Property Owner Upfront Capital Repaid on Tax Bill• Creates financing district & approval • Identifies work & chooses contractor process • Repays financing as a line item on the• Attaches repayment obligation to the property tax bill (up to 20 years) building via property taxes • Repayment obligation transfers with• Private investors provide upfront capital ownership 4
    5. 5. Why PACE• Collateral is property not owner credit• Up to 100% upfront financing• Preserve capital for core business investments• Long term – up to 20 years• Lower rates than other available products• Tax lien structure can mean minimal covenants• Obligation stays with property in event of sale• Improvement costs & benefits align under most lease structures (e.g. property tax pass-through)• Long financing term + moderate interest rates = cash flow positive energy improvements 5
    6. 6. Open Market PACE Features• Flexible (not one size fits all)• Bonds purchased by Qualified Institutional Buyers, or Accredited Investors, as defined by SEC (“PACE Lenders”) • Each building/project consists of an individual “improvement area,” backed by single privately-placed special tax bond• Tenor: negotiated • Maximum term determined by program • Shorter of equipment working life or 20 years• Rate: negotiated • Illiquid nature of PACE securities mean rates in the 6-9% range• Fees • Program fees listed • PACE Lender fees negotiated• Project specific underwriting criteria: vary widely by lender and by project 6
    7. 7. Property Eligibility• Program underwriting requirements – Property located in City/County of San Francisco – Equipment/materials permanently affixed to property – Currently pay (or be eligible to pay) property taxes – Lien holder consent/acknowledgement – Current on mortgage debt and property taxes – No recent defaults, bankruptcies or late property taxes – Property can’t currently be “underwater” on debt • Using currently assessed OR recently appraised value of property – Title search to confirm eligibility and ownership• Project investor may have additional underwriting requirements 7
    8. 8. Project Eligibility• Common and custom EE, RE, WC measures*• Professional energy audit• RE projects to be paired with EE – Reduce energy use 10% as a condition for financing RE• No effect on ability to take advantage of applicable incentive/rebate programs• Use of ENERGY STAR Portfolio Manager – Free service to track and benchmark energy usage – Comply with Existing Commercial Buildings Energy Performance Ordinance *EE=Energy Efficiency, RE=Renewable Energy, WC=Water Conservation 8
    9. 9. Example Project Economics Scenario350,000 sq. ft. multi-tenant commercial office~$3.00/sq. ft. retrofit cost (after rebates), includes: – New cool roofing, insulation, window film – HVAC (new chiller, VFD’s, motors, pumps) – Lighting and lighting controls – Toilets, urinals, faucets Project Cost $1,000,000 Interest Rate 1 7% Term 15 years Annual Payment $110,000 Annual Energy Savings $150,000 Cash Flow Savings $40,000 VALUE INCREASE 2 $533,000 3 1 Will depend on investor, owner, and project. Typically quoted as a "spread" on index, i.e. 20-year Treasury 2 Value = Net Operating Income / Capitalization Rate 3 Assuming a capitalization rate of 7.5%, the excess savings translates into a value increase of $533,000 without coming out of pocket for the cost of the upgrade. While these numbers do mirror those of actual projects, this example is provided for illustrative purposes only. Actual savings, rates and terms will vary. 9
    10. 10. Get Started @ 10
    11. 11. Thank You! Rich Chien (415) 355-3761 Simón Bryce (510) 451-7906 (415) 937-7223 11