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STEP ONE - MAKE THE CALL

“Banks should proactively approach Edith Snow
their real estate customers (or prospec- 817-676-3316
tive customers) about PACE lending or
assume someone else will and forfeit James Walsh
the chance for an expanded custom-
er relationship,” noted Rick Davis in the 281-794-0065
November/December 2016 issue of The
Texas Independent Banker. Celena Ivanitch
512-787-2164
Mortgage Consent is a TX-PACE
Prerequisite Richard Grimes

The Texas PACE Act requires a mort- 469-543-9337
gagee’s written consent as a precondi-
tion to TX-PACE financing. Morningstar
“views the lender’s consent requirement
as a credit positive because it impos-
es borrowing discipline on commercial
property owners.” 4
More than 200 mortgage holders
granted consent for commercial PACE
projects in the U.S. The U.S. Small
5
Business Administration has also given
consent for PACE funding on owner-oc-
cupied commercial properties financed
6
under the SBA 504 program. Forward-
thinking mortgagees who set evaluation cash flow for the existing owner, increas- offers three key benefits to banks. First
policies and authorize and train local ing the value of the building, or both.” and foremost, TX-PACE expands lend-
loan officers on how to assess requests ing opportunities within the bank’s mar-
for TX-PACE project consent will have an Morningstar “considers metrics typi- ket, potentially increasing its cash flow
advantage as the TX-PACE infrastructure cally associated with commercial mort- and bottom-line profitability; its natural
and economy expand throughout Texas. gage-backed securities (CMBS) as a lending market suddenly becomes big-
starting point for our C-PACE analysis.” 7
Tim Teske, Senior Vice President of This evaluation includes debt service ger. Second, TX-PACE provides financial
Financial & Government Institutions coverage ratios, total debt-to-value ratio, institutions with a collateral position
Banking for Texas’ Green Bank, NA, and property type. superior to any other possible lien posi-
states, “A PACE loan must have break- tion available on a commercial property.
even or better cash flow relative to the Mortgagee consent should be based Finally, becoming a PACE lender allows a
energy savings created and the debt ser- on a business plan demonstrating how bank to strengthen and deepen its rela-
vice to repay it. The program stipulates a proposed TX-PACE project will enable tionships to the businesses and commu-
that the proposed project and projected the mortgagee to benefit through its nities it serves.
savings must be verified by a licensed and own portfolio, its collateral, and its cus- Green Bank is the first bank in Texas
certified third-party engineer who can tomer’s financial health. The business and the third in the nation to become a
scientifically and mathematically sub- case should include enhanced commu- C & I PACE lender. “The PACE program
stantiate or reject the project.” nity relationships and ancillary benefits is a great tool for our bank officers to
that will result from a lender enabling
“The loan (note) is secured by the cre- improvements to local building stock. make more connections; it is a program
ation of a special tax assessment that is that finally has all the elements needed
assigned to the lender at closing and is “at An existing mortgage holder can to induce an owner to update his or her
par” with all other ad valorem taxes with- set reasonable conditions for consent, building’s energy and water use, with
in the taxing authority. Once assigned, such as requiring the property owner to 100% long-term fixed-rate financing,”
the collection of the note is indisputable escrow funds for PACE payments. says Teske.
and a legal obligation of the building Economic Opportunity for Local “The completed projects often cre-
owner or future owners who assume the Banks ate operational cash flow from the cost
obligation to pay property taxes. Giving reductions. Once our lenders were able
consent by a first lien lender to allow a Many financial institutions are drawn to see the potential benefits, Green Bank
PACE Loan and assessment can improve to the creative options of Texas PACE. chose to offer PACE loans that qualified
the first lien lender’s position by creating Becoming TX-PACE Lenders. TX-PACE for the program as directed by the legis-

January/February 2018 33