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1225 North Loop Investments, Houston PACE Program cash flow? Typical loans have a nega-
Project Completed November 2017 tive cash flow impact because of the
Financing Scenario Comparison Summary improvement’s long ROI. However,
TX-PACE assessments have a savings
Conventional
Self-Funded Loan PACE to investment ratio of greater than one
(SIR>1); the savings exceed the cost of
Out-of-Pocket Investment ($1,300,000) ($260,000) $0
the TX-PACE financing over the life of
Savings (First Year) $200,000 $200,000 $200,000 the assessment.
Annual Payment $0 ($282,803) ($118,437)
• Will addressing deferred maintenance
Cash Flow Impact Year 1 ($1,100,000) ($342,803) $81,563 reduce the mortgagee’s risk? A study of
commercial buildings in six major U.S.
Net Project Cash Flow Year 2 ($900,000) ($425,607) $163,126 metro areas from 2000 – 2012 found
Years to Positive Project Cash Flow 6.5 8.4 IMMEDIATE that commercial buildings with higher
Debt Service Over Finance Term 0 (1,414,017) (2,368,742) energy consumption or higher energy
costs had a higher default rate than
more energy-efficient buildings. 9
10-Year Project NPV $172,017 $20,747 $600,310
Property Value Increase (20-Year NPV) $993,984 $842,714 $935,520 If the TX-PACE option is superior to
a second mortgage for both the mort-
lation and Texas PACE Authority (TPA), • How would the TX-PACE project af- gagee and the property owner, should
the established third-party administrator fect the property’s debt ratio? the mortgagee consider providing the
for the program. TX-PACE can become • Is there enough equity in the property TX-PACE assessment capital or granting
an excellent financial product local banks to protect the mortgage if consent is consent?
can offer customers even if the assess- Why the TX-PACE Program Works
ment financing term extends 20 or more granted for a TX-PACE project? Since
years.” TX-PACE assessments don’t acceler- “Green Bank supports sustainable and
ate, only past due installments can eco-friendly projects in the communities
Providing Construction Funding. be collected ahead of the mortgage. it serves,” says Teske. “Green Bank sup-
Equity PACE lenders willing to make For example, in a $1 million improve- ports these concepts universally through-
20-year financing agreements may seek ment to property to be repaid over 10 out Texas and nationwide. When PACE
a local bank to provide construction years with annual TX-PACE assess- was signed into law by Governor Perry
financing.
ment installments of $100,000, only a and because of the ideals we support, we
Servicing Assessment Installments. past-due $100,000 installment can be were asked to help develop a standard-
In Texas, the local government delegates collected in a senior position. Future ized set of documents to implement and
the servicing of the PACE assessment installments stay with the property un- finance the PACE program in Texas. The
installments to the capital provider in til the PACE assessment has been paid initiative was called ‘PACE in a Box.’” 10
lieu of adding the assessments to a tax in full. One hundred thirty volunteer stake-
bill. Private equity TX-PACE capital pro- holders established best practices and
viders can outsource this function to a • What is the lien-to-value ratio? Morn- uniform model documents for PACE in
Texas bank creating a fee income source ingstar notes, “Although a PACE as- a Box—a vetted, user-friendly, free-mar-
for the bank. sessment raises a property’s lien-to
value ratio, the increased risk to the ket, small government C & I PACE pro-
Providing Capital. Local lenders look- underlying mortgage is likely minimal, gram for Texas. Every local government
11
ing for alternative safe investments, but as the obligation is usually small in establishing a TX-PACE program uses
not yet ready to be direct TX-PACE lend- PACE in a Box. State-wide uniformity
12
ers can provide capital to private, non- comparison to the mortgage. In ad- will eventually foster a secondary mar-
bank TX-PACE capital providers. dition, the property owner reaps the ket, making it easier for local banks to
benefits of cost savings and potential help their communities benefit both eco-
Evaluating a Proposed TX-PACE increase in property value thanks to nomically and environmentally.
Assessment the upgrades.” 8
Local lenders’ interests are built into
Whether a local lender is evaluat- • What is the impact of a TX-PACE proj- the Texas model. As more independent
ing a request for lender consent or for ect on net operating income (opera- banks become involved, businesses will
TX-PACE financing, here’s what to look tional savings and/or estimated rental choose to partner with their current
for in the proposal: increases resulting from the improve- bank. TX-PACE enables property owners
• Does the customer have a good rela- ments)? to do business with the parties of their
tionship with the mortgagee? • What is the impact on the customer’s choosing. Capital providers negotiate

34 The Texas Independent Banker