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Presented by:

Bali Kumar, CEOLean & Green Michigan, LLC

PACE FinancingLean & Green Michigan

#michPACE

What is PACE?

Property Assessed Clean Energy (PACE) is a financing mechanism that allows commercial and industrialproperty owners to make their properties moreenergy-efficient without incurring upfront costs.

Lean & Green MichiganWho are we? Market leading, statewide administrator for PACE financing

Our mission:1. to facilitate an efficient and thriving Michigan PACE market2. incentivize property owners to retrofit existing buildings + build properties to highest standards possible 3. Continue doing deals that improve property owners’ ROI

Lean & Green Michigan

Lean & Green MichiganWhat do we do?• Matchmaking lenders,

contractors• Contractor trainings (online

and in person)

• Manage PACE marketplace• Education of stakeholders• Paperwork

Map of Participating Jurisdictions

40Local governments have joined Lean &

Green Michigan

$24Mworth of C-PACE

projects have been completed in Michigan71%

of Michigan’s population lives in Lean & Green

jurisdictions 6

PACE in Michigan

States with PACE Legislation

Source: PACENow

National C-PACE Market• More than 1,900 commercial projects, over $880M financed• Over 13,000 jobs created• $1B in pipeline

pacenation.us

On average, 30% of all energy consumed in commercial buildings is wasted

Energy efficiency is the single largest way to reduce this waste, reduce emissions and save money

Why PACE?Energy Waste = Capital Waste

The PACE Solution!• 0% down payment• Non-recourse (no personal guarantee)• Improved cash-flow, NOI, and asset value• Assessment (and benefits) transferrable upon sale • Can be passed down to tenants• Fixed interest up to 25 years• For retrofit, gut rehab, new construction projects,

renewable energy + refinance of all these.

How are we accelerating the PACE market?

LAGM market updates

• PACE projects $250,000 and below• SIR and ESG not required• Cheaper, faster, easier

“PACE Express”

LAGM market updates

• 1. For any such PACE project that contains 2 or less ECMs, at least one ECM must exceed code.

• 2. For any such PACE Project that contains 3 or more ECMs, at least two of the ECMs must exceed code.

• 3. For any such ECM that exceeds code, this measure must be a material component of the PACE Project.

New construction policy

How does PACE financing work?

Identifying the Right Property

Property Eligibility - Legal• Located in a PACE district• Right type of property

• Commercial (incl. agricultural)• Industrial• Multi-family• Private non-profit (hospital, private

school, church, etc.)• Property owner is not delinquent on

property tax bills (including previous PACE liens) or water/sewer bills

Jurisdictions not in LAGM? • If you have a project in a jurisdiction not currently

partnered with Lean & Green Michigan, don’t worry! That’s what we’re here for.

• The process has gone very smoothly so far - and it tends to move more quickly when there is a live project that requires the passage of local PACE legislation.

Property Eligibility - Practical

• The property is healthy and likely to continue to be used for 10-25 years

• Property is not overly leveraged• Property value is sufficient

If not PACE…?• Michigan Saves is a complimentary financing mechanism

– e.g. Single family residential, gov’t properties– We can refer!

Identifying a Good Energy Project

What Michigan’s PACE Act Allows• Energy-efficiency or water conservation and/or add

renewable energy generating capacity• An energy savings guarantee is required over $250k• Bottom line: the statute is incredibly broad and leaves

room to include new technologies

Examples of improvements include, but are not limited to:

• Insulation• Lighting• Efficient windows• Caulking, weather-stripping, • air-sealing• Energy control systems• HVAC modifications• EV charging stations

• Water efficiency improvements• Solar• Wind • Geothermal• Stormwater runoff• Hot water systems• Biomass• Combined heat and power

PACE is mostly for Larger Projects!• PACE is practical for projects of $100,000 and up• Utility bills are $60,000/year or greater• PACE financed amount must be less than 25% the value of

the property• PACE makes sense for projects with simple paybacks of five

years and longer• There is no upper limit for PACE projects – they can run

into the tens of millions of dollars

Understanding the PACE Process

1. Determine Eligibility• Is the property a commercial, industrial, nonprofit,

multifamily, or agricultural property?• Is the property value greater than $400,000? • Does the property spend a lot (say, more than $60,000) on

utilities annually? • Is the existing debt on the property less than 80% the value of

the property? • Is the Property Owner current on all property tax obligations?

2. Initial Energy Analysis• PACE contractor or consultant

– Visits property – Reviews historical utility bills – Gathers information about what property owner

wants/needs• PACE contractor provides general estimate on viability of

project and PACE opportunity for property owner

3. Secure Financing• PACE contractor/property owner teams up with PACE

lender to determine opportunity for financing• LAGM is an open market: property owners may use any

appropriate lender• We have a roster of expert PACE lenders

• Most likely a specialty PACE lender, not a bank

Secure Financing • Lenders and contractors can develop relationships…

• and do project after project together as a team.• Some use contractors/consultants to determine initial

viability of deals

• Rates currently range between 5.5% and 7.5%

4. Energy Audit & Final Scope of Work• PACE contractor needs to:

– Complete the energy audit– Finalize a scope of work– Develop energy modeling for the guaranteed savings – Provide an energy savings guarantee

5. Apply Using LAGM Application

• Once you have a viable project, it is time to file an application for PACE financing with LAGM

• Iterative• Submit LAGM Application file

• Fill out all fields • Send attachments to LAGM

Potential Hiccup! Lender ConsentThe PACE lien actually improves the banks position in three ways1. Positive cash flow means property owner has more money to pay

mortgage2. The value of the bank’s underlying asset is increased3. The business outlook of the property owner improves

Hundreds of banks and agencies have given consent

When to Seek Consent?• It depends. Some banks know nothing about PACE and

will say no if asked to “take a back seat” out of the blue• The case for consent is more convincing when you have a

fully developed story – and then it is often overwhelming• Parties are much more bought into a fully engineered

project, rather than just a possibly good idea • The PACE lender and Lean & Green Michigan should

be involved in discussions with the bank

6. Documentation and Deal Closing• Once lender has been secured, it is time to document the project and

close the deal• Lean & Green and the lender will handle a lot of the paper work• Contractor provides audit, useful life calculation, project proposal, and

Energy Savings Agreement

7. Project Implementation• Upon completion, property owner and contractor must

submit installation verification letter to LAGM

8. Measurement & Verification• Energy Star portfolio manager account must be

created, linked, and updated for the project• Property owner must agree to enter utility bill data

over the entire term of PACE loan• Details regarding frequency of data entry will be in

the energy savings guarantee

PACE in the Capital Stack: Incentives and Rebates

• DTE Energy • Consumers Energy • Historic Tax Credits – (513-515 West Ionia case study)• Brownfield Funding – (513-515 West Ionia case study) • Solar tax credits • Match loans – (Motor City Match) • Other incentives too!

Case Studies

Heller Machine Tools

• ABM installed HVAC, Roof, Lighting, Building Controls• 15 year term• $978,607 in PACE financing• Total avoided utility costs $1.7 million• Total net-savings of $230,498

Garfield Metro Building

• BASS Controls installed efficient heating and cooling systems, LED Lighting, Building Controls

• 20 year term, $249,000 in PACE financing• Total avoided utility costs: $733,133• Total net-savings of $254,725• Average annual cash flow increase: $12,736

Multifamily HousingCambridge Court

Apartments

Greenville, Montcalm County

ECMs: solar PV, LED lights, efficient boiler, building controls, and more...

PACE Project:- 15 year term- $117,580 in PACE- $68,000 net savings

513-515 Ionia Street

Lansing, Ingham County

ECMs: solar PV, EV charging, LED lights, CHP system, more...

PACE Project:- 20 year term- $247,829 in PACE- $276,457 net savings

Hatchery Road Apartments

Waterford Twp., Oakland County

ECMs: LED lights, new HVAC, building insulation, water conservation measures, and more...

PACE Project:- 20 year term- $224,335 in PACE- $175,680 net savings

HotelsRoberts Riverwalk

Detroit, Wayne County

ECMs: windows, doors, insulation,solar, water conservation and more...

PACE Project:- 20 year term- $4760,000 in PACE- $15,610,161 net savings

St. Clair Inn

Port Huron, St. Clair County

ECMs: insulation, LED lights, water conservation measures, ice machines, mini refrigerators, more...

PACE Project:- 20 year term- $5,530,100 in PACE- $1,946,404 net savings

Hotel Harrington

Port Huron, St. Clair County

ECMs: water conservation measures, solar PV, high efficiency HVAC, elevators, more...

PACE Project:- 20 year term- $2,627,750 in PACE- $1,964,749 net savings

Closing Remarks

PACE is at a tipping point in Michigan and USA• Projects as large as $24M, $25M and

$40M in TX, DC and CA

• In 2018, we closed 7 deals in MI – $17.9M in 2018 – 4 multi-million dollar deals

• All of us in this room – let’s work together and get this work done!

CALL TO ACTION

1. Properties that you are connected to that can benefit from PACE financing?

2. Your name and email – and we will follow up.3. Sign up for our online contractor training!

Contact www.leanandgreenmi.com

Bali Kumar, 313-444-1474bali@leanandgreenmi.com

info@leanandgreenmi.com for general inquiries