A popular program by which homeowners can finance solar panels and pay off the costs on their property tax bills may have been needlessly suppressed by federal lenders, but a Tuesday announcement in Sacramento shows that the program can still work for energy efficiency upgrades at commercial properties.
RelatedWhat Are? PACE Loans, Feed In Tariffs, and Net Metering
Property Assessed Clean Energy (PACE) loans are an innovative program launched in California cities like Berkeley and Palm Desert that allowed homeowners to borrow money from local funds and use it to install rooftop solar on their buildings, with repayment set up by way of a recurring charge on the homeowner's property tax bill. The most popular PACE loan programs were set up so that each property owner would save more on energy costs than they'd repay in that same period on their tax bill, thus providing a financial incentive for the household.
Despite the Obama administration's explicit support for all things renewable, however, the Federal Housing Finance Agency, which runs the mortgage agencies "Fannie Mae" and "Freddie Mac," objected to PACE programs. Most state laws explicitly make property tax obligations come first when property owners have trouble paying off their debts. The FHFA decided that PACE loans paid back via property taxes thus constituted an "additional encumbrance" on properties, refusing to back mortgages for properties with PACE loans attached. That's despite the fact that those loans actually meant people had more cash on hand to do things like make mortgage payments. That pretty much shut down the whole program.
A final ruling on the FHFA's policy toward PACE loans is due in September.
In the meantime, the ruling doesn't apply to commercial properties in California, and as the Environmental Defense Fund's Kate Daniel reports, a commercial property owner in Sacramento just took the lead in Commercial PACE financing for energy efficiency improvements.
The property in question is Metro Center, four buildings in a suburban-style mixed-used business and residential complex just north of downtown Sacramento. Metro Center's owners, Seattle-based Metzler Real Estate, have secured $3.1 million in PACE funding for improvements to their heating and cooling systems, as well as upgrades to energy management systems that will save the property owners $140,000 on their utility bills each year.
That makes Metro Center's PACE loan the largest in U.S. history.
As Daniel explains, property owners like Metzler find distinct advantages in PACE-style financing arrangements for energy upgrades to their properties.
[T]he financing is tied to the property itself, rather than to the owner. This means that if the owner wanted to sell the building, it would not have to pay off the balance of the financing, but rather transfer to the next owner's property tax bill. By doing this, PACE addresses a key obstacle in commercial real estate markets: frequent ownership turnover where owners are hesitant to make long-term investments.
Seems to us that's a pretty good incentive for homeowners who want solar panels as well. With any luck, FHFA will get with the rest of the Obama administration's program and stop blocking PACE loans for home rooftop solar.