Sean Williamson: Welcome everyone and good afternoon. This is the Marketing Commercial PACE Internally and Externally Understanding the Role of Government Sponsors webinar. My name is Sean Williamson. I’m an advisor for partnerships and technical assistant at the Department of Energy. We’ll get started in just a couple minutes but thanks for attending today. Good afternoon and welcome everyone to the webinar Marketing Commercial PACE Internally and Externally Understanding the Role of Government Sponsors. This is part of the commercial PACE working group, a technical webinar series. We’ll get started in just another minute or so. Waiting for a few more folks to log in. So sit tight and we’ll start soon. Thanks.
All right. It’s a few minutes past the hour. I think we can get started. Welcome everyone. My name is Sean Williamson. I’m an advisor for partnerships and technical assistance at the United States Department of Energy and I’m the coordinator of DOE’s commercial PACE working group. Welcome to this webinar. The title of it is Marketing Commercial PACE Internally and Externally Understanding the Role of Government Sponsors. I am particularly excited about today’s webinar because we’ve heard overwhelmingly from participants in the C-PACE working group how important marketing is.
And there’s a lot of uncertainty around how to do it well and how to form partnerships to be cost effective and successful in marketing efforts. So we have some fantastic speakers lined up for the call today and I trust that attendees will be more informed and confident about their marketing next steps after participating in today’s webinar. Next slide please.
So just to step back and remind folks as to the purpose of the commercial PACE working group technical webinar series. Overall we wanted to provide in depth technical content about the C-PACE program elements to state and local participants in DOE’s commercial PACE working group with support from market partners. We’ll focus on specific topics ranging from marketing to program design to evaluation measurement and verification and so on.
So today’s webinar will focus specifically on marketing. And we’re going to think about three specific areas. Number one, energy efficiency marketing strategies broadly and commercial PACE marketing specifically. Number two, how and why to message commercial PACE to different audiences in particular thinking about audiences internal to a government sponsor versus those external to a government sponsor. And three, the marketing role of commercial PACE sponsors in the context of other program partners such as program administrators, lenders and contractors.
Next slide. Just a bit of housekeeping on today’s webinar. The webinar will be recorded. Transcript, slides and recording will be available to C-PACE working group participants. The duration of the webinar is 90 minutes. If we can wrap up sooner and get folks on with their day I’ll definitely strive to do that. Attendees are in listen only mode to cut down on background noise. And attendees are definitely encouraged to type questions and feedback in the webinar interface tool throughout the webinar. If folks have questions that are verbalized you can go ahead and raise your hand and we will call on you to speak up. There’s sometimes some technical issues with audio with participants so that’s why we primarily rely on the chat box. But if you’re having issues typing or would like to speak please click the raised hand button on your _____. Thank you.
Next slide. So the agenda for today’s call – I’ll start off with a very brief summary of why today’s presentation and focus on marketing is important and why the content that we’ve put together will hopefully serve state and local sponsors of commercial PACE programs. Then we’ll turn to our four presenters on today’s call. Each will be talking for approximately 15 minutes and then we’ll have time at the end for Q&A that will take about 20 minutes. Next slide please.
So why today’s topic? Marketing commercial PACE is something that I regularly hear about from state and local governments. It’s clearly a priority area. I hear questions such as does our local government or state need to go marketing around commercial PACE? Is marketing a service we want our program administrator to provide? We’re getting stagnant uptake of our commercial PACE program and need marketing help. So these are questions that I regularly hear about and hope to address them on today’s call. Marketing commercial PACE as a financing option and driving uptake is both a priority for state and local government sponsors of commercial PACE programs and is clearly difficult to do. This is why we’re spending time on this today and why we’ve assembled the speakers that are, have demonstrated years of experience and expertise on this topic.
So my working hypothesis is that state and local commercial PACE sponsors can find success in marketing and do so efficiently with minimal burden through partnerships specifically with program administrators and capital providers. They can also leverage both internal and external partners to differentiate marketing and messaging accordingly. And by sticking to a clear and concise message. So today’s speakers bring years of commercial PACE marketing and communicating experience. We’ll focus on the questions you see listed on this slide.
First up with be Cat Lazaroff from the resource media. She’ll bring a perspective of communications professional to the conversation and set the stage for best practices around energy efficiency and energy efficiency financing, marketing more generally. Next we’ll have a tag team presentation from Caleb Bell of Bricker and Eckler and Jeremy _____ of the Columbus Franklin Finance Authority.
Caleb and Jeremy will tell us how they’ve partnered to grow commercial PACE in Ohio, their tips for marketing and messaging and insights on how to make the most of existing relationships to get a program off the ground. Finally Michael Leahey of PACE Equity will share the perspective of a capital provider in originating and closing commercial PACE projects. Michael has insights about customer segmentation and case studies that will be very helpful to the audience.
So without further ado, I’ll now introduce Cat Lazaroff. Cat represents Resource Media which is a nonprofit strategic communications group with a broad focus on energy issues as well as public health, environment and social justice issues. Cat has lead energy efficiency work at Resource Media for the last four years and has worked on energy efficiency messaging with partners ranging from city energy offices to major manufacturers, to building owners and managers, efficiency contractors and homeowners and renters. Cat please take it away?
Cat Lazaroff: Thank you so much, Sean. I am delighted to be here today as a part of today’s webinar on marketing C-PACE. I really appreciate the invitation from Sean Williamson and the US Department of Energy. Next slide. So as Sean mentioned I have worked across a lot of different energy efficiency projects with a lot of different partners at all levels of the economy. And across all of this work there’s one common truth. Most people have no idea what energy efficiency is. They don’t know how to make their properties more efficient or even why they should. In fact, to this day, the image that pops into most people’s heads when you say the words efficiency – next slide.
Is a curly outdated compact fluorescent light bulb. So that unfortunately is our starting point. Our job is to help potential customers understand what energy efficiency could mean to them and their businesses. That means we have to provide examples and stories and images of the products that we’re promoting. And in this case it’s a financing product C-PACE. So how do we start? Next slide.
Let’s start with what differentiates C-PACE from other financing opportunities for energy efficiency upgrades. As most of you will know, C-PACE requires that project _____ which means we need to know up front that the investments made to make a commercial property more efficient are going to pay for themselves in savings on energy bills. That means that this, the C-PACE opportunity avoids up front cost barriers. It’s a way for folks to go ahead and invest in energy efficiency without spending a bunch of money out of their pockets and hoping that it will pay back over the years. It’s also flexible. It can mesh with existing capital improvement schedules. It doesn’t have to be done at any particular time. You can decide to do it when you’re already making other upgrades to your building.
Because C-PACE loans are longer term than most loans you get really good interest rates for them which is one of the reasons they can pencil out in ways that other kinds of financing may not. They’re transferable. They’re tied to the property and not the owner which avoids the barrier of folks who are wondering whether they’re going to be in their building, in their property long enough for an energy efficiency investment to pay off. And finally it overcomes the tenant and landlord’s split incentive. So investments that are going to pay off on tenant’s energy bills can actually be made by the landlords. Both the tax assessment and the cost savings from the project can be then shared with tenants under most lease structures.
Now this is all stuff that you know but – and it makes C-PACE sound great. Right? But unfortunately most of your potential C-PACE customers don’t know this. And we’ve still got a lot of hurdles to overcome. And some of these are tied directly to the profile of those potential C-PACE customers. Next slide.
So what do we know about these potential customers? Like all business owners and managers, really like everyone today they’re really busy. So part of your job is to persuade them that applying for C-PACE funding is worth an investment of their limited time. And the more complicated the application process, the harder that will be. In recent focus groups in Philadelphia that were exploring uptake of another kind of energy efficiency financing program, one of the biggest problems cited by building owners was the cost of engaging with the program. If the potential cost savings from the energy efficiency upgrades was less than 30 percent, many business owners said they wouldn’t bother applying because it was just too complicated and time consuming. So one of the biggest things that municipalities and governments can do to increase uptake of C-PACE is to simplify the application process and guide customers through it. And you might not think of that as part of marketing but it’s a crucial first step.
Another thing we know about these customers, energy use may not be a top concern for them. They may not be aware that their energy use is particularly high. If they are aware they may not be aware that there’s anything that they can do about it. And in deregulated markers they’re likely dealing with complicated energy provider options. Maybe bills and notices from multiple providers. So it’s really complicated for them to even think about what their energy use is much less what they can do to reduce that use and save costs. Helping them to navigate this wilderness can be another crucial first step in engaging them on energy efficiency and C-PACE.
A third option, a third indication here. Timing is everything. And I’m going to talk about this more later. C-PACE can fit well into existing capital improvement plans but businesses and nonprofits may not have time to listen to presentations about energy efficiency and C-PACE until they’re actually thinking about their next big upgrades and repairs. So the more you can learn about when a business or nonprofit might benefit from energy efficiency upgrades, the better.
Finally depending on the business or nonprofit cash flow may be a problem. So right up front you have to persuade them that using C-PACE they can avoid upfront costs for energy efficiency investments and save money long term and hope that the promise of savings outweighs the time costs of applying. Now that’s the high level view but of course each market segment is different, restaurants versus retailers, churches versus nursing homes. So the more you can focus on specific audiences the more successful you’ll be. In the end marketing is about reaching out to customers not waiting for them to find you. If you build it they will come only works for baseball diamonds in cornfields. So you have to figure out which segment of potential C-PACE customers you want to reach and tailor your messaging, materials and tactics to that audience.
Next slide. Now on the topic of cost, we may think that that’s the best selling point for energy efficiency investments. But we also know that costs are not the only benefit of efficiency that matters to businesses and nonprofits. So sure, this LED floodlight could save a company money. But it could also make the company’s staff and customers feel safer in parking lots and other outdoor spaces. And in fact, research has shown that the number one motivators for most people to take action on energy efficiency is to promote health and safety. People believe that energy efficiency, energy efficient buildings are healthier buildings.
So it’s important in your marketing to not just focus on cost savings in your messaging and materials. Include nonenergy benefits in your case studies and your materials. Do employees of companies that have made investments feel better? Do they work more productively? What about customers for businesses like restaurants? Does new outdoor lighting make folks feel safer? If you can tell these stories you can dramatically broaden the kinds of audiences that are going to pay attention to your messaging. Next slide.
Of course who delivers a message about C-PACE and energy efficiency is just as important as what’s in that message or when it’s delivered. Our own research has showed that building owners and managers look to their peers, vendors and local utility representatives to help tackle energy issues in their building. Owners and managers also rely heavily on trade organizations such as the building owners and managers association to learn from and to network with their peers. In limited cases they also turn to local governments that offer energy efficiency programs and rebates.
An example from our own work, we spoke to a contractor in Virginia whose cold calls are often met with skepticism. Building owners and managers say that sounds too good to be true. As a solution that contractor has partnered with a more trusted and better recognized ally, the city. Through cities and chambers of commerce who have name recognition and are more likely to be trusted than contractors, they have increased their market penetration of their energy efficiency upgrades. So one of the tactics we can use is to create opportunities for communicating property owner to property owner within a sector ideally like from restaurant owner to restaurant owner so that others can see themselves benefiting from similar investments. It’s about seeing themselves as part of that energy efficiency story.
Some tools that we recommend using are case studies which can be delivered through targeted direct marketing. But the case studies must be local and/or sector specific. Building owners and managers want to see real evidence that energy efficiency works and can actually save them money. Specifically they want to see examples of what other buildings like their own are doing. Now of course there are a number of case studies at pacenation.us/casestudies. But even better create your own from within your own work.
For networking, showing up at sector events, placing individual names, phone numbers and emails of your staff on outreach materials and ensuring that calls are returns and emails are answered can go far in building trust and the productive relationships that can lead to more projects. Consider creating your own meet or greet or educational events such as tours of past projects, events with chambers of commerce, etcetera. Make them attractive by offering information that folks actually want and need such as navigating energy offers from multiple providers. And of course if you offer food and drink you’ll definitely increase attendance.
Develop presentations with peer speakers at sector events like meetings of professional associations for building owners. Offering C-PACE information at an event focused on an issue like refinancing options for example could be a powerful opportunity. And of course time these events to when your audiences are most likely to be available, not during their busiest hours. Next slide.
Now building trust takes time. All of those marketing ideas that I just mentioned also take time. But if your C-PACE messengers aren’t already known to your potential customers, you’re likely to get hang ups. Your materials end up in the trash or you get no shows for events and appointments. Businesses and nonprofits are solicited constantly including by other kinds of energy programs. So I’ll reinforce this point. Partnering with a known and trusted entity like a utility or a chamber of commerce or a business association can dramatically cut down on the time it takes to build trust and help avoid outright rejection of your message. Research on advertising tells us we need to hear a message at least three times for it to sink in. So you need to expect to contact most customers at least three times, perhaps through different pathways to get them to commit their own time to applying for funding. And that means getting in front of potential customers again and again.
And finally remember that not all of your potential C-PACE customers are anything like you. So creating culturally appropriate messaging and outreach is key. That may mean marketing in other languages with materials that are trans created by native speakers, not simply translated. Next slide.
Everyone has a role to play in marketing C-PACE programs. Whether you’re a government agency sponsoring or mandating energy efficiency programs or a contractor converting a business to LED lighting you have a role to play in promoting C-PACE. Government voices are crucial in introducing the topic and lending credence to C-PACE programs. Virtually no one can better persuade businesses that the program is real than the government voice. Utilities come in a close second. They have wide name recognition and are generally trusted by their customers. Program administrators and contractors have a steeper hill to climb. They generally will not have broad name recognition or established trust and would want to seek partnerships with trusted voices to find customers and get them through the program. And we recommend that new programs focus on developing a few high profile projects first.
Getting in the door with a community’s best known businesses, community associations or nonprofits can take a lot of upfront work, a lot of in person meetings, a lot of building trust. But the marketing payoff can be huge. Once you write up that case study and hopefully recruit somebody from that business where the work was done as a speaker at future events, additional customers will take a lot less persuading to come on board. Next slide.
I said I’d come back to this. Timing really is everything. Ideally you don’t want to use the same marketing year round. In other energy efficiency marketing we found that it’s really important to change your pitches with the seasons. Searches for information on energy efficiency HVAC systems for example spike when the weather is particularly hot or cold making those good times for pitches about the comfort and cost savings of more efficient HVAC systems. On the other hand, most servicing on those systems happens during the seasonal changes from heating to cooling. So customers might be thinking about their aging AC or at the beginning or the end of summer which makes both of those good times for pitches focused on cooling systems. So thinking about what kinds of investments you’re pitching and when your customers are most likely to be thinking about them is important in customizing your materials to make sure that you’re reaching people at the right time with the right message. Next slide.
As you’ve heard there’s no one size fits all marketing shortcut for C-PACE and energy efficiency. The more you focus your message materials and outreach on connecting with a specific type of customer, the more successful you’ll be in marketing the right bulb so to speak to the right people at the right time. Next slide. Thank you very much and I will be here for Q&A at the end and my contact information is on this slide. Back to you, Sean.
Sean Williamson: Fantastic. Thank you, Cat. A lot of great insights there in terms of thinking about the non-energy benefits, segmenting the market, making the application process as easy as possible. Of course I love the Field of Dreams reference. Thank you very much for that rich content. If we want to go ahead and advance to the next slide I will introduce our next two speakers. Again this is a tag team of Caleb Bell and Jeremy _____. Caleb is the chair of Bricker Eckler’s public finance practice group with a regional practice that emphasizes public finance and economic development matters. He was retained by clients to author Ohio’s property assess clean energy financing statute. He served as bond council for Ohio’s first issue of a PACE secure bonds. And he has financed over 100 PACE projects and routinely works with public and private PACE lenders.
Jeremy, Jeremy _____ is the manager of programming and projects at the Columbus Franklin County Finance Authority, a public agency in central Ohio that facilitates the financing of economic development projects. Among the many programs the finance authority offers TIF, capital leases, bond finance and more. Jeremy manages the finance authority’s energy efficiency and PACE financing program as well as manages the operations of the Columbus regional energy special improvement district. To date the finance authority has closed 15 energy efficiency projects at over $15 million in total investment saving property owners over $1.1 million annually in energy costs, from LED lighting to HVAC, solar and more, there are many more ways to retrofit or new build projects can achieve energy efficiency in a cost effective way. Fantastic. Ok. So let’s turn it over now to Caleb and Jeremy.
Caleb Bell: Great. Thank you so much. Well, welcome and hello from Columbus, Ohio. Jeremy and I are here together and we’re going to present on local programs and the way that program and program design and program development can be a method of outreach on PACE financing and how well designed programs can really market the tool effectively. You’ll see here on the first slide that local programs are often the outcome of a PACE statute. PACE assessments or PACE statutes may require the creation of a district or a program in order to create a mechanism for the government to intersect with the private sector and cause these projects to be approved.
You’ll see this referred to in a lot of different state’s laws with a lot of different names and acronyms. Sometimes there are PACE authorities that are create, PACE districts. In Ohio we call them ESID, energy special improvement districts. In Kentucky they’re called EPADs, energy project assessment districts. Some state rely on port authorities. Some states the PACE program is housed in the state government itself. It's an entity perhaps in the state’s economic development office and that’s where the PACE program is housed. And so you’ve got a lot of nexus between the government which is sponsoring the use of a government tool, special assessment financing and the private sector, the world out there that either installs these projects as contractors or the property owners and developers who use the financing mechanism.
When we develop program design we certainly think about concepts such as does the program require a separate legal entity? Does that entity have articles, codes of regulations, board representation, how it’s going to be staffed and managed? What other requirements might there be? Does the entity have to submit to public audit? Does the entity have to submit to some type of approval process for individual projects like bond validation or individual city council approvals for projects? There are many other action items that a program with a program entity may be subject to.
I think the important lesson here is that PACE financing is a mashup between commercial finance and public finance. If you can leverage what has already been put in place on the public side for public loan programs, public lending, public incentives. If you can leverage that system you can more easily translate and get some of this activity connected over to the private side and make a more meaningful approach in your market. So that’s kind of what we focus on when we think about program design. Next slide please.
Here in Ohio this is just an example pf the different diversity of programs. Most of these logos are overtop of a geographic area that’s got some size. We’re blessed with a lot of large cities in Ohio so Cleveland, Columbus, Cincinnati, also Toledo up in the northwestern corner, Dayton in the middle west and then some other programs up near the Pennsylvania Ohio border on the eastern side of the state.
Bottom line with this slide is if you look at the names of these entities that are administering PACE programs, a lot of them are authorities. A lot of them are Ohio port authorities. Port authorities are already in existence in Ohio. We have 60. They are financing entities that already do public private lending with existing government resources. So PACE was a natural good fit for this sector where you already had very talented economic development professionals and talented capital providers on the public sector side who knew what to do, who knew how to translate assessment law and assessment language into the conversation with private property owners.
So just wanted to highlight a lot of these folks. But it’s also not exclusively a government run program in Ohio. If you see down in the southwestern corner, that’s the greater Cincinnati Energy Alliance. That’s a nonprofit entity that is more traditional hired third party administrator. The city of Cincinnati hired that entity to administrate it’s program instead of using the Cincinnati Port Authority which was an available choice.
So a lot of different, a lot of local variation can occur in program design. But our bottom line point here is try to leverage the public sector. You can get pretty far with it. Next slide. I’m going to turn it over to Jeremy and have Jeremy present on the central Ohio program that he and I have had the privilege to work on together. And Jeremey why don’t you take it away?
Jeremy: Thanks Caleb. Hi everyone. My name is Jeremy _____. I’m the PACE program manager at the Columbus Franklin County Finance Authority. We are a port authority in central Ohio involved in very many areas of public finance whether it’s bond finance, TIF, _____ financing and of course our PACE program. Next slide please.
So a little bit about us is that we were created in 2006 by joint action of the city of Columbus and Franklin County in order to do these types of projects. We’re half staffed by appointees from Franklin County, half by city of Columbus. And while we are an autonomous agency we are pretty tied in with the development goals and activities of the region. Next slide.
So as Cat mentioned before she had said that trust is one really important thing about marketing case. We have the benefit here in central Ohio having been around for well over 10 years have done over, have facilitated over $1.8 billion of financing, worked with many developers, many local governments. And so when we started a PACE program in 2015 we already had a pretty good reputation as an entity that can get projects done. Franklin County created a program called Energy Works which is an allotment of $4.5 million that allowed us to do smaller PACE projects.
Before we had to use only our bond fund which we do use for larger projects. But the scope increased dramatically with the county involvement. So we had the name recognition, the notoriety and then the financing sources to actually get a program off the ground in 2015. Next slide please.
And we talked about this a little bit. We’ve done now it’s actually $15 million in PACE financing saving property owners over a million dollars a year. These are some important facts that I bring up when I talk to property owners and local government officials and those stakeholders are showing the actual dollars that we’re saving here in the county. Once we hit our one million mark I made that a big deal with some of our local stakeholders. Nice clean number to brag about.
Another figure that’s important I have found for communicating this to property owners and others is the 100 financing aspect of PACE. Although PACE works differently in each and every state at least here in Ohio you can include a lot under PACE statute. Anything that can reduce energy or has an energy renewable component including any soft costs, cost of _____, etcetera and people really like that. Next slide please.
I think another item to keep in mind when marketing PACE programs is to have clean and understandable program parameters without making it too complicated. And that can be a delicate balance. So when I’m talking to property owners I make sure they know the parameters of the size of project we can do. These are the terms. This is the kind of evidence we need. These are the kind of underwriting documents we need. PACE is a complicated animal. And so starting from a high level and getting into the details when needed I’ve found has been an effective model. Next slide please.
And just to show that again so many things account for PACE here in Ohio. Even technology like elevators. It can show that they’re more energy efficient they’ll fit under statute. And so instead of going through this laundry list of potential upgrades which is not an exclusive list by any means. Just talking about reducing energy or having renewable energy, starting with that and then drilling down as needed makes PACE a little less scary for people who may not be already familiar with it. Next slide.
Let’s go ahead and skip this slide. Another opportunity and in some ways a challenge with marketing PACE here in Ohio are the ESIDs, the energy special improvement districts. PACE statute here in Ohio was born out of special assessments, part of the Ohio revised code which requires that there be a district to administer these types of projects. Typically this is sidewalks or lighting and the property would be assessed for that. PACE kind of lives more on that same creature statute and that’s why we have ESIDs.
So whenever we have a project in a new community whether that’s a city, a township, a village that community needs to join an ESID whether one that’s already existing nearby or to create your own on your own for this project. We started with just Columbus because that was where our first PACE project was back in 2016. But as you can see it’s expanded to a number of other local communities here in central Ohio. The opportunity with this is that if you are talking to a property owner in Columbus or in Dublin you can say your city is already in an ESID, that’s just one checkmark that we’ve already covered.
Sometimes property owners if they see that their community is not in an ESID they automatically think that PACE isn’t available here. ESIDs are easy to expand, easy to establish and so this is one area where I found there’s definitely opportunities and risks. Again this just goes back to the fact that PACE is a complicated animal and trying to make it as simple as possible is very important. Next slide please.
Caleb Bell: I wanted to take a moment to mention the math here. You can see the city of Columbus is kind of the hub of this map and other jurisdictions are outlined. Everything in blue is in the Columbus regional ESID right this minute as of today. And other communities that are adjacent can through Ohio’s energy district law also participate in the same program. So one of the things that Jeremy’s organization and my organization came up against as we were evaluating the state’s statute was how do we turn this on its head and make it into a positive benefit for all these communities. And regionalism was kind of an unusual but positive approach that could be taken here in order to cause the whole area to be covered instead of one off programs by individual communities.
So in the Columbus region this program is really the preeminent and only PACE program that exists. It also overlaps pretty closely with the mission and boundaries of the Columbus Franklin County Finance Authority. And so having a regional finance entity that was of an economic development nature plus a regional energy district kind of was a nice marriage. It aligned a lot of these communities to the same purpose which is try to do more retrofit financing. Try to do more new construction PACE financing. Try to do more capital investment in central Ohio. All of those individual communities plus their hired guns, the Franklin County Finance Authority and the Columbus ESID, those are all working towards the same purpose.
So we kind of hooked onto regionalism as a way to more broadly authorize and make this tool available. That has benefits like normality and uniformity as well. Within this region pretty much every PACE project is managed and approved in this similar fashion with known results. And so that uniformity creates some market parameters that are easy and clear to understand.
Jeremy: And I would add also that the ESID has its own board. Whenever a community joins the ESID, that community has to elect two representatives to the board. And that can be anyone. With our communities that has tended to be economic development professionals. And so a point about bringing in local stakeholders, growing a program as a region and not just a bunch of little communities, these economic development professionals really see this as a tool for their own community and they all get together in a room about once a month to approve projects. It’s nice to have that kind of – that very deep level of connection with all of these little communities and speaking the same message across the region. Next slide please.
And so whenever I’m talking to property owners or others, I try to make it very easy. No one likes to do a lot of paperwork so I just say pick up the phone, talk to me. Let’s talk about your project and how can we get you through underwriting with as little heartburn as possible, the gist of this slide. Next slide please.
Now I’ve a bunch of case studies here. We don’t have to go into any one in depth unless anyone is interested. The point of these is that each of these case studies shows a unique aspect of PACE. I believe it was Cat earlier who mentioned that you want to have a case study for a property owner’s particular situation, something they can relate to. And so that’s something that we keep in mind with our marketing material. PNC Plaza for example is an iconic building in downtown Columbus, our largest PACE transaction. And it’s also a good example of when a building gets sold. It was actually even mid project, mid project implementation of the project that the building got sold to a new owner and the assessment transferred seamlessly. So it’s a good way to point that aspect out. Next slide please.
This was a gut rehab where PACE was one part of a larger capital stack. And so just another way you can use PACE. Next slide please. And here we have a new build. The Trivium Group came to us twice for a PACE deal. This was their second one. So again showing that there’s a repeat customer with us showing that you can use it for a variety of types of projects, a variety of types of upgrades can help to make the program more real to other people. Next.
Caleb Bell: And it’s really important I think to hone in on something Jeremy said. It’s the repeat customer. It’s the property owner who has got multiple buildings. You can get really good market activity by having one or more property owners who use the tool effectively over and over again. They tend to talk to each other and they certainly talk to the others in their organization so that they can carry out PACE on as many buildings as it might make sense.
So turning property owners into an ally for marketing the program is maybe not obvious but it is kind of a no brainer. As they benefit and see how it works moving along through their building stock and then having other similarly situated developers really can turn your market into one that’s got a lot of PACE activity.
Jeremy: Yeah. Very good points, Caleb. Next slide please. Not to say about this one. Just that it has a solar component and so it’s good if we’re talking about solar upgrades. Next slide. And then an example of a manufacturing facility, again just showing the different types of properties that can use energy efficiency financing. Next slide.
Caleb Bell: So we’ve put together a couple resources on this slide here that discuss PACE certainly in Ohio where we’re focused. Bricker, my law firm, our website contains the resource page on PACE financing that includes a map that one can drill down into and see the number of projects and the dollar amounts that have been approved in a jurisdiction. And also you can see how PACE kind of follows population. It goes where there are buildings and where there are property owners who need to make investments. So some good interactive resources on that website. Also wanted to note our market activity in 2018 was really stellar, $80 of PACE financing, a lot of it in central Ohio, 31 transactions across the state.
So even states like Ohio can be market leaders. I think Ohio was the second most robust PACE market in the country last year after California. So you don’t have to be located in a place that does a lot of new investment although we do a lot of new investing here in Ohio. Midwest is really coming along right now.
I also wanted to reference a few other stakeholders in the PACE market nationally. The C-PACE alliance is a group of capital providers and professionals that meet on a regular basis to discuss PACE marketing. They have a great web article. It’s kind of a white paper about elements of program design. So what are the suggested criteria for new programs? So I’d recommend reading that white paper for anybody. CDFA, our friends over at the council of development finance agencies, that’s a national organization that deals in the area of development finance.
So you have a lot of governmental and public agencies that offer financing who are aligned in this quest to provide PACE financing as broadly as possible. They’ve got a lot of resources and host some webinars and some events from time to time on PACE. PACE Nation is probably the largest national organization that addresses PACE financing and they have an annual conference in Austin next month that I know Jeremy and I will be at and I think many others around the country will be as well.
And then finally our friends obviously on this webinar with DOE. But the point here is that there’s a lot of resources. And these resources tend to be pretty deep if you dig. And you’ll find also individuals at each one of these organizations who know a lot more about how they’ve operationalized PACE financing. So certainly would encourage you to research and also talk to the people behind some of these articles and behind some of these website. Next slide. I think those are our slides for today.
Jeremy: Yeah. Thank you everyone.
Sean Williamson: Fantastic. Thank you, Caleb. Thank you, Jeremy. Congratulations on the great progress in Ohio, pretty impressive statistics in terms of 2018 closed projects and hopefully that success continues in 2019. And thank you for emphasizing some of these really important ideas such as regionalism. I think that’s really important to stress in terms of the way property owners and contractors operate. They’re not necessarily in one jurisdiction. They operate across a region. So the degree to which there is consistency and uniformity within a region which we’re clearly seeing in the greater Columbus metropolitan area, that really benefits the customers, those who are intended to benefit the most from C-PACE. So thank you.
All right. Let’s move on to our next slide and I will introduce our final speaker, Michael Leahey. Michael Leahey is the managing director of PACE Equity and he brings 20 years of finance and sustainability expertise as an analyst, consultant, manager and principle. He currently focuses on raising capital for green development and excels at the projects that others can’t figure out. Those are Michael’s words, not mine. Take it away, Michael.
Michael Leahey: Good afternoon and morning to those on the west coast, everybody. My name is Michael Leahey. I’m here representing the private side of the table, the capital side. And part of what I’m so passionate about PACE about is it is to me the best example that I’ve ever worked on of a true public, private partnership between the municipalities, the states, the administrators and on the public side and then the private capital providers, developers, sponsors, building owners and contractors. And so I’ll speak both from our national experience as PACE Equity as well as my experience as the market leader for Colorado and the mountain states.
Next slide please. So I’ll go through today, introduce ourselves. I’ll make that relatively quick and then we’ll get into some general marketing approaches from C-PACE. I think you’ll hear some themes reflected from what Cat and Caleb had to say earlier about marketing best practices. We’ll talk specifically about retrofit versus new construction. We are – we play in both fields although we are the inventor and the national leader in PACE for new construction. And there’s some really interesting nuances that are I think still commonly misunderstood. And then just as the Ohio group did, I’ll just touch lightly on a few case studies and to give a few pictures to all the concepts and then if you have any specific questions we can address in Q&A.
Next slide please. So PACE Equity we are actually a billion dollar social impact fund. So our partners went out and raised a private fund to invest in PACE projects. Every PACE provider does it a little bit differently. Some don’t actually have a fund and they go out and raise capital for particular projects. We saw the model from Ohio where you’ve got public funding coming into play. So we raised a private equity fund and we’ll invest in these PACE projects. And we actually have a securitization plan where we’ll ultimately securitize the PACE assessments and so bonds based on it down the road. So as you can see some fairly sophisticated financial thinking can come into play in the PACE sector and we’re one of the drivers of that.
I won’t go into much of the rest of it just to note that your PACE providers can either be capital providers or they can be PACE project developers or they can be both. So some firms just have capital and look to PACE developers to actually figure out the energy engineering and the governance. Some firms simply do that project management aspect and will manage the energy engineering, help manage the contractors, get the approvals. And then some firms like ours do both. And in a healthy PACE ecosystem I think you’ll have examples of all three of those. Next slide please.
So a little more propaganda here. I’ll move through quickly. But we did the first PACE projects in several cities and states, the first ground up PACE construction project in the country and have incorporated other interesting forms of capital like historic tax credits, new market tax credits, TIFs, PIFs, and PIDs and all that good alphabet soup. We actually have a few first of their kind projects at least for us. Some of them have been done in a limited basis before such as churches, such as a community solar garden. And one of my personal passions affordable housing projects. Next slide please.
I’ll skip this slide. This is more detail on our fund. So general marketing approaches. I really try to take an educational approach to this even though I’m on the private side and it’s the primary responsibility of the state, the municipalities and the administrators. I really like to play a part in this. So I got to know the state energy office here in Colorado. There’s one single energy improvement district that overlays the entire state and then counties opt into that overlying energy improvement district. It makes it really nice and neat because you’ve only got one ultimate point of contact at the state and then one state administrator for the whole state. So I try to piggyback off of them and get out.
Actually can you forward two slides? I think there’s a map. There we go. So the way Colorado did it is we overlaid the energy improvement district over this entire state. The ones in green have opted in. The ones in light green are in discussion and that’s about 80 percent of the state’s population. And other states have either decided not to opt in or not to decide at this time. So thank you for that. You can roll two back.
So I really try to play an educational role so both with my public partners as kind of like today coming in as the voice of the private sector and the financial sector. And I also try to play an educational role directly with the clients. So below, I try to get to know the economic development folks in each municipality where I’m going to be doing business. I try to get to know the energy and sustainability community and of course the real estate community. And much of my marketing is going to events, conferences, happy hours, what have you, meeting those different folks. And I think as both of our previous speakers mentioned really trying to customize the message to meet their interests and their needs. One way that I do this myself is through customer segmentation. So I’ll give you a brief insight into the kind of the business development mindset of a PACE provider.
So next slide please. So I segment my customer base into four quadrants. There’s a couple other ways that I’ll slice and dice it as well. But to really hone in and target my message I try to figure out if the audience and/or the developer or building owner that I’m speaking to falls into one of these buckets. And I have slightly different marketing materials and slightly different approaches based on each one. So in the upper left you’ve got your pro-sustainability and more sophisticated development shop.
So these are typically going to be developers who are – they could be local or regional but are typically going to have a broader reach. They typically got pretty good access to capital and part of their brand or their mission is that they care about the environment. So these are wonderful fits for PACE in terms of their, where our interests line up. They are typically folks who have capital and want to invest in sustainability and energy efficiency. So why do they need pace if they have capital? Well, our capital is long term. It’s non-recourse. And it allows them to conserve their capital to invest in other projects so it can create a multiplier effect.
In the upper right quadrant you’ve got your what I call environment agnostic sophisticated shops. This might be a big developer who doesn’t really to be direct care about the environment in some ways or cares about profits and returns so much more than the environment that it isn’t a deciding factor for them. PACE can still work for those folks and we’re still going to say we saved x amount of x dollars in energy, x gallons of how much carbon we saved. And we’re still going to track and applaud those environmental improvements. But PACE can actually work even if the environment or energy efficiency isn’t the primary concern of a sponsor. We’ll talk about that a little bit more.
Another quadrant is the more, the local owners. So these are going to be somebody’s – a local sponsor. Maybe they’re a single building owner. Maybe they’re a developer who has never done a project before and are interested in drawing long term capital. They don’t typically have the capital reserves that the bigger shops have so it’s a slightly different marketing approach. Often they really need the PACE funding to get a project done or maybe they just got enough to get it done and then they use leveraging PACE capital can do a second, can buy a second building and make it more e3nergy efficient or invest in improvements across a multitude of different buildings that they own instead of having to tie up all their cash in one.
The bottom right quadrant, it can also work for the small shops who aren’t environmentally – who aren’t prioritizing the environment. But this is typically the least of our focus. At the end of the day the small local owners in buildings, the energy efficiency is really a major part of what makes the economics work for PACE. So this is an example of how I divided and understand my world. And I think for each one of you you can segment your audiences whether public or private in a similar manner and get down to that level of detail to customize your marketing approach. Next slide please. Next one.
And so just as an example of a few things. I get to know the state energy office and so they’ll write an article about our project. That project in the lower left there was the first ground up PACE project in the country in Denver, Colorado, a 139 unit multi family project that saved – sorry, that one was 82 units and it saved 56 percent energy versus its baseline. And over on the right writing articles for the local paper and getting my, grabbing a shovel and jumping in as many groundbreaking photos as I can. Next slide please.
So when we’re trying to justify the economics of this thing and the mechanics of it, I am kind of on a mission to demystify PACE. And while it is very complicated there’s a point there where you get beyond that and it starts to become easier. I promise. And so part of my mission is to kind of demystify that for people. Now sure there’s a whole lot going on behind the scenes. But typically we can make it seem a little bit easier. And some of the ways that we highlight that are the non-recourse is really, really important, the fact that if anything happens with this building in the future, the owner doesn’t have to pay it back.
So some people say well, that sounds too good to be true. But the capital provider has a property tax assessment. And while that full assessment doesn’t come ahead of the bank, we know that we’re going to get paid our annual assessment back. So that’s as most of you know why we’re able to offer non-recourse financing. But that’s a key part of our marketing message. As previous speakers spoke about the transfer upon sale is absolutely critical. Now some building owners might choose to pay off the PACE assessment. Some building owners may choose to have it pass through. And there’s a couple different – or I’m sorry. Transfer along to the next buyer.
And there’s a couple interesting ways that that transfer can happen. It’s not considered debt which is kind of a misconception about PACE. And even though our company is called PACE Equity it’s actually not considered equity. It’s just a form of I think of mezzanine capital tied to a property tax assessment. That’s the easiest way that I can think to get it across to audiences. I think clear on the rest of those items so in the interest of time I’ll move on from there. Next slide.
So this slide I wanted to highlight an issue that we’ve run into in some states for those of you who are starting programs to get ahead of. I’ll use our as an example – and I’m not picking on our state administrator because they’re – we’re close and we’re all on the same team and we’re working together. But our state administrator are kind of geniuses at energy engineering but didn’t fully prepare I think the community for some of the underwriting requirements. And so what I mean by this is that when you size up the PACE project based on the scope of work you’ve got to I’d say manage the expectations of the building owner because we’re still going to need to look at loan to value.
So any other debt on the property plus the PACE assessment and match that up to the income. And we’re going to need to clear that by 1.15 so 15 percent more income than PACE assessment plus debt or all the way up to 40 percent more. So there’s constraints beyond just looking at these schedule of eligible values. And we’ve had some building owners who were surprised that they got less PACE than they thought they were going to because once we ran it through the underwriting it was constrained.
Now that underwriting can be improved by energy efficiency. We’re allowed to capture that. Passing through some portion of the assessment. For example in the case where apartment building, the folks in the apartment units are going to be paying their utilities and reaping the benefit of the more efficient building. A building owner can pass through some of the costs of that assessment. Similarly to a cam assessment on a retail or an office building. So the takeaway here is that you’re going to want to get the underwriting aspect of this mentioned even though it seems somewhat esoteric after talking about the energy improvement aspects of it. But certainly manage expectations about this piece of it because it’s not always the PACE assessment amount that you might think on first glance. Next page please.
So the business case that I focus on, I’ll split – I’ll segment my basic end by retrofit and new construction because actually the value proposition is slightly different. For a retrofit for example you might have an old building and it has an old boiler. Well, we can guarantee that you’re going to get plenty of savings from upgrading that old boiler. Now the boiler is running. You didn’t – and so you could replace it with your own cash. But if you use the PACE assessment then you’ve improved your cash. And I think forward the slide one, one slide there.
So this is a graph of a simple project. And so as you can see, if you use your own capital, you’re going to be in a cash flow hole from start. And then over time, because you’re not paying interest costs then over, by 10 or 11 years, it’s cheaper to use your own money. But of course if we all had enough of our own money to be improving all of our buildings we wouldn’t be in some of the national energy crisis that we are. So PACE allows you to conserve that capital, use it for other purposes, improve other buildings, start new projects, what have you. And in the shorter term, in the investment horizon of most owners and investors it’s going to make sense to go with what the most advantageous economics are in that ten year period. If you don’t mind going back one slide.
So cash flow is a value proposition for replacing aging equipment. You’ve got replace it anyway. You might as well use other people’s money. Now for retrofits improving overall building efficiency I think which is really the major theme that Cat was speaking about is also a cash flow opportunity. You’re going to be saving energy so much energy from your utilities bills that you’re going to offset some or all of the cost of the PACE assessment and create, generate positive cash flow. There’s also tax advantages to using PACE that I won’t touch on in this call but that also create after tax cash flow for your clients or the sponsors or building owners.
And then the pass through, you’re probably familiar with the pass through and in fact its controversial in some areas. It’s the idea of passing through some of the costs to the ultimate tenant or client. Passing that through to the person who is using the building lowers the cost of capital tremendously from a building owner’s perspective. In fact we’ve had some projects where they’ve passed 100 percent of the pass through to the end user.
And typically justified by an energy report from an energy audit or energy modeler that shows them that the building is that much more efficient and that’s typically what allows them to get, tenants to get comfortable with these things. So dramatically increases your cash flow as well ‘cause you can imagine if you’re passing through 25 percent, 50 percent or 100 percent of your assessment you’re actually generating positive cash flow for the project. Now the trick there is that we like for PACE to make sense economically without a pass through. We prefer not to count on that to work. We like for the economics to be all baked in and then for the pass through to be a cherry on top if the market will bear it. I’m happy to take more questions on that in the Q&A.
For new construction it’s the really the value proposition is less cash flow than it is return on capital. And this is another thing that because there’s so much more case history for retrofits I think this is one of the most misunderstood aspects of PACE. For a new project you’re typically going to be eligible for a larger amount of financing. In Colorado it’s 15 to 20 percent of the hard and soft costs of the project depending on the energy efficiency. So you’re actually never going to pay back the PACE assessment from energy savings alone because the dollar amounts are so much bigger.
So why do it? Well, that’s where opportunity cost comes in so dusting off that concept from economics. The cost of capital of the alternatives of going out and getting other more expensive financing or of using cash or raising investor capital is so much more expensive than PACE that it makes more sense for many projects to stack PACE financing on top of their primary bank construction loan and then reduce the amount of equity or other outside financing they have to put in. So it’s not a cash flow benefit in this case but it’s really a return on capital benefit.
And then the pass through can be also, can also be used for new construction. And of course we’re also take in the benefits of the additional energy efficiency of the building both in retrofit and new construction. But in retrofits you’re really going to see that cash flow whereas in new construction again it’s going to come back to conserving capital and what is your return on that capital. Next slide please. Next one after that.
This is a super I chart and so I’ll just direct you to the relevant row. Look all the way down to the bottom. Weighted average cost of capital. So this is a real example from one of our projects. In typical financing with equity mezzanine debt and first mortgage your interest rate is going to be in this example 6.75 percent. And with PACE coming in and taking out the mezzanine financing and sliding in its place, the overall cost of capital for this project is 5.7 percent. So for those mathematically inclined you take that one percent and multiply it by the project. And those are your annual savings in capital. So the real benefit is going to be what we call below the line in this case. But to a building owner or a real estate developer its every bit as important. And then of course there’s also the tax benefits of interest deductions and depreciation for the owner. Next slide please.
This kind of just says the same thing. So this shows in the traditional equity – I’m not going to go through the numbers but you’ll have this as a handout and if any of you have any questions about how it works feel free to contact me. With traditional equity they’ve got a return on equity of 24 percent and a much higher return on equity simply because they’re using less equity for the same amount of return. So their return on equity is going to be higher.
This is probably a little bit esoteric for the local building owner, the local mom and pop shop who is really more concerned about conserving their capital and using it wisely. But marketing to more sophisticated developers who sometimes can be your go to champion to get a project off the ground quickly because they’re a little bit more sophisticated about these. And when they see these returns on equity its fairly eye popping. We have a very, very high rate of success of getting building owners and sponsors on board with PACE once they understand this.
Next slide please. So just like the Ohio guys did I’ll run through just a couple quick examples and you can ask me more questions if need be. So this was the first new construction project in the country. This was my first PACE project when I came over from my development career. And I mentioned earlier I think we got 50 to 60 percent efficiencies. The owner passed through 25 percent of the assessment to the ultimate to the renters and then actually sold the project before it was completed and passed through the PACE assessment to the ultimate buyer. Next slide please.
This is I believe we got this as the biggest hotel project in the country that we’ve done. So this is out in the Coachella Valley. So if you have any millennial children they may have been to this music festival. And this is a hotel and resort project. We put in $8 million into a $50 million capital stack. And we’re able to make it not quite net zero but also a net zero building. And ultimately there’s another phase that may come with a solar plant install which is supposed to be designed by Tesla. But given some of their issues that they’ve had lately we’re not 100 percent sure. But it’s kind of cool to say we’re one degree away from Tesla. And that would bring it to a net zero project. Next slide.
On the retrofit side so this was an example of – this was actually a retrofit but it’s a substantial retrofit. So they didn’t just come in and replace a boiler or lighting or windows. Don’t get me wrong. We love those too. But they actually did a whole, took a historical building – and I love projects like this. And gutted the interior, maintained the historic façade, utilized the tax credits to do so and then utilized PACE financing not for the entire budget of the improvements but just for the PACE eligible line items that Cat walked us through earlier. So we were able to provide 12 percent of the redevelopment project. So this is kind of an interesting one that’s a lot larger end of the retrofit scale. And then next slide.
And then this is an example of one that was more your traditional down the fairway retrofit. They had specific PACE eligible measures that they wanted to be replaced to make their energy more efficient, their building more efficient. The energy savings were greater than the costs and so we came in and did the entire project was specifically PACE eligible items. And this kind of project is kind of the meat and potatoes of PACE. It’s still the majority historically by volume although substantial retrofits and ground up are growing quickly as a total market, as a proportion of total market share. Next slide. So that’s it for me. Thanks again for inviting me and for your attention and be happy to take any questions in the Q&A.
Sean Williamson: All right. Thank you Michael. Let’s transition quickly to Q&A. I’m going to start off with a question for each of our speakers that I’d like – I’ll throw it out there. I’d like to get a response from each of them. But if individuals attending the webinar want to type in a question, now would be the time to go ahead and do that.
So a question to our speakers trying to get back to the focus of this webinar and in particular making sure we’re serving state and local governments and their role in marketing. Let’s imagine a situation where there’s a local government that’s participating in a C-PACE program, sponsored program. It’s gotten maybe one project financed. And an executive, a public official is newly elected and they say look. I’d like to get more uptake of commercial PACE in our jurisdiction. I’d like you to develop a plan to get more uptake.
Granted we don’t have a lot of marketing experience among public staff. We can’t devote a lot of time to it. But just put together a five to ten page plan of some ideas for how we can start to do a better job marketing and making more people aware of commercial PACE. What can we do as public sector staff? And how can we partner and get more uptake of our C-PACE program. So if folks want to take a crack at responding to that. I’ll call on Cat first to see if she wants to contribute a few ideas.
Cat Lazaroff: Sure. So I’ll say again that there’s really no substitute for face to face opportunities for marketing which I think the other speakers have alluded to as well. So you said I think in this scenario that there was one project that was completed. I think planning an event at that one project assuming that the building owner is amenable would be a great way to draw attention inviting other building owners, inviting local business leaders, maybe the chamber of commerce, utility officials and certainly a local reporter to get some attention to the benefits. One of the speakers alluded to the fact that if you can turn the building owners into your spokespeople you’re way ahead of the game. And this could be a great opportunity to do just that.
Sean Williamson: Great. Thank you Cat. Caleb and Jeremy, do you guys want to take a crack at the question?
Caleb Bell: Sure. We both have different I think answers a little bit. But one big concept that’s important for the government folks is evaluate how meaningful the role of the local government is in the process. That can be a good thing and a bad thing. If there’s a lot of actors, players, steps in the process, trying to streamline a lot of that out, getting delegated procedures in place or eliminating touch points and trying to standardize documents let’s say to ease review or perhaps agreed upon procedures for submitting legislation. Those types of steps can really streamline out a lot of the government bureaucracy stuff and create a nice system in which private capital can play. Jeremy is a government employee and so I think he’s got some views as well about how you do this every day.
Jeremy: Yeah. And considering off of the point of does the local government have a main role to play in the base process. One other way that you can make this part more streamlined for the end user, make it as turnkey as possible when the local government talks to them is to say to get a financing industry lined up. At least makes those connections, that way if the right project does come along you have a list of numbers that you can hand to them would be another way to do that.
Sean Williamson: That’s great advice. Michael? Any thoughts on the question?
Michael Leahey: Yeah. I really like both of those ideas and I’d piggyback on them by saying maybe before that event that Cat was talking about, before or after convene a mastermind group of cross sector public private folks who are interested in PACE. We’ve gotten so much value out of that here in Colorado because I really like to understand how the new improvement energy district thinks. We’re – they’re thinking about job creation and the overall impact of PACE which is kind of a few meta levels above the economics of a particular building.
And then you’ve got the local lending community who comes on board and can share concerns that they have. Environmental folks and energy, clean energy advocates will come and share ideas about breaking innovations. PACE can cover control panels for a building. And there’s a ton of innovation coming down the road for smart control panels. And that’s going to actually change the entire economics of energy in buildings once we have these smart control panels. Of course there’s risks with anything smart home as we know as well.
But these are the kind of things you might invite somebody from the national lab or an institute like that who is in your town to share ideas about how energy footprints are going to change in buildings. So really, really important and valuable to get public and private folks together in the same room to cross pollinate and share ideas and hopefully that can come to a reoccurring event or meeting.
Sean Williamson: Great. Thank you all for that, those great responses. Very helpful. So I’ve got a couple of targeted questions. The first one to the Ohio team. And these are both kind of design related questions. Regarding the mention of ASHRAE level two audits can you clarify whether or not this is a requirement? We have some partners in the working group currently trying to figure out whether or not to make ASHRAE level two a requirement and under which conditions if that’s appropriate or not.
Jeremy: This is Jeremy so that is a good question. For us the ASHRAE is more a program enacted decision on a case by case basis. So in Ohio you can get away with as little as an architect or engineer saying off on a spreadsheet of upgrades and saying yes, I view these are PACE eligible. Programmatically we sometimes will have up to an ASHRAE level two for a number of reasons. One is that one of our big funders in Franklin County with their energy works fund with ______ their behalf. They have to see ASHRAE level twos just to show that level of detail.
ASHRAE level twos are more relevant for retrofits than they are for new builds. With a new build you already know what you’re installing. You don’t need to necessarily compare it to code in a 100 page document. So programmatically for us if we’re talking about a new build we might be more ok with an engineer architect certification. So bottom line is a programmatic decision based on funding sources based on the nature of the project, etcetera.
Sean Williamson: Thank you Caleb. And then a question for PACE Equity and this is referring to slide 40. I don’t know if we’re able to go back to that. But there was a bullet that read funding is 100 percent at closing. And the question is does PACE Equity provide all of the money at the closing or is the money drawn down as costs are incurred. And is this a line of credit?
Michael Leahey: Sorry. I had to get on – I had to unmute myself. That’s a great question. So PACE is typically in the majority of cases funded 100 percent at closing meaning that we’re going to close the PACE financing amount say on a retrofit. And all of the direct proceeds that are going to go to that project are funded up front and put into an escrow account. Also paid for that day are fees to the local administrator, fees to the capital provider, also the project developer, the energy engineering team. And sometimes these are all rolled up into a single fee which we’ll do sometimes or sometimes these are line items.
And then there’s also typically going to be an interest reserve from the date that the PACE is funded until the first payment date which will vary by each state’s commercial property tax cycle. So it’s typically funded all at once. It’s possible that there could be exceptions to that. For example on a larger project, we can break it up into phases and fund the PACE aspect in different, alongside those different phases. Why would that be important? Well, that can help cut down the amount of interest reserve that’s tacked onto the PACE financing.
On a ground up project, it’s the bank is typically going to require that all funds are in at the closing of the construction loan. So that’s typically when you’ll see some larger interest reserves because often the PACE improvements aren’t going to be made until later in the project. And there’s still the initial phases of the project to go through. And in certain cases, we can delay the PACE payment until, the funding of the PACE until just before the PACE improvements are going to be made. Again with the goal of cutting down interest costs.
Sean Williamson: Great. Thank you Michael. Another question here regarding what we’re seeing as a trend in the market where developers are originating deals. In particular PACE providers are working with developers to originate these deals. Any suggestions from our speakers on how to sort of recruit and educate developers on PACE to see them as more of an ally in PACE programs to drive a lot of project uptake.
Caleb Bell: Well, this is Caleb from the Ohio group. I’d say we kind of see it as all of the above are great originators. I mean projects come in a lot of ways. Property owners and developers are a key player in this space. They’re going to drive questions about cost, financing terms, need. They’re kind of the – they’re the supply for all of these programs to work on. So one tactic that we’ve done here locally is kind of branching off that idea of having all your stakeholders in a room and have them talk about PACE financing. We do just periodic seminars locally so that the local developers can hear from other local developers about how it’s worked and they can take comfort that somebody else similarly situated to them has used this financing mechanism.
But I would just caution folks to view the development community as somehow adverse to or different than the government’s interests. A lot of times I mean as was said this is a true public private partnership. They’re a pretty important group and so fine for them to originate. Fine for capital providers to originate. Fine for government lending programs to originate. Anybody can originate a PACE project. A lot of touch points in these projects.
Sean Williamson: Yeah, I think that’s an important point Caleb. So just an additional question for the Ohio team and this is coming directly from me. I was really interested to see the map of the Columbus region. It was obviously pretty uneven with the number of local jurisdictions that are not part of the ESID. Is your strategy to regularly recruit some of these jurisdictions into the ESID regardless of whether or not they have a project? Or do you sort of initiate outreach and use the emergence of a project as reason to recruit and kind of expand the ESID.
Jeremy: This is Jeremy from the finance. That’s a good question. So the nature of ESIDs in Ohio is that you can’t expand or create a new ESID in a community unless there is a sponsoring project. In fact usually that expansion or creation of an ESID it toward the end of a transaction process for a new project. And so I’m talking to communities where the ESID is not already established. But you see a giant hole where Upper Arlington is for example. And I’m in regular contact with their economic development department letting them know you’re adjacent to the ESID on like five different fronts. It would not be difficult at all to just expand it to your community.
Or if it’s a not adjacent community I’ve talked to some further out in central Ohio where ESID is not already there. And I make it very plain how when ESID, how to create a new ESID, what that might add to the transaction time. The bottom line is I’m having those discussions earlier on so that these communities know what an ESID is, what their role is to play. And if the right project comes along that can sponsor an ESID where do we go from there. So I’m trying to lay the groundwork early on.
Sean Williamson: Got it. Great. We’ve got time for one more question so I will direct this to Cat. Cat, just something that I’ve heard anecdotally is in a lot of other energy efficiency financing programs contractors are really considered to be the customer of the program themselves. And once contractors are kind of bought into a financing mechanism they can be the spokesperson, the individuals to sell the product and generate uptake of the financing mechanism.
And so I’ve heard about some ideas of particular networking and food and drink for contractors offered by program administrators as a way to really beef up a program and start to get an army of contractors out there who can generate uptake of a program. So to get to my question, have you seen successful practices in sort of recruiting and attracting contractors and getting them bought into be advocates of the program?
Cat Lazaroff: I think that’s actually the – that’s probably one of the easiest parts of this. Anything that makes a contractor’s job easier in terms of being able to attract customers and provide them with access to such a great program as C-PACE. Contractors generally in my experience they eat that up. They want to be a part of it. Where they struggle is in actually differentiating themselves from other contractors who may not be doing as good of work or may not be helping as much with getting people through the C-PACE process.
To the degree that in some cases there are preferred contractor pools that folks use. To the degree that there can be cobranding of materials with a trusted ally like a municipality or a utility that can go a long way to getting a contractor to be your best advocate and helping them to break through the noise that building owners are hearing about various upgrades that they could make to their buildings. As I mentioned contractors are not the ones who generally have name recognition or trust with customers unless they are repeat customers.
So if you can help them to find opportunities to build the trust whether it be cobranded materials or whether it be events where they are invited to meet with building owners along with the managers of the C-PACE program for example, that’s going to go a long way to making sure that they are always thinking about C-PACE and having it front and center in their own messaging.
Sean Williamson: Great. Thank you, Cat. On that note, I’d like to conclude the webinar. And I definitely want to thank our speakers. They did a fabulous job. Thank you, Michael. Thank you, Jeremy. Thank you, Caleb and thank you, Cat. Thank you to all of our participants on the call today. I hope everyone has a great day and we’ll talk to you soon. Thanks.
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