Many business owners have considered solar panels, high efficiency lighting, new furnaces or even chillers for their property, but often run into doubts that lead into not moving forward on their plan. Some of those questions may include, ‘what if I move locations, what if I sell my business, how will any loans impact my credit, will this improvement help save me money?’ In many counties and cities across New York, there is a new financing program that can help remove the uncertainty from all of those questions.
This new program is commercial Property Assessed Clean Energy (PACE) financing and is currently available in certain New York municipalities for commercially owned properties. Sectors that may be eligible for this type of financing include small to large commercial businesses, industrial, agricultural, and non-profit sites, and often multi-family housing properties are eligible as well.
PACE works by setting up a financing product as a special assessment or tax charge that is placed on the improved property’s annual tax bill. The repayment period on this new charge is flexible in length for up to 20 years, and it is collected and treated the same way as the standard annual property tax. One major benefit of this arrangement is that the cost of the project is removed from the property owner, and is instead attached to the property itself. If the building and its improvements are sold, the special assessment moves automatically to the new owner of the site. Additionally, this funding is entirely separate from classic loan and bank financing which relies on a company’s credit, which PACE does not use.
Properties owners that wish to apply for PACE funding must be current on all tax payments for the last 3 years and have no bankruptcy filings in the last 7 years. The loan-to-value ratio of the property cannot exceed 80%. This ratio, also called the LTV ratio, compares the amount of any loans or mortgages on a property to the overall value of the property. For instance, if a property has a mortgage of $225,000 against an appraised property value of $300,000, the LTV is 75%, which is less than 80% of the total value of the property, so the location would be eligible for PACE funding. The PACE funding covers 100% of an energy efficient or renewable project, as long as it is valued at no more than 10% of the total appraised value of the property.
If all of the above requirements are met, then the building undergoes an energy assessment to verify that the improvements will lead to a positive cash flow on day one after installation. PACE approval is obtained and after finishing the project, PACE funds are released to the property owner and the annual repayments are set to start, while the owner begins to enjoy their new clean energy benefits.
The result of this innovative new funding path is to help commercial building owners increase the value and efficiency of their buildings while reducing utility costs due to energy savings and removing the risk of direct ownership. For more information, see our partners here.