JANUARY 2018
ENERGY
EFFICIENCY
FOR ALL
## Commercial PACE
for Affordable
Multifamily Housing
Vermont
Energy Investment
Corporation
---
**AUTHORS:**
Peter Adamczyk, Elizabeth Chant, Stephanie Morse, Kate Cahalane
**CONTRIBUTING AUTHOR:**
Yerina Mugica
**ACKNOWLEDGMENTS:**
This Report was developed on behalf of the Energy Efficiency For All Project, a joint effort of the Natural
Resources Defense Council, the National Housing Trust, the Energy Foundation, and Elevate Energy.
NRDC would like to thank The JPB Foundation for making this report possible.
NRDC wishes to gratefully acknowledge the peer reviewers who took time to provide their expert
comments on the overall report: Michael Bodaken, National Housing Trust; H. Simón Bryce, Renew
Financial; Ed Connolly, New Ecology; Richard P. Daugherty, United States Department of Housing and
Urban Development; Michael Freedman-Schnapp, Forsyth Street Advisors; Philip Henderson, Natural
Resources Defense Council; Bracken Hendricks, Urban Ingenuity; Fred Lee, New York City Energy Efficiency
Corporation; Aaron Ordower, New York City Office of Sustainability; Lindsay Robbins, Natural Resources
Defense Council; Mark Thielking, Energize NY.
Thanks also to the following people for their advice and insight during the preparation of this report:
H. Simon Bryce, Renew Financial; Cory Connolly, Lean & Green Michigan; John D’Agostino, Connecticut
Green Bank; Richard Daugherty, United States Department of Housing and Urban Development; Peter
Grabell, Figtree Financing; Bracken Hendricks, Urban Ingenuity; Jacqueline Hudson, Florida SELF; Peter
Klein, Saint Paul Port Authority, Minnesota PACE; James Lewin, Financial Asset Capital Corporation; Michael
Linder, Saint Paul Port Authority, Minnesota PACE; Kevin Moyer, BetterBuildings Northwest Ohio and PACE
Equity; Chrissa Pagitsas, Fannie Mae; Elyssa Rothe, PACENation; David Schaefer, Counterpointe Solutions;
Jason Stringer, PACE Wisconsin; Mark Thielking, Energize NY; Jessica Waldorf, NYSERDA.
Many thanks to Tanja Bos and Debby Warren for their skilled help producing this report.
---
## CONTENTS
Introduction.................................................................................................................................................................... 2
Background....................................................................................................................................................................3
C-PACE 101.................................................................................................................................................................3
Slow Uptake by the Multifamily Sector...........................................................................................................4
But the Case is Strong...........................................................................................................................................4
Findings...........................................................................................................................................................................5
C-PACE Guidance and Policies.............................................................................................................................. 11
HUD California Pilot Guidance & HUD Guidance on C-PACE for Multifamily.................................. 11
Fannie Mae Green Financing............................................................................................................................. 13
Freddie Mac Multifamily Green Advantage................................................................................................. 13
State Housing Finance Agency guidance in the EEFA states.............................................................. 14
Best Practices and Recommendations.............................................................................................................. 14
For Policymakers and Program administrators......................................................................................... 15
For Affordable Housing Stakeholders — Implementing C-PACE........................................................ 17
References.................................................................................................................................................................... 19
Appendix A: Approach........................................................................................................................................... 20
Documentation...................................................................................................................................................... 20
Appendix B: Enabling Legislation...................................................................................................................... 22
Appendix C: Programs and Transactions........................................................................................................ 24
Appendix D: Urban Ingenuity Memo on Phyllis Wheatley YWCA Project.......................................... 28
Appendix E: C-PACE for Multifamily Resources........................................................................................... 30
Utah C-PACE Program Guidelines and Road Map................................................................................... 30
PACE Financing Opportunities in the Affordable Housing Sector,
Texas PACE Authority......................................................................................................................................... 30
Energize New York Benefit Finance Multifamily Program Handbook.............................................. 30
Database of State Incentives for Renewables & Efficiency................................................................... 31
Appendix F: New York State Attorney General Opinion Letter.............................................................. 32
---
## INTRODUCTION
Since 2009, more than 30 states have enacted
Commercial Property Assessed Clean Energy
(C-PACE) legislation, an innovative tool that
commercial, industrial and multifamily property
owners can use to secure affordable, long-term
financing for energy upgrades to their buildings.
C-PACE has taken off in the past year with dollar
usage more than doubling since 2016, enabling over
1000 commercial buildings across the country to
secure more than $450 million in financing from this
program. However, few owners in the affordable
multifamily housing sector have taken advantage of
C-PACE. This report seeks to understand whether
there is an opportunity for C-PACE to fill a gap
in financing energy efficiency in the affordable
multifamily buildings sector and if so, what are the
best practices for ensuring this financing mechanism
benefits affordable multifamily stakeholders.
The report begins by providing a brief overview
of C-PACE and then provides data about those
specific multifamily transactions that have
used this innovative financing tool. Based on
interviews with Program administrators that have
demonstrated ability to move C-PACE financing
into the affordable multifamily sector, we then
present recommendations for both the policy
and implementation sides to significantly expand
C-PACE’s uptake in this critical part of our building
industry. The report’s Appendices provide details
about our research methodology as well as current
enabling legislation and C-PACE programs and
transactions. Appendix D provides valuable details
about a complex recapitalization project that used
C-PACE financing and Appendix E provides statespecific resources. Finally, Appendix F features the
first state Attorney General Opinion Letter to be
approved by HUD.
Source: PACENation (http://pacenation.us/, accessed October 2, 2017)
---
# BACKGROUND
## C-PACE 101
C-PACE is a financing structure that enables owners
of commercial, industrial and multifamily residential
properties to obtain affordable, long-term funds
for 100% of the cost of energy and water efficiency
retrofits (as well as for distributed generation
investments). It works by allowing building owners
to finance qualifying improvements by placing a
voluntary assessment on their property tax bill,
paying for these improvements over time through
an additional charge on this bill. Almost always, this
voluntary assessment is more than paid for by the
energy savings produced by the retrofit.
Typically, a state’s C-PACE statute authorizes the
establishment of a PACE administrator(s) that
partners with cities and counties and coordinates
with private sector lenders to provide the upfront
financing and collect the repayments. Unlike a
typical mortgage, C-PACE obligations automatically
transfer over to the next building owner if the
property is sold. Like a sewer tax assessment, capital
provided via C-PACE is secured by a senior lien on
the property so that financing can be secured. This
financing mechanism spreads the cost of the clean
energy improvements over the expected life of the
measure, often up to 20 or 25 years.
In order for this financing mechanism to be
available, the participating state designates a
PACE Administrator(s) to market, administer and
sometimes finance and train contractors to use
the program. These Program administrators range
from state green banks, joint power authorities
and local governments to non-profit energy
providers and advocates and for-profit vendors.
PACE Administrators tend to have expertise and
relationships in the energy sector, not with the
affordable multifamily housing sector.
Sources of capital for C-PACE have evolved over
the last few years. Many states have ‘open PACE’
where multiple financing options are available.
Those with ‘closed PACE’ have only one financing
source/program. The most common source today is
institutional investors who are attracted to the high
rate of return relative to the risk. Because of the
priority of the senior lien, investors are effectively
lending at a 10% loan-to-value with a rate of return
on their investments that is 2 to 3 percentage points
higher than other investments with similarly low
risk profiles. In addition, some programs have used
bonds, microloans, and general revenue funds.
---
# SLOW UPTAKE BY THE MULTIFAMILY SECTOR
As noted above, C-PACE is not commonly used in the affordable multifamily sector. Several theories
have been advanced to explain this limited uptake:
n **Complexity of affordable multifamily deals**. Transactions in affordable multifamily housing,
particularly those buildings with federal subsidies, are significantly more complex and time
consuming and thus not attractive for PACE Administrators, who can find commercial deals that
are larger and simpler to close. Office buildings, for example, have been a popular target for
C-PACE in many states.
n **Ability to secure more favorable financing.** As part of major recapitalization deals, affordable
multifamily owners may be able to finance energy improvements using more favorably priced or
termed capital from other sources.
n **Absence of technical support**. Some C-PACE Administrators simply offer a financing tool
without providing the necessary infrastructure of programmatic technical support that is required
by multifamily building owners and managers who lack the time or expertise to move a project
forward on their own.
n **Energy retrofit: struggling with competing priorities.** Finally, energy efficiency measures are
frequently ‘value engineered’ out of projects as more pressing and visible demands for capital
take precedence and planned energy improvements are eliminated from the final project scope.
## But the Case is Strong
The case for considering the use of C-PACE to serve
multifamily affordable housing is strong with its ability
to bring new upfront capital to housing projects by
using projected utility savings to pay for efficiency
improvements. Though it is difficult to estimate the
size of this opportunity for C-PACE to fill a critical
funding gap enabling greater energy efficiency
upgrades in the affordable multifamily stock, use of
this financing tool is decisively increasing in the rest of
the commercial building sector.
The following characteristics of C-PACE can be
attractive to affordable multifamily owners:
n **Tax assessment, not a loan.** Like other propertybased tax assessments, C-PACE obligations
stay with the property and unlike a mortgage,
repayment cannot be accelerated or demanded
at the time of sale. The relationship between the
local government and the property it serves, and
the taxes it levies, will endure regardless of who
the current owners may be.
n **Off balance sheet.** The C-PACE transaction is
considered “off balance sheet” because only
the current year’s assessment shows up on the
owner’s balance sheet as a short-term liability.
Each year’s tax obligation is recognized as an
expense for that year.1
n **Based on owner’s equity rather than future**
**income**. Eligibility for C-PACE is generally based
on the amount of owner’s equity in the building,
rather than the future income that the building
produces. Typically, the combination of any
existing mortgages plus the PACE assessment
can equal up to 100% of the assessed value of
the property, so lower outstanding mortgage
balances can result in eligibility for larger PACE
assessments. Consequently, there are scenarios
under which a multifamily building owner might
be ineligible for larger conventional loans but
eligible for PACE.
---
n **Structured to recoup savings to cover costs.**
Most C-PACE programs require that estimated
energy savings from the project funded cover
costs, sometimes by specifying a requirement
of a savings to investment ratio (SIR)2 that is
greater than 1.0. In other words, the expectation
is that avoided costs from reduced energy
expenditures (or generation in the case of
renewables) will equal or exceed the special tax
assessment payments. This means very low risk
for lenders.
n **Potential to fill financing gaps.** Although
current PACE interest rates generally exceed
interest rates available from traditional
multifamily affordable housing financing
sources, rates are beginning to be more
comparable as competition increases. Currently,
institutional investors are the most likely source
for PACE financing. In addition, PACE financing
is not subject to some of the caps or per-unit
limitations found in many federal programs.
As such, the best use of PACE financing in this
sector may be to fill any financing gaps so that
all cost-effective energy efficiency upgrades can
be made.
In sum, the criteria for accessing C-PACE capital
are different from those of traditional financing
and so can supplement those sources typically
used by affordable multifamily housing developers
to recapitalize their properties — grants, utility
incentives, forgivable loans, soft-second loans, tax
credits, and other senior and subordinate debt.
See Figure 2 for a list of likely funding sources for
a hypothetical recapitalization on an affordable
multifamily development.
---
# FINDINGS
## Existing-C-PACE Programs in the Affordable Multifamily Sector
As our first research task, we catalogued existing
C-PACE programs, focusing on those that have
either created programs for the affordable
multifamily sector or that have been used by
affordable multifamily owners to finance energy
improvements to their buildings. An explanation of
our research methodology is included in Appendix
A. Appendices B and C provide details about the
results from this data collection effort.
## OUR FINDINGS:
n There have been very few C-PACE transactions involving affordable multifamily housing.
n The financing structures for most of the completed transactions have been relatively simple,
compared to the sector’s typical financing scenarios.
n There has been only one instance to date of C-PACE being used on a U.S. Department of Housing
and Urban Development (HUD) financed property, and only one instance of C-PACE being used on
an affordable, multifamily transaction using the Low-Income Housing Tax Credit (LIHTC).
n Though each state’s enabling legislation is different, these variations typically involve minor
variances in definitions, and have not led to substantive differences for C-PACE Program
administrators. These variations at the state or local level, however, may hinder the ability of capital
to cross state borders. This can be especially troublesome for those PACE financers who seek
to work with multiple programs in numerous jurisdictions and who must comply with differing
regulations, or who seek to bundle projects from multiple jurisdictions for sale into secondary
markets.
n C-PACE was not originally designed for new construction and there may be difficulties using this
financing tool at the time of new construction because of the difficulty in determining the Savings
to Investment Ratio (SIR).
These findings are each discussed below with examples provided from our interviews with PACE
administrators.
There have been very few C-PACE transactions
involving affordable housing of the 32 states
(including Washington D.C.) that have passed
C-PACE enabling legislation, 20 have active C-PACE
programs and two have programs in development.
Within those 20 states, there are 46 distinct
established programs³ (39 Program administrators
and seven financing programs⁴). C-PACE transaction
numbers, outside of affordable, multifamily housing,
are growing quickly, as evidenced by the fact that
the cumulative volume of C-PACE transactions has
doubled in the last year. (See Figure 1 above.)
Through our outreach efforts, we have been able to
identify 1,151 C-PACE transactions⁵ with 42 (3.6%)
involving multifamily properties.6 Fifteen out of the
42 transactions are for affordable housing properties
located in six states. Of the 15, eight are naturally
occurring affordable housing (NOAH) properties and
seven are assisted or subsidized affordable housing.
We found no instances of C-PACE usage for public
housing projects, due to their legal inability to use
real assets as loan collateral.
---
These 15 affordable housing transactions are associated with the following C-PACE programs
(categorized by the type of affordable housing):
## AFFORDABLE MULTIFAMILY HOUSING C-PACE TRANSACTIONS
**Naturally occurring affordable housing**
**transactions:**
n Connecticut Green Bank (4 transactions)
n Florida SELF (1 transaction)
n Energize NY (1 transaction)
n CaliforniaFirst (2 transactions)
Case studies for each of these projects are available
from PACENation.7
Existing project financing has been relatively simple
for the few affordable multifamily transactions
completed Transactions in the affordable,
## Assisted affordable housing transactions:
n CaliforniaFirst (1 transaction)
n DC PACE (2 transactions)
n Lean & Green Michigan (1 transaction)
n Energize NY (3 transactions)
multifamily housing sector are rarely simple. The
capital stack typically involved in financing upgrades
to these buildings is multi-layered and complex,
particularly for subsidized housing, as illustrated
by Figure 2.
---
**FIGURE 2: Illustrative Capital Stack for a Hypothetical Recapitalization**
**of a Subsidized Affordable Multifamily Development**
| Federal Home Loan Bank Affordable Housing Program | Direct subsidy(grant) |
| --- | --- |
| Utility Incentive | Based on energy savings |
| Housing Finance Authority | Forgivable loan |
| Long-term government debt-city, county and state with three separate loans | “Soft second” loan payable only from percentage of cash flow principal payments deferred, long-term affordability covenant |
| Deferred development fee | Payments made with funds available after debt payments |
| Historic Tax Credits | Tax credit equity available to developers, 20% of qualified project expenditures for eligible historic projects |
| 9% Low-Income Housing Tax Credits(LIHTCs) | Bank,syndicator, insurance company allocated based on costsNo payments required, but ongoing compliance is necessary |
| Subordinate second lien(mezzanine) | Hard debt-no guarantees |
| Senior debt-first lien mortgage | Hard debt-payments must be made on bank loan insured by HUD |
Given this inherent complexity, it is not surprising
that the examples we found of C-PACE financing for
affordable, multifamily housing upgrades involved
situations with significantly fewer complicating
factors than found in the typical capital stack.
n Of the four transactions completed by
Connecticut Green Bank, all were NOAH and
thus did not have federal or state financing
support. Any subsidized mortgages had been
fully repaid and thus consent from a mortgage
insurer was not required to participate in a
C-PACE transaction.8
n Energize NY’s four transactions did not come
with HUD financing. Rather, these projects
used mission-based lenders such as Community
Development Financial Institutions (CDFIs) and
in one case, the county served as the primary
mortgage holder.9 Although three of these were
subsidized properties, their capital stack was
less complex than the typical example above, as
the subsidies were provided by local authorities.
n Two of the three CaliforniaFIRST PACE
transactions involved NOAH mobile home parks
and thus no government financing. Their third deal
financed energy improvements on a HUD Section
8 property. This 2016 transaction was completed
under then-guidance provided by the California
HUD PACE pilot and no special steps were taken
to obtain the HUD approval. The building owner
worked directly with HUD to obtain approval
and the PACE Administrator did not do anything
differently from any other PACE financing.10
n Florida SELF completed a PACE transaction with
one NOAH apartment building (with no federal
or state financing support).11
n Lean & Green Michigan completed one
assisted affordable housing transaction. This
was a privately owned apartment complex in
rural Michigan with the U.S. Department of
Agriculture (USDA) as the mortgage lender.
Lean & Green Michigan began this process with
the state USDA office, which then helped them
move through the necessary steps to secure
approval at the national level.12
---
There has been only one instance to date of C-PACE
being used on an affordable, multifamily transaction
on a HUD financed property, and just one instance
of C-PACE being used on an affordable, multifamily
transaction using the LIHTC. The HUD financed
project was completed by CaliforniaFIRST. The LIHTC
transaction property was completed by DC PACE.
CaliforniaFIRST completed one transaction on
a HUD Section 8 property in June 2016. The
building owner worked directly with HUD to
obtain approval. So, the PACE administrator
did not need to do anything differently for
this affordable housing transaction than it
would have for any other PACE financing.
CaliforniaFIRST also completed two PACE
transactions with two NOAH mobile home
parks (with no federal or state financing
support).
The *Arthur Capper Senior Center* in DC,
utilized a 9% LIHTC and thus required signoff
from the regional HUD office, which was
obtained by the DC Public Housing Authority.
Although, not a HUD financed project, the *Phyllis*
*Wheatley YWCA* redevelopment in Washington
D.C. received HUD approval as part of its review
process. Unlike the other PACE projects listed
above, this project was more complex. HUD
(through the project’s Annual Contributions
Contract (ACC)), the DC Housing Authority,
Department of Human Services, Department of
Housing and Community Development as well as
private debt and equity investors were all part of
the $17 million project budget. However, there was
a financing gap which jeopardized the project’s
ability to include energy efficiency improvements.
C-PACE financing was used to fill that gap without
adding marginal cost or significant additional time
to the transaction. The C-PACE funding approval
was obtained as part of HUD’s review and approval
of the overall project re-syndication, so all of the
parties were already at the table, which helped
to simplify the process. It would have been much
more difficult to obtain for a standalone transaction
outside of the re-capitalization.14
**Documentation.** Urban Ingenuity, DC
PACE’s Administrator, issued a memo
on the YWCA transaction, detailing the
consents obtained and the modifications
made to a conventional PACE document
structure. See Appendix D for a very useful precedent setting example of C-PACE
financing on a HUD assisted property.
As noted in the introduction, the requirements
involved in combining C-PACE and HUD financing
seem to damper deal flow among owners of HUDfinanced properties. Some of the factors include:
n HUD guidelines require a legal opinion from each
state’s Attorney General as part of the program
assessment procedures, described in more detail
below. Because of the small variations among
states’ PACE enabling legislation, each state’s
Attorney General must craft a unique letter.
Based on our interviews, Energize NY is the
only program that we could identify as having
completed this requirement.15 DC PACE has
begun the process.16
n HUD requires approval of both program
assessment procedures and project approval
conditions — highly specific requirements such as
how energy savings are calculated and what level
of reserves are required. Program assessment
procedures must be approved by HUD for the
overall program before HUD will consider specific
project approval within that program.
n PACE Administrators do not understand
how to comply both with HUD’s ‘purpose’
priority requirement and the PACE ‘financial’
requirement. Memorialized in a Declaration of
Trust, HUD’s requirement (which supersedes
all other covenants) states that the property
must remain as affordable housing as long as
HUD funding or financing is in place even in the
event of a sale. PACE’s Inter-Creditor Agreement
requires that its special assessment (secured
by a senior lien as are all real estate taxes) be
current before any mortgage holders on the
property may be paid.17
---
Despite these challenges to use PACE for projects
with HUD commitments, some PACE Administrators
are moving ahead with these complex projects.
Having secured approval of its program assessment
procedures from HUD in late July 2017, Energize
NY has its first HUD project with C-PACE financing
underway. It is the first program in the country to
have its program assessment procedures approved
by HUD; project-level approval of conditions has
not yet begun.18 New York’s Program administrator,
Energy Improvement Corporation, Inc. is a unique
entity — a local development corporation established
specifically to provide PACE financing to properties
within municipalities that have passed local enabling
legislation. EIC’s nonprofit structure and public
purpose enables it to finance smaller projects (less
than $100,000 compared to the $1 million or more
common to most PACE transactions).19
Variation in enabling legislation hasn’t led to
substantive differences for Program administrators.
It is very common when legislative counsel is
crafting a draft bill to draw on examples from
other states and PACE is no different. It is also
very common to then introduce modifications to
account for other existing laws and practices, e.g. a
state’s treatment of liens or treatment of special tax
assessments as compared to property taxes. The
result is that while literally every state has slightly
different PACE legislation, these differences are
minor. None of our interviewees saw their state’s
authorizing legislation as a driving factor in PACE’s
use by the affordable multifamily sector.
The exception is the decision of PACE enabling
legislation to allow ‘open’ versus ‘closed’ PACE
programs.20 Because ‘open’ PACE programs
can increase competition for financing, thus
bringing interest rates down over time, states are
increasingly passing enabling legislation with ‘open’
PACE parameters.
Differences at the state or local level may hinder
success in capital crossing borders. As PACE
has gained ground nationally, some of the PACE
financers are seeking to work with multiple PACE
programs nationally. Given the expected benefits of
open PACE on financing costs, the extent to which
differing regulations are a barrier to standardization
**Challenges with using**
**C-PACE for new construction**
Since new construction has no pre-existing
baseline for energy costs, determining the SIR is
difficult. Some programs allow modeling results
to be used to estimate savings for the purposes
of calculating SIR. This can be problematic,
however, as the SIR calculation relies on
avoided costs and this may not be meaningful
in the case where higher energy costs were
never part of a real budget. For these reasons,
the use of C-PACE for new construction should
be considered carefully and only in the context
of well-modelled energy savings and resulting
in real avoided costs.
could prove to be a major impediment to growth.
This is not dissimilar to the solar energy landscape,
so lessons learned from the expansion of that market
may prove to be useful to C-PACE as it evolves. One
factor that could contribute to sustained growth in
C-PACE would be a robust market for asset-backed
securities of PACE financing, which requires a high
level of conformity across programs so that capital
markets are comfortable combining transactions
from different states.
Though just a single state, California’s regulatory
and legislative environment for PACE is complex,
not surprising for a state with almost 40 million
people and with a history of PACE programming
stretching from 2007. Like a patchwork quilt, the
PACE landscape encompasses different options for
chartered cities and unincorporated areas as well as
requiring local city or county governments to opt
in to various programs.21 Consequently, the average
potential PACE client may have some difficulty in
even determining which program to apply to in this
one state.
---
# C-PACE GUIDANCE AND POLICIES
As key players in the multifamily housing financing
space, Fannie Mae, Freddie Mac and state housing
financing agencies can have a significant impact in
determining whether C-PACE can be a viable tool for
financing critical energy improvements in this part of
the housing sector. Consequently, we reviewed the
following guidance documents and policies focused
on C-PACE:
HUD’s California Pilot Guidance²² and the January
2017 National Housing Notice;23 Fannie Mae’s Green
Financing program; Freddie Mac’s Multifamily Green
Advantage program; and state housing finance
agency in 12 target states.24
## HUD California Pilot Guidance & HUD
## Guidance on C-PACE for Multifamily
While there have been some very positive
developments in HUD’s willingness to consider PACE
financing for multifamily affordable housing and
to develop procedures to obtain its consent, this
process is still in its early stages with barriers just
starting to emerge and be identified. Following is a
summary of current HUD guidance and policies:
n Co*nsidering program structure to ensure that*
*the proposed PACE financing structure conforms*
*to HUD’s program assessment procedures*.
Five criteria must be satisfied,25 most of which
track basic provisions of any PACE enabling
legislation:
**1**The PACE special assessment will be
assessed by a state, county or municipality
pursuant to state law and sent with tax bills;
2
Payments are collected with tax bills;
3
Payments cannot be accelerated so that at
any given time, the only obligation is the
semi-annual/annual payment(s) current or
past due and payable;
4
In the event of a default on payment of the
assessment, the mortgagee²⁶ receives timely
notice and a reasonable opportunity to cure
the non-payment; and
A required opinion from the state’s attorney
general that the obligations are special
assessments and treated in a similar manner
as the real estate taxes.
n *Approval of individual projects to ensure they*
*meet PACE project-level approval conditions.*
Here, 14 criteria must be satisfied, with some
having minimum requirements27 including
property location, Real Estate Assessment
Center (REAC) score, energy audits, mortgage
holder(s) consent, savings to investment ratio,
maximum total property debt, energy and water
saving measures must be permanently fixed to
the property, and the commitment to provide
post assessment information.
Despite HUD’s original intent to use the HUD
Multifamily PACE Pilot Program in California to
gain the experience that would lead to field-tested
uniform consent requirements nationally, we were not
able to ascertain whether this pilot informed HUD’s
issuance of national guidance in January 2017. Unlike the national guidance document, HUD’s California
pilot guidance did not require that the program and
individual projects receive consent separately.
Nationally, only Energize NY has received programlevel approval from HUD, but no individual projects
have yet completed the process to secure consent.
We received detailed descriptions of four projects
that Energize NY is moving through this process, but
no additional information was available at the time
of finalizing this report.
Though HUD provides a Multifamily Accelerated
Processing (MAP) Guide,28 our interviews
demonstrated that information flow between HUD
and the PACE Administrators has been minimal.
This lack of communication is clearly a barrier for
affordable multifamily owners and developers of
HUD financed/assisted projects. HUD’s requirement
of a legal opinion from the state’s Attorney General
for program consent also represents a significant
barrier according to multiple Program administrators
that we interviewed. Finally, the applicability of
HUD lender approval is very different for the various
sectors of the affordable housing market. Public
housing is not covered by the Housing Notice (see
Section II. Applicability), and thus this sub-sector
has no guidance on PACE from HUD. However,
Public Housing Authorities (PHAs) in general, would
not have seen C-PACE as a financing opportunity
because of the long-standing prohibition on PHAs
using real assets as collateral for a loan.29 However,
through the Rental Assistance Demonstration (RAD)
pilot project, PHAs can shift units from the federal
public housing program into the Section 8 programs,
making them applicable under Section II of the
Housing Notice.30 While this does not eliminate the
barriers identified for obtaining HUD approval, it does
make these properties eligible for C-PACE financing.
## Fannie Mae Green Financing
While C-PACE is technically allowed for qualified
loans under Fannie Mae’s Green Finance program,31
the requirement that senior-lien PACE assessments
are prohibited as laid out in Lender Letter 13-0932
is clearly a significant barrier for any affordable multifamily project that uses or plans to use Fannie
Mae financing. This is called out specifically in a
“Highlights” section of the Lender Letter, which
states, “This Lender Letter is provided as a reminder
of the Fannie Mae Multifamily policy prohibiting
first-lien Property Assessed Clean Energy (PACE)
Programs on Properties securing Multifamily
Mortgage Loans”.33 A Multifamily Selling and
Servicing Guide details other requirements should
a PACE program comply with the subordinate-lien
requirement, but this will likely be a significant
barrier for most C-PACE programs. The impact
of this limitation could be significant, especially
in projects involving LIHTC for private owners, as
Fannie Mae is very active in this sector.34
The Federal Housing Finance Agency (FHFA), the
conservator and regulator for both Fannie Mae and
Freddie Mac, has been a vocal opponent of PACE’s
senior-lien status for many years. FHFA’s opposition
in 2010 abruptly halted the rapid expansion of
residential PACE programs nationally.35 FHFA’s view
is that it is inappropriate for a borrower to take
on debt based on their ability to support the debt
service and then subsequently take on additional
PACE financing which would take higher priority in
the event of a borrower default.36 Thus it is unlikely
that C-PACE could be used on properties that have
mortgages that were purchased by Fannie Mae,
and conversely that the presence of a senior-lien
PACE assessment would preclude that property’s
mortgage from being subsequently sold to Fannie
Mae. However, it is not obvious why the FHFA would
not allow senior-lien PACE assessments on nonresidential properties purchased by Fannie and
Freddie. Non-residential mortgages typically contain
a provision, known as the due-on-encumbrance
clause, requiring the consent of the mortgage lender
before a borrower can take on more debt. C-PACE
programs also require the written consent of any
mortgage holder before C-PACE financing
is provided.
## Freddie Mac Multifamily Green Advantage
The Freddie Mac Multifamily Green Advantage is a
program designed to make it easier to save energy
and water in conventional, targeted affordable and
senior housing. The suite of offerings provides fee
reimbursements, additional funding and improved
interest rates for projects that meet minimum energy
or water saving levels.
Freddie Mac’ss website states that, “Freddie Mac
Multifamily can grant consent for Commercial
PACE financing from qualifying Commercial PACE
programs on loans in our retained portfolio,” but no
additional details are provided.37 Because we learned
that Fannie Mae can only grant consent when the
PACE assessment is in the second lien position, a
requirement from its regulator, FHFA, we assume the
same holds true for Freddie Mac consent since it is
also regulated by FHFA. We reached out to confirm
this assumption, but we were unable to connect
with anyone in Freddie Mac’s Multifamily Green
Advantage program.
## State Housing Finance Agency guidance in the EEFA states
Of the 12 states that are part of the Energy
Efficiency for All initiative, ten have PACE enabling
legislation. We examined guidance provided by the
housing finance agencies of those ten states.38
A review of their websites revealed no guidance
(documents or web pages) on C-PACE financing.
To confirm, we contacted each via email, inquiring
about available guidance. We received responses
from 3 of the 10 Housing Finance Agencies (HFA),
none of which had any guidance to provide.
---
# BEST PRACTICES AND RECOMMENDATIONS
As noted in the C-PACE Background section
above, we have few examples of C-PACE’s use
by property owners in the affordable multifamily
housing sector. But we can learn from these limited
cases — understanding the applicability, assessing
the opportunities and discerning the conditions
necessary for this type of financing tool to have
a positive, scalable impact on the affordable
multifamily sector.
As is true with any innovation, a critical barrier at
the onset is lack of familiarity. This is still true of
C-PACE in general, and specifically with its use in
the multifamily affordable housing market where
building owners are frequently unaware of C-PACE
as an alternative to traditional financing, and PACE
Administrators are typically not marketing to this
segment. With fewer than 20 examples of C-PACE
being used in affordable multifamily housing, and
even fewer in subsidized housing, there is little
familiarity with the use of the instrument. Nearly
each use to date has been a unique case and though
this makes doing the deals difficult, it also means
that we are slowly building knowledge about the
mechanisms for its effective use.
Differing legislation and regulations across, and
even within, states, as well as new and not well
understood federal program guidelines, contribute
to creating an environment in which it is difficult
to know how to proceed even if one is aware of
C-PACE as a financing option for energy upgrades.
This highlights the importance of getting more
transactions completed, and documenting and
widely disseminating the knowledge gained from
these early experiences. PACE is in the early stages
of commercialization and issues are being identified
as deals happen; this presents an opportunity to
incorporate processes applicable to the multifamily
affordable housing sector now so that they will
be uniformly and consistently available in PACE
programs in the future. Projects in the affordable
multifamily sector are perennially challenged to find
sufficient capital to meet all needs, and as noted
elsewhere, energy measures often end up on the
cutting room floor. The existence of a new financing
option which has different and in some cases fewer
limitations is clearly a positive development in
sourcing capital.
This conclusion leads us to make the following
recommendations for both policy makers and
players in the affordable multifamily sector:
## FOR POLICYMAKERS AND PROGRAM ADMINISTRATORS
## ADMINISTRATORS multifamily sector.
State legislators and PACE administrators clearly play
a critical role in improving the applicability of PACE
for affordable multifamily housing. The following
recommendations are intended for this audience.
## Encourage Open
## PACE Program Design
As noted earlier, much of the recent growth in
C-PACE is due to the growing recognition by capital
markets of the positive risk-reward characteristics
of senior-lien-secured PACE assessments. The
‘open’ PACE program design, in which multiple
capital providers can compete for the opportunity
to finance projects, should be encouraged, because
ultimately borrowers (in this case, affordable
housing providers) can benefit from this competition
from lower interest rates. There is evidence of
this trend already in the California Statewide
Communities Development Authority (CSCDA)
program39 as well as in other open PACE programs
in California40 and Florida.41
## Identify and Pursue Opportunities with the Fewest Barriers
We recommend focusing on deals in the naturally
occurring affordable housing (NOAH) subsector
because it is the arena with the fewest barriers to
using C-PACE financing. Building a record of success
in this submarket will help C-PACE administrators
understand the operational concerns of multifamily
housing providers, both for- and non-profit, without
necessarily getting into the intricacies of housing
subsidy structures.
Whenever one is putting out to market a new
instrument, there is significant value in identifying
projects that have the fewest barriers to implementation. These projects can build a record of
success and potentially serve as champions to move
C-PACE forward. Those C-PACE Administrators that
have a mission-aligned interest in affordable housing
markets should be tapped as partners in this
endeavor. As each deal happens, cataloguing what
new barriers emerged, and how they were dealt
with will help track progress. Connecticut Green
Bank and Energize NY have both had success in this
space. Both organizations are quasi-governmental
entities, and their ability to deploy private capital
while working with local governments appears at
this early stage to be an approach that should be
closely watched.
## Consider Opportunities in Public Housing
Public Housing Authority guidelines have always
prohibited the use of real estate as surety for debt
financing. While C-PACE may not be considered
debt, *per se*, its primacy in the capital stack has the
potential to put the underlying asset at risk and thus
has been similarly proscribed by HUD, the PHAs
funder and regulator.
The RAD pilot program, however, provides, an
opportunity to use C-PACE financing as HUD PHA
assets are converted to privately owned assisted
housing. In those states that have made progress
with C-PACE in affordable housing, Program
administrators should identify PHAs that have
undergone or are considering RAD conversions and
work proactively to determine if C-PACE might be
part of the transaction, thus ensuring that all costeffective energy efficiency retrofits are included at
the time of conversion. Because eligibility for PACE
financing is based on the amount of owner equity
in a property, a newly-converted building would
offer maximum access for the new owners to PACE
financing. Given the size of the existing HUD PHA
universe, the potential for large-scale applicability is
large if, as expected, RAD goes beyond pilot stage
into wider implementation.
## Increase and Document
## Communication with HUD
While there have been some very positive
developments in HUD’s willingness to consider
C-PACE financing for multifamily affordable
housing and to identify procedures for obtaining
their consent, the gains tend to be episodic and
focused on one deal or project. A collaboration
among interested C-PACE Administrators that
could develop a strategy and timeline to identify
and eliminate barriers in a structured way could be
very helpful. For example, this group could work
with HUD to develop processes for expedited HUD
acceptance if a project has positive cash flow. This
team could ensure that all policy and procedural
issues that are encountered are discussed and the
results properly documented. Fortunately, our
conversations with HUD staff indicate that they are
eager to connect with C-PACE Administrators and
would welcome an opportunity to disseminate their
processes and requirements.
The lack of familiarity among C-PACE Administrators
with HUD’s required guidelines and process presents
ongoing challenge to achieving a significant impact.
It is critical that Administrators understand the
two-step process of first securing program and then
project approval from HUD. Because a first step in
this process involves obtaining the required state
Attorney General opinion letter which has been
identified as a significant barrier, this step should
be prioritized. Energize NY’s success in obtaining
the required statement from the New York Attorney
General could serve as a useful model for other
states, and is therefore included in **Appendix F**.
To help build the knowledge base around C-PACE
applicability for the affordable multifamily housing
sector, all approvals by HUD, whether by rule or
by waiver, should be identified and cataloged as
they occur. This will provide subsequent projects
in different HUD jurisdictions that are encountering
the same barriers with contacts and examples of
specific projects that have previously overcome
these obstacles.
## Require Cost-Effective Investments
A fundamental principle of both residential and
commercial PACE is that investing in a building
is prudent because the annual expense of the
special assessment is no higher than the avoided
cost of the energy use (or generation in the case
of renewables). In fact, consent from existing
lienholders is frequently predicated on this positive
relationship. While not all C-PACE programs require
some measure of cost-effectiveness, this is a sound
one that should be encouraged.42
## Consider Local Development
## Corporations (LDCs)
Due to the often greater complexity of affordable
multifamily financing transactions compared to other commercial building financing transactions,
there is a lack of attention to this sector by
many PACE administrators. To ensure that this
underserved market benefits from C-PACE financing,
we recommend that a state’s enabling legislation
encourage the use of administrators that see
the affordable housing multifamily market as a
priority. This can mean more active marketing to
the multifamily sector as well as the willingness to
finance smaller transactions. New York legislation
allows for a local development corporation, which is
established specifically to provide PACE financing
to properties within municipalities that have passed
enabling local law. This structure provides two
benefits: first, the ability to do transactions that are
much smaller than the typical C-PACE lender will
consider because of the non-profit status of the
LDC; and second, the role of the local municipality in
providing a service to properties in their jurisdiction
supports the rationale for a senior lien and should
be a positive factor in obtaining lender consent as
lenders are well accustomed to subordinating their
own liens to local tax liens. PACE administrators
should review whether similar structures are
provided for in their jurisdictions; if so, there may be
a role for such an entity in an ‘open’ PACE program.
If not, evaluation of the long-term results of local
development corporations may indicate that this is
an option worth considering in future enhancements
to PACE enabling legislation.
## Consider Extended Financing Terms
## Rather than Rate Buy Downs
Properly designed, the PACE structure will produce
an annual assessment cost that is less than modeled
energy savings. In the case where a proposed
PACE financing does not accomplish this, there are
two possible responses. One common technique
(in energy financing) is to reduce the interest rate
through an interest rate buy down (IRB). IRBs are
very expensive for long-term financing, and can
easily exceed 20-30% of the assessment. For this
reason, good program design should not include
IRBs for long-term PACE financing as the costs of
such a feature are prohibitive, making the model less
sustainable programmatically.43
The other, more sustainable option is to extend the
term of the PACE financing. Although this will not
reduce the total cost (in fact, it may slightly increase
it), a term extension will result in *each year’s* cost
being lower without requiring an IRB. C-PACE
programs should be encouraged to allow the longest
financing term possible, typically to a maximum of
20 to 25 years (although there are programs that
allow terms as long as 30 years), bearing in mind
that the term cannot exceed the expected useful life
of the measure that is financed (dollar-weighted in
the case of multiple measures). In this way, C-PACE
financing can be offered without resorting to
expensive interest rate subsidies.
Financing structures in the affordable housing sector
frequently include amortization periods longer than
loan terms, with a balloon payment at the end of the
loan term. Although this is not generally a feature
of C-PACE financing, it is worth noting that if such a
structure were available for the affordable housing
sector, it could be matched to the LIHTC compliance
period and greatly improve cash flow during the
assessment term, while lining up the timing of the
balloon payment with the next syndication period.
## Consider Potential in USDA Properties
As we heard from Lean & Green Michigan, USDA is
keenly interested in seeing C-PACE financing used
to energy retrofit their rural properties. This could
be a good opportunity for C-PACE administrators
interested in the affordable multifamily rural market
to learn more and better understand the potential
opportunity for C-PACE with USDA properties.
The USDA could be a strong partner in exploring
the value added from C-PACE in rural areas, as the
agency has shown itself to be willing to share and
transfer information and lessons learned between
its regional divisions, thus facilitating change
throughout its network.
## FOR AFFORDABLE
## HOUSING STAKEHOLDERS —
## IMPLEMENTING C-PACE
## IMPLEMENTING C-PACE two possible responses. One common technique
While legislative and program design changes can
improve the relevance of C-PACE for affordable
multifamily housing, there remains a critical role for
building owners, property managers, and affordable
housing providers to play in fostering wider scale
implementation. Clearly, getting to scale is not
around the corner. However, affordable housing
stakeholders may benefit from considering C-PACE
as a financing tool in specific situations. The following
recommendations are intended for this audience.
## Consider PACE as Gap Financing
Though C-PACE interest rates are higher relative
to other options available when recapitalizing
affordable multifamily projects, it can play a role as
a gap filler when other financing sources are capped and/or limited. For example, tax-credit equity
investors are a critical piece of affordable multifamily
housing financing, but the 9% LIHTCs are scarce and
allocations are highly competitive. The 4% LIHTCs
are more generally available, but can only be applied
in limited circumstances. The amount of private equity
investment is based on expectation of cash flow
after payment of all project obligations, and possibly
expectation of sales proceeds, in addition to tax
benefits. In addition, HUD- and FHA-insured mortgage
loans have maximums per unit and frequently do not
cover all costs. However, PACE assessments are not
considered when calculating debt service coverage
ratios which limit total debt capacity, creating an
opportunity to use C-PACE to increase investment in
cost effective energy efficiency.
## Prioritize PACE for Recapitalization
## — Not for Mid-Cycle Retrofits
The “last piece” of the capital stack can sometimes
play a very important role in retaining efficiency
measures that might be value engineered out during
bidding, contracting, or construction. Having the ability
to use C-PACE to maintain all cost-effective energy
retrofits, potentially in combination with ancillary items
(for example, a new roof in a solar project) whether
the project is focused on energy only or is part of a
wider rehabilitation, is a significant benefit.
PACE may be best suited for projects that are going
through recapitalization, when all financing parties are
already at the table. Securing consent from all parties
— in addition to HUD — for a standalone project is
probably cost and time prohibitive. Using C-PACE
as part of a recapitalization project also fits with
our finding that this tool is best used to fill financing
gaps, complementing other potentially longer-term
and lower-rate sources. Finally, PACE financing can
be structured so that the tax assessment obligation
is fully paid off at the same time as the succeeding
recapitalization, allowing for the next period to begin
with a clean slate. Although not required or even
necessary in many cases, it is an example of the
flexibility of the PACE financing structure.
For mid-cycle financing, C-PACE will be most useful
for those properties that have the fewest constraints
imposed by existing debt or subsidy structures. The
more complex the existing financing, the less likely
it is that the necessary approvals can be obtained.
This is especially true for tax equity investors who
have little motivation to allow additional liens to be
placed on the property.
Finally, C-PACE can also be a good financing
option to address energy measures that were ‘value
engineered’ out of the most recent retrofit. In those
cases, where a property’s energy retrofit needs can
be addressed with a standalone project that has
sufficiently good economics, C-PACE can be a good
choice for financing, because the PACE assessment
is not treated as additional debt in the capital stack,
but rather as an annually occurring tax obligation.
If the Savings to Investment Ratio (SIR) of the
project is greater than one, the case can be made
that the net result of the energy work and the PACE
financing will be improved cash flow, to the obvious
benefit of existing debt holders.
## Encourage State Housing Finance
## Agencies Involvement
As a potentially powerful force for helping a state’s
affordable multifamily stock become more energy
efficient, state housing finance agencies across
the country can work together to understand the
role that C-PACE can play in their portfolios. A
collaboration of interested C-PACE administrators
in concert with a collaboration of interested HFAs
could drive the market to higher levels of activity.
Our research found no guidance from HFAs, and
such guidance could be very helpful in transferring
knowledge from one jurisdiction to another. One
area of emphasis should be the impact of C-PACE
financing on LIHTC allocations; to the extent that
PACE financing can save scarce competitive LIHTC
tax credits for other projects, this could drive interest
from HFAs and ultimately demand from projects.*
## Continue to Document and Codify the Use of C-PACE in Multifamily Affordable Housing
Whether undertaken by a collaboration of interested
C-PACE administrators or a set of affordable housing
providers, there is a real need to identify and
document challenges and barriers in the practice
of using C-PACE to energy upgrade affordable
multifamily housing. This will help new users enter
the market with more realistic knowledge and
expectations of what is ahead, and will provide the
resources necessary to replicate and scale.
*It is worth noting that multifamily affordable housing with apartments that are individually metered, creates a “split incentive” that makes it difficult for property
owners to capture savings from increased energy efficiency. The practice of individually metering apartments is part of Enterprise Green Communities standards for
local public housing agencies, These properties may be less likely to utilize C-PACE compared to properties that are master metered.
---
---
## REFERENCES
Administrative Guidance for Multifamily Property
Assessed Clean Energy (PACE), Housing Notice
H 2017-01, U.S. Department of Housing and Urban
Development, January 11, 2017. https://portal.hud.gov/
hudportal/documents/huddoc?id=17-01hsgn.pdf.
Administrative Guidance for Multifamily Property
Assessed Clean Energy (PACE) in California, U.S.
Department of Housing and Urban Development,
January 29, 2015. https://portal.hud.gov/hudportal/
documents/huddoc?id=MF_PACE_CA_Memo.pdf.
Bracken Hendricks (Chief Executive Officer, Urban
Ingenuity), in discussion with the authors, July 20, 2017.
Chrissa Pagitsas (Director, Green Initiative, Fannie Mae),
in discussion with the authors, August 2, 2017.
Cory Connolly (Chief Operating Officer, Lean & Green
Michigan), in discussion with the authors, July 28, 2017.
Database of State Incentives for Renewables &
Efficiency, http://www.dsireusa.org/, accessed August
2, 2017.
David Schaefer (CounterPointe Solutions, Alliance
NRG), in discussion with the authors, August 8, 2017.
Elyssa Rothe (Director of Policy and Market
Development, PACENation), email communication with
the authors.
Energy Improvement Corporation, Inc., Energize New
York Benefit Finance Multifamily Program Handbook,
July 2013. http://commercial.energizeny.org/uploads/
eic-documents/EIC_MF_Handbook_Jul_20131.pdf
Fannie Mae Multifamily Green Financing, https://www.
fanniemae.com/multifamily/green-initiative, accessed
August 1, 2017.
Fannie Mae, *Multifamily Mortgage Business Lender Letter*
*13-09, Multifamily Property Assessed Clean Energy*
*(PACE) Programs*, November 14, 2013. https://www.
fanniemae.com/content/announcement/mfll1309.pdf
Freddie Mac Multifamily Green Advantage, http://www.
freddiemac.com/multifamily/product/green-advantage.
html, accessed August 1, 2017.
Jacqueline Hudson (Reporting and New Project Officer,
Florida SELF), in discussion with the authors, July 27,
2017.
James Lewin (President, Financial Asset Capital
Corporation), in discussion with the authors, September
5, 2017.
Jason Stringer (Program Planning Consultant,
Wisconsin Energy Conservation Corporation), in
discussion with the authors, July 13, 2017.
John D’Agostino (Senior Manager, Connecticut Green
Bank), in discussion with the authors, July 19, 2017.
Kevin Moyer (Executive Director, BetterBuildings
Northwest Ohio; Chief Investment Officer, PACE
Equity), in discussion with the authors, July 12, 2017.
Laura Sanchez with Chaprece Henry and Sarah
Ryan for the Texas PACE Authority, PACE Financing
Opportunities in the Affordable Housing Sector, 2016.
http://blogs.edf.org/texascleanairmatters/files/2016/11/
PACE-for-Aff-Housing_FINAL-111416-EDF-KPT.pdf
Mark Thielking (Executive Director, Energize NY)
and Jessica Waldorf (Project Manager, NYSERDA), in
discussion with the authors, July 21, 2017.
Meghan Dutton, Utah Clean Energy for the Utah
Governor’s Office of Energy Development, *Utah C-PACE*
*Road Map: Status and Recommendations*, June 30,
2016.
Peter Grabell (Senior Vice President of Commercial
PACE, Figtree Financing), in discussion with the
authors, August 3, 2017.
Peter Klein (Vice President of Finance, Saint Paul Port
Authority, Minn PACE) and Michael Linder (Loan Officer,
Saint Paul Port Authority, Minn PACE), in discussion
with the authors, July 31, 2017.
Richard Daugherty (Branch Chief, Account Executive
Branch, U.S. Department of Housing and Urban
Development), in discussion with the authors, July 27,
2017.
Shawna Gabriela Cuan (Energy Efficiency and
Programs Manager, Utah Governor’s Office of Energy
Development, Utah CPACE), in discussion with the
authors, July 25, 2017.
Simón Bryce (Vice President, CPACE Execution, Renew
Financial — CaliforniaFIRST Program administrator), in
discussion with the authors, August 2, 2017.
Utah Governor’s Office of Energy Development,
*Utah C-PACE Program Guidelines*, April 2016. https://
energy.utah.gov/wp-content/uploads/C-PACEguidebook_04282016-1.pdf
---
# APPENDIX A: APPROACH
We reviewed data in PACENation (http://pacenation.us/) and identified (a) states that have C-PACE enabling
legislation, (b) states that have active C-PACE programs, and (c) states that have active C-PACE programs
with financed projects. Next, to learn about the number and type of transactions completed through each
program, we reached out to program administrators for all active programs. Finally, to understand and identify
characteristics of the enabling legislation and program design that help or hinder deployment of C-PACE in the
affordable multifamily sector, we conducted interviews with programs that had shown some ability to move
PACE financing into affordable housing.
## Documentation
The results of this data collection effort are presented in **Appendix B** and **Appendix C**. **Appendix B**, **Enabling**
**Legislation**, lists all states and the District of Columbia and identifies whether they have passed C-PACE
enabling legislation and, if so, the year in which such legislation was passed. The spreadsheet includes live
weblinks to all enabling legislation for convenience. **Appendix C**, **Programs and Transactions**, carries forward
all states from the first worksheet for which enabling legislation is enacted, and provides additional detail
program by program, including to the extent that we have determined: the date the program was established,
whether it has any financed projects, and the numbers of total transactions, total multifamily transactions,
and the total number of affordable multifamily transactions, including a breakdown of market rate (naturally
occurring affordable housing), assisted, and public housing. This breakdown of affordable multifamily housing
types is described in more detail below. Additionally, we characterize each program as either a financing
program or an administrator (described below).
## Programs: Financing v. Administrator
For each program listed, we have identified whether the program is a PACE financing program or a PACE
administrator. It became clear as we conducted our interviews that this distinction is important because some
program administrators use external financing sources, which then may also be included as separate programs
on the spreadsheet. By differentiating between them, we can use the Administrator data when aggregating
and thus avoid double counting transactions. This is especially important in “Open PACE” programs, which
have multiple financing sources competing for business, as opposed to “Closed PACE” programs, which have a
one-to-one relationship between financing sources and administrators.
## Affordable Multifamily Housing
**Figure 3** below presents a breakdown of the subsectors of affordable multifamily housing. The three boxes
highlighted in yellow—naturally occurring affordable housing (NOAH), assisted housing, and public housing—
represent the mutually exclusive types of affordable housing for which we enumerate PACE transactions in the
accompanying spreadsheet on C-PACE programs and transactions. This distinction is important because the
types and sources of housing financing or subsidies for affordable housing affects which rules and guidelines
pertain.
**Public Housing.** Public housing includes units that are owned and operated by state or local housing
agencies, which receive allocations of HUD funding to build, operate, and improve low-income housing.
There are approximately 1.1 million public housing units in the US.44 Due to an estimated $26 billion backlog
of capital improvements in this housing, HUD is now piloting a program to move some of these units from
the public portfolio to the assisted portfolio, through its Rental Assistance Demonstration (RAD) project, so
that the underlying real estate asset can be used as collateral for financing, which is prohibited under PHA
regulations.45
**Assisted Housing.** In its broad form, assisted housing can be comprised of either project-based or tenantbased assistance, depending on whether the project or the resident receives the subsidy or assistance.
(Tenant-based assistance is addressed in the next section, as assistance vouchers are often used in
naturally occurring affordable housing.) There are a variety of programs within three agencies of the federal
---
## APPENDIX A: APPROACH (CONTINUED)
government that provide project-based assistance. The agencies are HUD (Sections 8, 212, 221, 236, and
others), USDA (Section 515), and the US Treasury (principally low-income housing tax credits). There are
approximately 1.4 million project-based assisted housing units.46 Project-based assistance can be in the form of
reduced capital financing (principally mortgages), ongoing operating subsidies, or a combination of the two.
**Naturally Occurring Affordable Housing.** This category is just as it sounds: It includes those units of housing
that, by virtue of their rent levels and the income levels of households that would rent them, are assumed to
be affordable to a low-income household (at or below 80% of area median income). Ownership and financing
in this sector can be as simple as a person who owns a building with no mortgage to the most complex of real
estate investment trusts and strategies. Many of these buildings have ready access to commercial financing.
CoStar estimates that there are approximately 5.5 million NOAH units in the U.S.47 and the Center for Budget
and Policy Priorities estimates there are approximately 2.2 million Housing Choice Vouchers.48
**FIGURE 3: Affordable Housing Breakdown**
---
## APPENDIX B:
## ENABLING LEGISLATION
| *ALL STATES* | C-PACE Enabled | Date Enacted | Enabling Legislation | Additional Legislation | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Alabama | Y | 2015 | SB220 / Act No. 2015-494 | -- | -- | -- | -- | -- |
| Alaska | N | -- | -- | -- | -- | -- | -- | -- |
| Arizona | N | -- | -- | -- | -- | -- | -- | -- |
| Arkansas | Y | 2013 | SB640 / Act 1074 | -- | -- | -- | -- | -- |
| California | Y | 2008 | AB811(2008) | SB555 (2011) | AB474 (2009) | SB77 (2010) | AB184 (2011) | AB1883 (2014) |
| Colorado | Y | 2010 | SB10-100 | SB13-212 (2013) | SB14-171 (2014) | HB14-1222 (2014) | -- | -- |
| Connecticut | Y | 2011 | SB1243 | SB501 | HB6991 / Act no.15-21 | -- | -- | -- |
| Delaware | N | -- | -- | -- | -- | -- | -- | -- |
| District of Columbia | Y | 2010 | DC Law 18-183 | DC Law 19-262 | -- | -- | -- | -- |
| Florida | Y | 2010 | CS/HB 7179 | Title XI, Chapter 163 | -- | -- | -- | -- |
| Georgia | Y | 2010 | HB1388 | -- | -- | -- | -- | -- |
| Hawaii | Y | | HRS § 46-80 et seq. | -- | -- | -- | -- | -- |
| Idaho | N | -- | -- | -- | -- | -- | -- | -- |
| Illinois | Y | 2010 | Act 096-0481 | -- | -- | -- | -- | -- |
| Indiana | N | -- | -- | -- | -- | -- | -- | -- |
| Iowa | N | -- | -- | -- | -- | -- | -- | -- |
| Kansas | N | -- | -- | -- | -- | -- | -- | -- |
| Kentucky | Y | 2015 | HB100 | -- | -- | -- | -- | -- |
| Louisiana | N | Repealed 2016 | HB766(repeal) | SB224(2009) | HB973/Act No.611 | -- | -- | -- |
| Maine | N | -- | -- | -- | -- | -- | -- | -- |
| Maryland | Y | 2009 | HB1567 | SB186/Ch.472 | -- | -- | -- | -- |
| Massachusetts | Y | 2010 | Ch.44,§53E3/4 | Ch.188/HB4877 | H.4568 | -- | -- | -- |
| Michigan | Y | 2010 | HB5640 | Act270 | -- | -- | -- | -- |
| Minnesota | Y | 2010 | HF2695 | HF3729 | -- | -- | -- | -- |
| Mississippi | N | -- | -- | -- | -- | -- | -- | -- |
| Missouri | Y | 2010 | Ch.67,2800-67,2835 H.B.1692 | -- | -- | -- | -- | -- |
| Montana | N | -- | -- | -- | -- | -- | -- | -- |
| Nebraska | Y | 2016 | LB1012 | -- | -- | -- | -- | -- |
---
## APPENDIX B: ENABLING LEGISLATION (CONTINUED)
| *ALL STATES* | C-PACE Enabled | Date Enacted | Enabling Legislation | Additional Legislation | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Nevada | Y | 2009 | SB 358 | NRS Sec.271 | -- | -- | -- | -- |
| New Hampshire | Y | 2010 | Statutes§53-F | HB 205/Ch.121 | -- | -- | -- | -- |
| New Jersey | Y | 2012 | Ch 187/S.B.1406 | -- | -- | -- | -- | -- |
| New Mexico | Y | 2009 | HB 0572 | SB 0647 | -- | -- | -- | -- |
| New York | Y | 2012 | Article 5-L | -- | -- | -- | -- | -- |
| North Carolina | Y | 2008 | N.C.Gen.Stat.§153A-210.1 | N.C.Gen.Stat.§160A-239.1 | SB 284(2015) | -- | -- | -- |
| North Dakota | N | -- | -- | -- | -- | -- | -- | -- |
| Ohio | Y | 2010 | SB 232 | Ch.717.25 | Ch.1710 | -- | -- | -- |
| Oklahoma | Y | 2009 | SB 668 | SB 102 | -- | -- | -- | -- |
| Oregon | Y | 2014 | HB 4041 | SB 85 | -- | -- | -- | -- |
| Pennsylvania | N | -- | -- | -- | -- | -- | -- | -- |
| Rhode Island | Y | 2015 | H5900 Chapter 39-26.5 | -- | -- | -- | -- | -- |
| South Carolina | N | -- | -- | -- | -- | -- | -- | -- |
| South Dakota | N | -- | -- | -- | -- | -- | -- | -- |
| Tennessee | N | -- | -- | -- | -- | -- | -- | -- |
| Texas | Y | 2013 | SB 385 | HB 3187 | -- | -- | -- | -- |
| Utah | Y | 2013 | SB 221 | SB 0273 | -- | -- | -- | -- |
| Vermont | N | -- | -- | -- | -- | -- | -- | -- |
| Virginia | Y | 2009 | Ch.773 | Ch.9,sec15.2-958.3 | Ch.389 | -- | -- | -- |
| Washington | N | -- | -- | -- | -- | -- | -- | -- |
| West Virginia | N | -- | -- | -- | -- | -- | -- | -- |
| Wisconsin | Y | 2010 | Act 272/SB642 | Act 138/SB425 | -- | -- | -- | -- |
| Wyoming | Y | 2011 | H0179 | -- | -- | -- | -- | -- |
---
## APPENDIX C: PROGRAMS AND TRANSACTIONS
| *STATES WITH ENABLING LEGISLATION* | C-PACE Enabled | Date Enacted | Active Program | C-PACE Programs | Financing / Administrator | Date Program Established | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Alabama | Y | 2015 | N | -- | -- | -- | | | |
| Arkansas | Y | 2013 | Y | Arkansas Advanced Energy Equity Program (A2E2) | A | 2014 | | | |
| Arkansas | Y | 2013 | Launched | Pulaski County PACE | -- | -- | | | |
| California | Y | 2008 | Launched | Alliance NRG | F | 2013 | | | |
| California | Y | 2008 | Y | California FIRST | A | 2012 | | | |
| California | Y | 2008 | Y | Commercial PACEDirect (CleanFund) | F | 2013 | | | |
| California | Y | 2008 | Y | Figtree PACE | F/A | | | | |
| California | Y | 2008 | Y | GreenFinanceSF | A | 2010 | | | |
| California | Y | 2008 | Y | LA PACE | A | | | | |
| California | Y | 2008 | Y | mPower | A | 2010 | | | |
| California | Y | 2008 | Y | PACE Funding | F | 2015 | | | |
| California | Y | 2008 | Y | Samas | F | -- | | | |
| California | Y | 2008 | Y | Sonoma County Energy Independence Program | A | 2009 | | | |
| California | Y | 2008 | Y | Ygrene Works | A | 2012 | | | |
| California | Y | 2008 | Colorado | Y | 2010 | Y | CO C-PACE | A | 2013 |
| Connecticut | Y | 2011 | Y | C-PACE | A | 2012 | | | |
| District of Columbia | Y | 2010 | Y | DC PACE | A | 2012 | | | |
| Florida | Y | 2010 | Y | Ygrene Works | A | 2012 | | | |
| Florida | Y | 2010 | Y | Alliance NRG (FL PACE Funding Agency) | A | 2013 | | | |
| Florida | Y | 2010 | Launched | Leon County PACE | A | 2012 | | | |
| Florida | Y | 2010 | Y | RenewPACE | A | | | | |
| Florida | Y | 2010 | Y | SELF | F | 2014 | | | |
| Georgia | Y | 2010 | In development | Clean Energy Works | -- | -- | | | |
| Hawaii | Y | | N | -- | -- | -- | | | |
| Illinois | Y | 2010 | N | -- | -- | -- | | | |
| Kentucky | Y | 2015 | Y | KY-PACE | A | -- | | | |
| Maryland | Y | 2009 | Launched | MD-PACE | A | 2015 | | | |
| Maryland | Y | 2009 | Launched | Montgomery County PACE | A | 2015 | | | |
| Massachusetts | Y | 2010 | N | -- | -- | -- | | | |
| Michigan | Y | 2010 | Y | Ann Arbor PACE | A | 2012 | | | |
| Michigan | Y | 2010 | Y | Lean & Green Michigan | A | 2012 | | | |
---
## APPENDIX C: PROGRAMS AND TRANSACTIONS (CONTINUED)
| *STATES WITH ENABLING LEGISLATION* | Funded Projects | Date of First Transaction | Total Transactions | Total Multifamily Transactions | Affordable Multifamily Transactions | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| *STATES WITH ENABLING LEGISLATION* | Funded Projects | Date of First Transaction | Total Transactions | Total Multifamily Transactions | Market (NOAH) | Assisted | Public(PHA) | | |
| Alabama | -- | -- | -- | -- | -- | -- | -- | -- | |
| Arkansas | Y | 2016 | 1 | 1 | 0 | 0 | 0 | 0 | |
| Arkansas | N | -- | -- | -- | -- | -- | -- | -- | |
| California | N | -- | -- | -- | -- | -- | -- | -- | |
| California | Y | 2012 | 56 | 3 | 2 | 1 | 0 | 0 | |
| California | Y | 2016 | 64 | 1 | 0 | 0 | 0 | 0 | |
| California | Y | 2014 | 59 | 0 | 0 | 0 | 0 | 0 | |
| California | Y | 2012 | 2 | 0 | 0 | 0 | 0 | 0 | |
| California | Y | -- | -- | -- | -- | -- | -- | -- | |
| California | Y | 2010 | 26 | 0 | 0 | 0 | 0 | 0 | |
| California | Y | -- | -- | -- | -- | -- | -- | -- | |
| California | Y | -- | -- | -- | -- | -- | -- | -- | |
| California | Y | 2009 | 67 | 2 | 0 | 0 | 0 | 0 | |
| California | Y | 2013 | 308 | 0 | 0 | 0 | 0 | 0 | |
| California | Colorado | Y | 2016 | 4 | 0 | 0 | 0 | 0 | 0 |
| Connecticut | Y | 2013 | 170 | 5 | 4 | 0 | 0 | 0 | |
| District of Columbia | Y | 2013 | 11 | 2 | 0 | 2 | 0 | 0 | |
| Florida | Y | 2013 | 79 | 0 | 0 | 0 | 0 | 0 | |
| Florida | Y | 2016 | -- | -- | -- | -- | -- | -- | |
| Florida | N | -- | -- | -- | -- | -- | -- | -- | |
| Florida | Y | -- | -- | -- | -- | -- | -- | -- | |
| Florida | Y | 2014 | 5 | 1 | 1 | 0 | 0 | 0 | |
| Georgia | -- | -- | -- | -- | -- | -- | -- | -- | |
| Hawaii | -- | -- | -- | -- | -- | -- | -- | -- | |
| Illinois | -- | -- | -- | -- | -- | -- | -- | -- | |
| Kentucky | Y | -- | -- | -- | -- | -- | -- | -- | |
| Maryland | N | -- | -- | -- | -- | -- | -- | -- | |
| Maryland | N | -- | -- | -- | -- | -- | -- | -- | |
| Massachusetts | -- | -- | -- | -- | -- | -- | -- | -- | |
| Michigan | Y | 2013 | 5 | 0 | 0 | 0 | 0 | 0 | |
| Michigan | Y | 2014 | 7 | 2 | 0 | 1 | 0 | 0 | |
---
## APPENDIX C: PROGRAMS AND TRANSACTIONS (CONTINUED)
| *STATES WITH ENABLING LEGISLATION* | C-PACE Enabled | Date Enacted | Active Program | C-PACE Programs | Financing/Administrator | Date Program Established |
| --- | --- | --- | --- | --- | --- | --- |
| Minnesota | Y | 2010 | Y | MinnPACE/St. Paul Port Authority | A | 2013 |
| Minnesota | Y | 2010 | Y | Southwest Regional Development Commission | A | 2010 |
| Missouri | Y | 2010 | Y | MO Clean Energy District/HERO Program | A | 2010 |
| Missouri | Y | 2010 | Y | Set the PACE St. Louis | A | 2013 |
| Missouri | Y | 2010 | Y | Show Me PACE | A | 2015 |
| Nebraska | Y | 2016 | N | -- | -- | -- |
| Nevada | Y | 2009 | N | -- | -- | -- |
| New Hampshire | Y | 2010 | Launched | NH C-PACE | A | 2016 |
| New Jersey | Y | 2012 | Launched | Alliance NRG | F | -- |
| New Jersey | Y | 2012 | In development | New Jersey PACE(NJ PACE) | A | -- |
| New Mexico | Y | 2009 | N | -- | -- | -- |
| New York | Y | 2012 | Y | Energize NY | A | 2014 |
| North Carolina | Y | 2008 | N | -- | -- | -- |
| Ohio | Y | 2010 | Y | Columbus Region Energy Fund | A | 2015 |
| Ohio | Y | 2010 | Launched | NOPEC PACE | A | 2016 |
| Ohio | Y | 2010 | Y | Ohio PACE | A | -- |
| Ohio | Y | 2010 | Y | Toledo BetterBuildings NW Ohio | A | 2010 |
| Oklahoma | Y | 2009 | N | -- | -- | -- |
| Oregon | Y | 2014 | Launched | PropertyFit OR CPACE | A | -- |
| Rhode Island | Y | 2015 | Launched | RI PACE | A | 2016 |
| Texas | Y | 2013 | Y | Texas PACE Authority | A | 2015 |
| Utah | Y | 2013 | Y | Utah CPACE | A | 2014 |
| Virginia | Y | 2009 | In development | Loudoun County PACE | A | -- |
| Wisconsin | Y | 2010 | Y | Me2 Milwaukee | A | 2013 |
| Wisconsin | Y | 2010 | Launched | PACE Wisconsin | A | 2017 |
| Wyoming | Y | 2011 | N | -- | -- | -- |
---
## APPENDIX C: PROGRAMS AND TRANSACTIONS (CONTINUED)
| *STATES WITH ENABLING LEGISLATION* | Funded Projects | Date of First Transaction | Total Transactions | Total Multifamily Transactions | Affordable Multifamily Transactions | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| *STATES WITH ENABLING LEGISLATION* | Funded Projects | Date of First Transaction | Total Transactions | Total Multifamily Transactions | Market (NOAH) | Assisted | Public(PHA) |
| Minnesota | Y | 2014 | 180 | 15 | 0 | 0 | 0 |
| Minnesota | Y | 2014 | 17 | 1 | 0 | 0 | 0 |
| Missouri | Y | 2014 | 3 | 1 | 0 | 0 | 0 |
| Missouri | Y | 2016 | 2 | 2 | 0 | 0 | 0 |
| Missouri | Y | 2016 | 7 | 2 | 0 | 0 | 0 |
| Nebraska | -- | -- | -- | -- | -- | -- | -- |
| Nevada | -- | -- | -- | -- | -- | -- | -- |
| New Hampshire | N | -- | -- | -- | -- | -- | -- |
| New Jersey | N | -- | -- | -- | -- | -- | -- |
| New Jersey | -- | -- | -- | -- | -- | -- | -- |
| New Mexico | -- | -- | -- | -- | -- | -- | -- |
| New York | Y | 2015 | 21 | 4 | 1 | 3 | 0 |
| North Carolina | -- | -- | -- | -- | -- | -- | -- |
| Ohio | Y | 2015 | 3 | 0 | 0 | 0 | 0 |
| Ohio | N | -- | -- | -- | -- | -- | -- |
| Ohio | Y | -- | -- | -- | -- | -- | -- |
| Ohio | Y | | 100 | 0 | 0 | 0 | 0 |
| Oklahoma | -- | -- | -- | -- | -- | -- | -- |
| Oregon | N | -- | -- | -- | -- | -- | -- |
| Rhode Island | N | -- | -- | -- | -- | -- | -- |
| Texas | Y | 2015 | 9 | 0 | 0 | 0 | 0 |
| Utah | Y | 2015 | 1 | 0 | 0 | 0 | 0 |
| Virginia | -- | -- | -- | -- | -- | -- | -- |
| Wisconsin | Y | 2014 | 8 | 1 | 0 | 0 | 0 |
| Wisconsin | N | -- | -- | -- | -- | -- | -- |
| Wyoming | -- | -- | -- | -- | -- | -- | -- |
---
# APPENDIX D: URBAN
# INGENUITY MEMO ON PHYLLIS
# WHEATLEY YWCA PROJECT
## Phyllis Wheatley YWCA Overview:
## Using PACE in a HUD Mixed Finance Building Upgrade
Urban Ingenuity administers the DC PACE Commercial financing program on behalf of
the Washington DC Department of Energy and the Environment. In this capacity, we
recently completed a PACE financing transaction for a HUD-assisted mixed finance
affordable housing project in the District of Columbia. We believe that this transaction
represents an important precedent for the appropriate use of PACE financing in
supporting energy upgrades in HUD-assisted properties administered through local
Public Housing Authorities.
As part of the normal course of business, the DC PACE Commercial program received an
application for PACE financing from the Phyllis Wheatley YWCA and their developer
Dantes Partners. The Phyllis Wheatley YWCA property is an 84 unit multifamily
affordable housing project providing supportive services and transitional housing to atrisk women in Washington DC. This project receives financial support from the DC
Department of Human Services and the Department of Housing and Community
Development. In addition the property receives an operating subsidy from HUD which is
managed by the DC Housing Authority (DCHA).
In completing the financial underwriting for this energy retrofit, it was clear to all parties
that the project required appropriate review and approval from all of these agencies,
including DCHA as the local housing authority, and from HUD. Urban Ingenuity acting
as the DC PACE Program Administrator worked closely with the DC Attorney General’s
Office, the DC Housing Authority and their legal counsel Reno and Cavanaugh, and with
the PACE capital provider Amalgamated Bank to develop a transaction structure that
responded to concerns presented by DCHA. The resulting transaction structure protects
the housing authority’s long-term interest in preserving the property as affordable
housing. The final transaction structure was formally presented to the HUD Office of
Public and Indian Housing and reviewed by both program and legal staff. We present
here the details of this conforming PACE transaction structure.
## Transaction Structure Overview:
In summary, DC PACE Commercial made the following modifications to a conventional
PACE document structure. The principal contractual modifications to PACE in the
context of mixed finance agreements are as follows:
1. Inter-Creditor Agreement: Signed by the owner, DCHA, and the capital provider, this
agreement provided three explicit protections to DCHA to safeguard HUD investments:
i. Subordinating the PACE Note to the Declaration of Restrictive Covenant
(DORC). The agreement insures the senior filing of the DORC ahead of PACE.
ii. Guaranteeing that DCHA has the right to cure any delinquency in PACE
payments, guaranteeing that the PACE Note will not enter default
iii. Guaranteeing a right of first refusal to DCHA to repurchase the property in the
event of any default and foreclosure, ensuring management as affordable housing
---
2. Declaration of Trust: The standard DOT includes language that ownership transfer
under PACE is conditioned on observing the DOT/DORC.
3. Mixed Finance ACC Amendment: Additional language restates the PACE
subordination to the DOT/DORC through the inter-creditor agreement.
4. Rental Term Sheet: HUD formally approved terms outlined in the rental term sheet that
explicitly acknowledge PACE financing along with ACC payments, in the capital stack.
5. PACE Documents: All key PACE documents establishing the special assessment and
the payment obligations and penalties under DC PACE, specifically reference the intercreditor agreement and the subordination of the PACE Note to the DORC. Specifically
these special features of the transaction are referenced in the PACE Funding Agreement,
the PACE Assessment Agreement, and the Memorandum of Special Assessment.
## PACE Project Summary:
The Phyllis Wheatley YWCA project preserves 84 units of affordable housing in a
rapidly gentrifying neighborhood. PACE will support substantial building upgrades that
are critical for the property. The project serves a population of individuals that were
formerly homeless or at high-risk of homelessness. Due to the needs of the tenants, a high
level of services will be provided on site. A local service provider will offer on-site case
management for some of the residents, as well as providing linkages to employment,
substance abuse, and medical services.
The PACE financing will bring solar and deep energy saving upgrades to rehabilitate this
affordable housing property. The project is financed using 9% Low Income Housing Tax
Credits (LIHTC) with additional support from DCHA, DHCD, DHS and HUD,
showcasing interagency collaboration on clean energy and housing affordability.
## PACE Assessment Highlights:
• DC PACE approved up to $700,000 of financing to support energy efficiency measures,
water conservation, and solar PV (Including: HVAC equipment and controls; lighting
equipment and controls; domestic water heating equipment and controls; plumbing
systems; and a 32.7 kW roof-mount solar PV system)
• These upgrades reduce energy use 24% and water use 47%, and together they will reduce
annual CO2 emissions by 114 metric tons.
• The investment is cash flow positive, yielding improved net operating income from the
asset after all project costs. The property will save a net of approximately $6,000
annually, or $90,000 over the 15-year term of the PACE note.
---
# APPENDIX E: C-PACE FOR MULTIFAMILY RESOURCES
The following resources have been identified as potentially helpful to C-PACE administrators or housing
providers. A high-level summary of each resource is provided.
## Utah C-PACE Program Guidelines and Road Map
Utah, with enabling legislation passed in 2013 and Utah CPACE established in 2014, was relatively early to
pursue C-PACE financing. However, after a quick start and hopes of broad uptake, only one project was
completed in Utah, at the Hunt Electric Headquarters. To assess the cause of this slow uptake, the Governor’s
Office of Energy Development began research and convened an advisory committee to determine whether
other statewide C-PACE programs were experiencing similar barriers. Findings of this research informed
the 2017 Utah legislative session and led to significant changes and updates in program design, which are
currently being implemented.49
Serving as a resource to developers in Utah, changes to the Utah CPACE program are documented in the
Utah C-PACE Program Guidelines;50 findings from the research and advisory committee process provide
a good resource for other administrators and are included in the Utah C-PACE Road Map: Status and
Recommendations, from Utah Clean Energy.51
Seven barriers were identified through Utah Clean Energy’s research, none of which pertain directly to the
question of the applicability of C-PACE to multifamily affordable housing, so they are not reiterated here.
## PACE Financing Opportunities in the Affordable Housing Sector, Texas PACE Authority
Austin Mayor Steve Adler, as part of a housing preservation strategy in 2015, urged the use of PACE to
preserve affordability. Texas had not yet leveraged PACE as a financing tool for affordable housing retrofits
and rehabilitation projects, and Mayor Adler created a committee to address the perceived barriers.
Additionally, this paper, authored by Laura Sanchez,52 a Master’s of Public Policy candidate at UC Berkeley’s
Goldman School of Public Policy, was intended to serve as a resource for increasing the use of PACE in the
affordable housing sector, and therefore serves as a tool for other PACE administrators.
This paper finds that the greatest opportunity for the affordable housing sector to leverage PACE financing is
in Public Housing Authorities (PHA) participating in HUD’s RAD program. Additionally, properties funded by
the USDA Rural Development programs present good candidates for PACE financing. In addition to providing
many valuable resources, this paper makes five specific recommendations to policymakers to overcome the
barriers to using PACE including to lead by example, combine efforts and funds, amend the Texas PACE Act to
make government-owned affordable housing eligible, utility allowance reform, and establish FHFA guidelines.53
## Energize New York Benefit Finance Multifamily Program Handbook
The Energy Improvement Corporation (EIC) is the program administrator for Energize NY. In 2013, it compiled
a guide for multifamily property owners interested in C-PACE financing. The handbook includes an overview of
PACE, benefits to property owners, and a step-by-step guide walking the user through the C-PACE process in
New York, including information on obtaining lender consent. Materials such as an application checklist, a list
of participating municipalities, necessary application forms, and other useful references are included.54
---
## APPENDIX E: C-PACE FOR MULTIFAMILY RESOURCES (CONTINUED)
## Database of State Incentives for Renewables & Efficiency
The Database of State Incentives for Renewables & Efficiency, DSIRE, is a website of Office of Energy
Efficiency and Renewable Energy (EERE) of the U.S. Department of Energy (DOE) and North Carolina Clean
Energy Technology Center at N.C. State University.55 This website is the “most comprehensive source of
information on incentives and policies that support renewables and energy efficiency in the United States.”
It is exceptionally well maintained and current.
We used this resource as a cross-check to PACENation for PACE-enabling legislation and PACE programs. In
addition, we would recommend that PACE administrators should be well acquainted with this data source in
order to check for available resources and should refer their potential clients to this information to ensure that
they are accessing all available efficiency and renewable incentives in order to reduce the amount of project
financing necessary.
---
# APPENDIX F: NEW YORK
# STATE ATTORNEY GENERAL OPINION LETTER
---
---
## Endnotes
1 There is ongoing discussion that the Financial
Accounting Standards Board (FASB) may eventually
conclude that PACE transactions should be brought
fully onto the balance sheet, with concerns raised that
PACE transactions are, in fact, long-term obligations
of the borrowing entity, and should be treated as such.
Similar conclusions were reached by FASB regarding
operating leases, which were formerly excluded from
the balance sheet but must now be included. Case
examples of these obligations being fully transferred
to the new property rather than being repaid at time
of sale might help to resolve this issue and maintain
this off-balance sheet treatment.
2 This “pay for itself” principle means that expected
savings are greater than expected costs. Savings
are defined as the net present value of the positive
impacts of the energy improvements. Savings can
include reduced utility bills as well as payments
for renewable energy credits, tax credits, or other
quantifiable operations and maintenance costs, plus
environmental and health benefits that are monetized.
3 The data presented above are current as of September
15, 2017.
4 The distinction between “Administrative” and
“Financing” programs is described in Appendix A.
5 Appendix C presents all data collected by program
and indicates those programs for which we were
unable to obtain data.
6 A breakdown of multifamily housing types and
definitions are included in Appendix A.
7 http://pacenation.us/case-studies/
8 John D’Agostino (Senior Manager, Connecticut Green
Bank), in discussion with the authors, July 19, 2017.
9 Mark Thielking (Executive Director, Energize NY)
and Jessica Waldorf (Project Manager, NYSERDA), in
discussion with the authors, July 21, 2017.
10 Simón Bryce (Vice President, CPACE Execution, Renew
Financial — CaliforniaFIRST Program administrator), in
discussion with the authors, August 2, 2017.
11 Jacqueline Hudson (Reporting and New Project
Officer, Florida SELF), in discussion with the authors,
July 27, 2017.
12 Cory Connolly (Chief Operating Officer, Lean & Green
Michigan), in discussion with the authors, July 28, 2017.
13 Simón Bryce (Vice President, CPACE Execution, Renew
Financial — CaliforniaFIRST Program administrator), in
discussion with the authors, August 2, 2017.
14 Bracken Hendricks (Chief Executive Officer, Urban
Ingenuity), in discussion with the authors, July 20,
2017.
15 Mark Thielking (Executive Director, Energize NY)
and Jessica Waldorf (Project Manager, NYSERDA), in
discussion with the authors, July 21, 2017.
16 Bracken Hendricks (Chief Executive Officer, Urban
Ingenuity), in discussion with the authors, Oct 11, 2017
17 Bracken Hendricks (Chief Executive Officer, Urban
Ingenuity), in discussion with the authors, July 20,
2017.
18 Mark Thielking (Executive Director, Energize NY)
and Jessica Waldorf (Project Manager, NYSERDA), in
discussion with the authors, July 21, 2017.
19 Ibid
20 The distinction between ‘open’ and ‘closed PACE
programs is described in Appendix A.
21 Simón Bryce (Vice President, CPACE Execution, Renew
Financial – CaliforniaFIRST Program administrator), in
discussion with the authors, August 2, 2017.
22 Administrative Guidance for Multifamily Property
Assessed Clean Energy (PACE) in California, U.S.
Department of Housing and Urban Development,
January 29, 2015. https://portal.hud.gov/hudportal/
documents/huddoc?id=MF_PACE_CA_Memo.pdf.
23 Administrative Guidance for Multifamily Property
Assessed Clean Energy (PACE), Housing Notice
H 2017-01, U.S. Department of Housing and Urban
Development, January 11, 2017. https://portal.hud.gov/
hudportal/documents/huddoc?id=17-01hsgn.pdf.
24 These 12 states are part of the Energy Efficiency for
All (EEFA) demonstration, a partnership of the Energy
Foundation, Elevate Energy, National Housing Trust
and Natural Resources Defense Council, made possible
with funding support from The JPB Foundation.
25 https://portal.hud.gov/hudportal/documents/
huddoc?id=17-01hsgn.pdf
26 The quoted language here centers on mortgagee
(i.e. mortgage lender), and may ultimately need to
be changed. There is at least one example to date
of HUD approval being required, not because of its
position as a mortgage holder, but rather its position
as contracting party to an ACC.
27 See page 3 of the HUD Housing Notice, https://portal.
hud.gov/hudportal/documents/huddoc?id=17-01hsgn.
pdf
28 https://portal.hud.gov/hudportal/HUD?src=/program_
offices/administration/hudclips/guidebooks/hsg-
GB4430
29 https://www.nixonpeabody.com/-/media/Files/Alerts/
AffordableHousingAlert_06262007.ashx.
30 Richard Daugherty (Branch Chief, Account Executive
Branch, U.S. Department of Housing and Urban
Development), in discussion with the authors, July 27,
2017.
31 Fannie Mae Multifamily Green Financing, https://www.
fanniemae.com/multifamily/green-initiative, accessed
August 1, 2017.
32 Fannie Mae, Multifamily Mortgage Business Lender
Letter 13-09, Multifamily Property Assessed Clean
Energy (PACE) Programs, November 14, 2013. https://
www.fanniemae.com/content/announcement/mfll1309.
pdf
33 Ibid
34 As of Q2 2017, Fannie Mae had more than $240 billion
in mortgage-backed securities outstanding.
35 https://www.fhfa.gov/Media/PublicAffairs/Pages/
FHFA-Statement-on-Certain-Energy-Retrofit-Loan-
Programs.aspx
36 There are, of course, at least three counterarguments
to this: PACE projects improve cash flow for borrowers
as energy savings exceed assessment payments. The
value of the building used as collateral for the loan is
arguably likely to be increased because of the energy
measures installed. PACE assessments, like all property
taxes, accrue and do not accelerate, so in an event of default, the lien priority would have a much smaller
effect on subordinate loans than a traditional loan.
37 Freddie Mac Multifamily Green Advantage, http://
www.freddiemac.com/multifamily/product/greenadvantage.html, accessed August 1, 2017.
38 California: http://www.calhfa.ca.gov/; Georgia: http://
www.dca.ga.gov/; Illinois: https://www.ihda.org/;
Maryland: http://dhcd.maryland.gov/Pages/default.
aspx; Michigan: http://www.michigan.gov/mshda;
Minnesota: http://www.mnhousing.gov/wcs/Satellite?c=Page&pagename=External%2FPage%2FEXTHomeLayout&cid=1358904711497; Missouri: http://www.
mhdc.com/; New York: http://www.nyshcr.org/Agencies/HFA/; Rhode Island: http://www.rhodeislandhousing.org/; Virginia: http://www.vhda.com/Pages/Home.
aspx. Louisiana and Pennsylvania are not C-PACE
enabled.
39 http://www.cscda.org/Open-PACE/Documents/Open-
PACE-Presentation-1-8-16-final, p.3
40 http://www.figtreefinancing.com/pace-talk-open-market-pace-is-scaling-up/
41 http://www.ncsl.org/research/energy/pace-financing.
aspx
42 There are some concerns that it can inhibit the use
of C-PACE in new construction (or change of use)
projects because there is no ‘before’ cost from which
to calculate energy savings. Sound energy modeling of
different building scenarios can provide the information that is needed to determine the relationship of
savings to investment, and in fact this is routinely done
when certification programs require buildings to be
built above code.
43 It is fairly easy to calculate the cost of an IRB, by calculating net present values for the scenario with and
without an IRB.
44 https://www.cbpp.org/research/policy-basics-public-housing (accessed 7/21/17).
45 https://portal.hud.gov/hudportal/documents/huddoc?id=Toolkit1WhyRAD.pdf (accessed 7/21/17).
46 http://nlihc.org/issues/project-based (accessed
7/21/17).
47 http://nlihc.org/article/naturally-occurring-affordable-housing-benefits-moderate-income-households-not-poor (accessed 7/21/17).
48 https://www.cbpp.org/sites/default/files/atoms/
files/3-10-14hous-factsheets_us.pdf (accessed 7/21/17).
49 Shawna Gabriela Cuan (Energy Efficiency and Programs Manager, Utah Governor’s Office of Energy
Development, Utah CPACE), in discussion with the
authors, July 25, 2017.
50 Utah Governor’s Office of Energy Development, Utah
C-PACE Program Guidelines, April 2016. https://energy.utah.gov/wp-content/uploads/C-PACE-guidebook_04282016-1.pdf
51 Meghan Dutton, Utah Clean Energy for the Utah Governor’s Office of Energy Development, Utah C-PACE
Road Map: Status and Recommendations, June 30,
2016.
52 Laura Sanchez with Chaprece Henry and Sarah Ryan
for the Texas PACE Authority, PACE Financing Opportunities in the Affordable Housing Sector, 2016. http://
blogs.edf.org/texascleanairmatters/files/2016/11/
PACE-for-Aff-Housing_FINAL-111416-EDF-KPT.pdf
53 Ibid
54 Energy Improvement Corporation, Inc., Energize New
York Benefit Finance Multifamily Program Handbook,
July 2013. http://commercial.energizeny.org/uploads/
eic-documents/EIC_MF_Handbook_Jul_20131.pdf
55 Database of State Incentives for Renewables &
Efficiency, http://www.dsireusa.org/, accessed August
2, 2017.
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COMMERCIAL PACE FOR AFFORDABLE MULTIFAMILY HOUSING
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