Turning Your Facilities into High-Performance Assets and How to Pay - - PowerPoint PPT Presentation

Turning Your Facilities into High-Performance Assets

and How to Pay For It

Presented by: &

Agenda

Ø Introductions Ø Challenges You Face Ø Financing Overview Ø Case Studies Ø Selling Your Vision, Communicating Value Ø Takeaways Ø Q + A

Introduction

Danny Roberts works on the Originations team at CleanFund,

where he focuses on screening, sizing and structuring C-PACE transactions, as well as cultivating new/existing relationships with partners and commercial real estate owners. Prior to joining CleanFund, Danny worked as an analyst at a venture capital firm in Tel Aviv. He’s also held roles at NextGen Climate in San Francisco, and at the Cleantech Open – the world’s largest cleantech accelerator. He holds a B.S. in Business Administration from CU Boulder.

CleanFund is a national leader in Commercial PACE financing,

solving big challenges for the $60 billion solar and energy efficiency market for U.S. commercial buildings. A direct capital provider with 100% focus on Commercial PACE, CleanFund offers project financing solutions to both owners and developers of high-performance buildings.

Danny Roberts

Manager, Originations

• 1. Where to Start

Stories from the Tenant Trenches

Efficiency

Ø Electric & Gas bill hikes Ø Power bills

Comfort

Ø Working HVAC Ø Window tint Ø Lighting

Resilience

Ø Structural integrity

The Challenges

As seen by tenants…

Ø TI specs Ø Utility savings Ø Comfortable, sustainable work environment

As seen by

• wnership…

Ø Improve property performance, value Ø Position for new tenant attraction, retention Ø Necessity (state, local mandates)

As seen by facility managers…

Ø Accountability Ø Aging and/or failing infrastructure Ø Safety and/or resiliency Ø Modernization

The Perspectives

Energy Efficiency

Measures

Air Sealing & Ventilation Envelope EV Charging Insulation Windows Elevator Modernization HVAC Systems Refrigeration Building Controls Lighting Compressed Air Water Conservation Renewable Energy Low Flow Fixtures Grey/Black Water Rainwater Harvesting Irrigation & Controls Solar Wind Fuel Cell Cogeneration Resiliency Seismic strengthening improvements (California, Utah) Storm strengthening/preparedness improvements (Florida)

• 2. So…How Do I Pay?

The financing options, and how they stack up

CapEx Budgets are allocations of capital that companies set aside to pay for an upgrade and/or maintenance of physical assets. As with other options to pay for upgrades, there are positives and negatives to a company using their CapEx budget, and they vary widely depending on the company’s long-term strategy for a particular asset. In a general sense, though, there are key items to note if you’re considering using your company’s CapEx budget:

ü Self-sufficiency x Introspective by design

Application: Central plant replacement Initiator/Driver: Owner

CapEx Budget

Where you might use the CapEx budget, traditionally:

ESCO

Energy Services Companies, or “ESCOs”, operate as energy efficiency consultancy experts, with the benefit of potentially offering an Energy Savings Performance Contract (ESPC) model, in which the ESCO utilizes the energy savings from a project to pay for the proposed upgrades. The ESCO will source, install and monitor the building efficiency upgrades, and the owner then uses the accrued savings to pay the ESCO for their services over time, the specific terms for which are outlined in the ESPC.

ü Project risk reduction ü ESCO expertise x Project limitations x Long project development cycles

Application: Holistic energy efficiency Initiator/Driver: Owner Single-tenant Where you might use an ESCO:

Equipment Leases are a rental agreement for an asset from a lessor. Typical assets rented include various types of mechanical equipment with longer useful life spans. In contrast to capital leases, a third party will own the asset and retain the tax benefits associated with ownership. ü Cash flow flexibility ü Efficient use of tax benefits x Limited security interest x Difficulty repurposing collateral

Application: Solar Mechanical Initiator/Driver: Owner Tenant

Equipment Lease

Where you might use an Equipment Lease:

On-bill Repayment, or “OBR” options require the building owner to repay a project investment through a line item on their monthly utility bill, with the upfront capital being provided by a third party, not the utility (albeit, supported by utility rebates for energy reduction investments). The on-bill repayment allows for a streamlined approach because the utility has a pre-existing relationship with the end client who is billing them monthly for utility expenses.

ü Convenience ü Flexible repayment x Limited coverage area

Application: Efficiency (lighting) Initiator/Driver: Not very common, only in select areas Where you might use On-bill Financing:

On-bill Financing

Commercial PACE (C-PACE)

Commercial Property Assessed Clean Energy, better known in the industry as C-PACE, catalyzes improvement projects. The key to C-PACE is that repayment happens through the owner’s property tax bill over a long period of time, helping to keep payments low. C- PACE solves many problems which have historically prevented commercial property

• wners from implementing energy efficiency retrofits or environmentally-minded new

construction projects, including:

ü Upfront cost ü Creditworthiness ü Investment ü Reimbursement ü Duration x Limited coverage

Application: Virtually all improvement measures Initiator/Driver: Owner Tenant FM Where you can use C-PACE:

Ø PACE exists because lowering the carbon footprint of the built environment is in the public interest – just like other bond financings that show up on property tax bills (schools, roads, fire stations). Ø The power of PACE is based upon two simple provisions:

§ Secured as a parcel assessment § Billed and paid via ordinary property taxes

Ø PACE has achieved strong growth nationwide:

Ø Legislation passed in 33 states & D.C. Ø 45 active PACE programs nationwide

The C-PACE Backdrop

What Problems Does C-PACE Solve?

Upfront project cost/lack of funds 100% third party financed Tendency that only “low-hanging fruit” projects get done Inability or unwillingness to take on additional debt Split incentives Owner might be selling building Up to 30 year financing enables deep retrofits to be accretive Property assessment treated as an

• perating expense, not traditional

debt Tenants share cost/savings in NNN leases Transferable to next owner

Barrier Solution

Most Soft Costs Energy Efficiency

What Can Be Financed?

Air Sealing & Ventilation Envelope EV Charging Insulation Windows Elevator Modernization HVAC Systems Refrigeration Building Controls Lighting Compressed Air Water Conservation Renewable Energy Low Flow Fixtures Grey/Black Water Rainwater Harvesting Irrigation & Controls Solar Wind Fuel Cell Cogeneration Seismic (CA) Permits Architectural, Engineering Plans Measurement & Verification Seismic strengthening improvements may qualify

• 3. Case Studies

How Commercial PACE has solved diverse problems

Seton Medical Center

Daly City, CA

Ø Need: Seismic mandate Ø Solution: Lower cost of capital; Life safety Ø Resilience

Room 214

Boulder, CO

Ø Need: Replace aging infrastructure Ø Solution: Lower OpEx; Modernization Ø ‘Reduce and produce’

Prologis HQ – Pier 1

San Francisco, CA

Ø Need: OpEx reduction; corporate sustainability Ø Solution: Reserve CapEx for biz dev Ø Efficiency, comfort

CleanFund Case Studies

Prologis HQ – Pier 1

Financing Amount Term Eligible Items Utility Savings $1,400,000 20 years LED lighting, HVAC, Building Controls, 200kW solar system 32%

Overall Impact of C-PACE

• 4. Communicating Value

How to articulate your vision and its value in financial terms to the ownership

How to Sell Your Vision

ØSell the project cash flow

+ Applicable for all financing mechanisms + Emphasis on boost to NOI should get attention, motivate owners + With C-PACE, new cash flows can be turned on, even with no money out of pocket.

ØSell it as a means of aligning owners and tenants

+ Ability to share the repayment, regardless of financing mechanism, enables tenants to have a stake in the improvements they benefit from, while further reducing the owner’s out of pocket cost (or cost

• f capital, depending on selection).

How to Sell Your Vision, cont.’

ØSell it on Net Present Value

+ While C-PACE typically offers the highest NPV across financing mechanisms, communicating how and how much ‘bang’ property owners get for their buck now and over time is key in articulating the value.

ØSell it as an expansion of available credit

+ By financing a capital improvement project, ownership can retain cash and borrowing capacity for core business needs and more accretive investment (e.g., buying a building).

• 5. Final Takeaways

It’s tough. It’s possible. Now, it’s affordable.

ØReach out directly to discuss further questions, projects ØCleanQuote as a tool to provide financials for owners, simply, quickly, and with only simple information required

à https://quote.cleanfund.com/

Ø Have the conversation!

Looking Forward

Questions?

Thank You!

Danny Roberts

Manager of Originations CleanFund danny.roberts@cleanfund.com (415) 256-8000 x118

For slides, recording and the full FMJ article visit: http://go.cleanfund.com/IFMA