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 Danny Roberts from CU Boulder. Manager, Originations 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.
1. Where to Start Stories from the Tenant Trenches
The Challenges Efficiency Comfort Resilience Electric & Gas bill Ø Working HVAC Ø Structural integrity Ø hikes Ø Power bills Ø Window tint Ø Lighting
The Perspectives As seen by tenants… As seen by As seen by facility ownership… managers… Ø TI specs Ø Accountability Ø Improve property Ø Utility savings performance, value Ø Aging and/or failing Ø Comfortable, Ø Position for new infrastructure sustainable work tenant attraction, environment Ø Safety and/or retention resiliency Ø Necessity (state, local mandates) Ø Modernization
Measures Energy Efficiency 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 Solar Grey/Black Water Wind Rainwater Harvesting Fuel Cell Irrigation & Controls 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 Budget 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: Where you might use the CapEx budget, traditionally: ü Self-sufficiency Application: Central plant x Introspective by design replacement Initiator/Driver: Owner
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. Where you might use an ESCO: ü Project risk reduction Application: ü ESCO expertise Holistic energy efficiency x Project limitations x Long project development Initiator/Driver: cycles Owner Single-tenant
Equipment Lease 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 Where you might use an Equipment Lease: Application: ü Efficient use of tax benefits Solar Mechanical x Limited security interest x Difficulty repurposing collateral Initiator/Driver: Owner Tenant
On-bill Financing 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. Where you might use On-bill Financing: ü Convenience Application: Efficiency ü Flexible repayment (lighting) x Limited coverage area Initiator/Driver: Not very common, only in select areas
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 owners from implementing energy efficiency retrofits or environmentally-minded new construction projects, including: Where you can use C-PACE: ü Upfront cost Application: Virtually all ü Creditworthiness improvement measures ü Investment ü Reimbursement Initiator/Driver: Owner Tenant ü Duration x Limited coverage FM
The C-PACE Backdrop 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 : Legislation passed in 33 states & D.C. Ø 45 active PACE programs nationwide Ø
What Problems Does C-PACE Solve? Barrier Solution Upfront project cost/lack of funds 100% third party financed Tendency that only “low-hanging fruit” Up to 30 year financing enables deep projects get done retrofits to be accretive Property assessment treated as an Inability or unwillingness to take on operating expense, not traditional additional debt debt Split incentives Tenants share cost/savings in NNN leases Transferable to next owner Owner might be selling building
What Can Be Financed? Energy Efficiency 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 Solar Grey/Black Water Wind Rainwater Harvesting Fuel Cell Irrigation & Controls Cogeneration Most Soft Costs Seismic (CA) Permits Seismic strengthening Architectural, Engineering Plans improvements Measurement & Verification may qualify
3. Case Studies How Commercial PACE has solved diverse problems
CleanFund Case Studies Seton Medical Center Room 214 Prologis HQ – Pier 1 Daly City, CA Boulder, CO San Francisco, CA Ø Need: Seismic mandate Ø Need: Replace aging Ø Need: OpEx reduction; infrastructure corporate sustainability Ø Solution: Lower cost of Ø Solution: Reserve capital; Life safety Ø Solution: Lower OpEx; Modernization CapEx for biz dev Ø Resilience Ø ‘Reduce and produce’ Ø Efficiency, comfort
Prologis HQ – Pier 1 Financing Amount Term Eligible Items Utility Savings LED lighting, HVAC, $1,400,000 20 years Building Controls, 32% 200kW solar system
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 Ø Sell 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. Ø Sell 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 of capital, depending on selection).
How to Sell Your Vision, cont.’ Ø Sell 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. Ø Sell 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.
Looking Forward Ø Reach out directly to discuss further questions, projects Ø CleanQuote 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!
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