How PACE Funding Can Help Real Estate Companies Finance ESG and Sustainability Initiatives

Currently, 11% of global greenhouse gas emissions come from building materials and construction, while 28% come from operating buildings.(1) Therefore, the total greenhouse gas emissions attributed to the construction and operation of real estate account for 39% of total global greenhouse gas emissions, outweighing both the transportation and industrial industries. The operation and construction of real estate are also responsible for one-third of the world’s energy consumption. 

As a result, governmental policies are being implemented with net zero targets set for new construction by 2030 and all buildings by 2050. With these new policies, real estate organizations will look for new financing options to help them meet the upcoming net zero goals. 

What is PACE Funding and How Does It Work for Real Estate?

One financing options is called Property Assessed Clean Energy, (PACE), with Commercial PACE (C-PACE) being the most prominent type of PACE financing. PACE funding is a financing tool that enables building owners to borrow up to 100% of the funds needed upfront to make a property more sustainable, efficient, and resilient.  

PACE funds are available for several projects, including implementing energy efficiency, renewable energy, water conservation, and resiliency projects. For example, building owners can use PACE funding to upgrade lighting, heating and cooling systems, insulation, motors and water pumps, and to install new solar panels and other property technology (proptech).  

Borrowers repay PACE through their property tax bill over an extended period determined by the borrower and following state regulations. Because PACE financing is repaid through the property tax bill, it mirrors the tax code, meaning the loan remains with the property, and therefore: 

• The financial obligation is transferable at the time of the sale; 

• Is amortized over the lifetime of the improvement (some states allow up to 30 years); and 

• It cannot be accelerated, meaning even if the owner defaults, they are only accountable for the payment(s) currently due, not the entire loan balance. 

Benefits of Using PACE Funding for Sustainability and ESG Initiatives 

PACE offers long-term financing terms (10+ years) with lower monthly payments that can enable organizations to be cash flow positive from day one and requires zero out-of-pocket costs. PACE is either funded by private investors or government programs but is only available in specific states with enabling legislation and active programs. It can also be combined with other utility, local, and federal incentive programs. 

PACE is issued as an assessment to a property’s real estate taxes, and owners can share the repayment expenses with tenants under most commercial leases. Making a building more energy-efficient can also increase property value and attract more tenants and buyers. 

State and Lender Requirements for PACE Funding

Unfortunately, PACE legislation is only active in 38 states, and depending on the state, PACE can only be used for commercial (C-PACE), industrial, agricultural, or non-profit. Residential PACE is currently only offered in California, Florida, and Missouri. Additionally, for properties with a mortgage, mortgage lender consent is likely to be required. 

To find state-specific PACE programs and approved capital providers, please visit PACENation. 

1 Source: Global Alliance for Buildings and Construction 2018 Global Status Report: Towards a zero-emission, efficient and resilient buildings and construction sector