PACE Lending Can Help Dallas Developers Build Healthy Post-Virus Buildings ... If They Can Figure It Out

Forces are colliding to push Dallas-Fort Worth developers toward sustainable and healthy designs.

The coronavirus pandemic has many tenants requesting features associated with healthy buildings, particularly high-caliber air filtration and water purification systems.

And in May, Dallas passed its first Comprehensive Environmental and Climate Action Plan with the stated goal of reducing emissions in accord with the 2016 Paris Agreement and keeping local temperature changes at or below 1.5 degrees Celsius in the Dallas area. 

One of the tools Dallas is promoting to help meet its energy preservation goals is the city's local C-PACE funding program, which incentivizes property owners to add water and energy conservation tools to their existing and reuse building projects. But the program is complicated, which may be deterring its use.

C-PACE allows owners and developers to access long-term financing from banks without incurring the cost of building improvements upfront.

"The benefit is you are able to secure energy efficiency and water conservation measures with long-term, fixed-rate, nonrecourse financing that transfers with title," PACE lender Greenworks Lending Director Sean Ribble said. 

C-PACE requires a great deal of education because it is complex. It technically functions as off-balance sheet financing that allows the project lender to secure funds through the issuance of a periodic tax assessment on the property, Ribble said. 

The Texas PACE Authority, which administers the program on behalf of local governments like Dallas, said developers or building owners adding water and energy conservation amenities to their buildings will generally select a private sector capital provider to issue funds for a PACE renovation project, such as installing solar panels. The local government will then place a senior lien on the property for the project's cost, and the building owner agrees to pay PACE assessment installments back to the local government over a period of time. In this way, it functions like a tax assessment rather than a loan.

Despite strong demand for incentives that allow developers to update their buildings with energy and water conservation projects in the wake of the coronavirus outbreak, Texas PACE Authority President Charlene Heydinger said developers and building owners are not familiar enough with the program or how it operates.

"It has been really frustrating," Heydinger said. "People have to hear about it three times. I will make a PowerPoint presentation and when we are going through it, you can just see people with questions ... saying how does this work?" 

DFW developer Sam Ware with Dreien Opportunity Partners likes the options that come with PACE lending and said the possibilities were intriguing enough to prompt him to engage in some discussion with the program.

But he admits there's a "huge learning curve for developers."

"I think that it is a very good idea and PACE should be promoting that, since 100% of buildings would be more attractive if they could show that they have filtration systems that can capture and block various viruses, IE COVID 19," Ware told Bisnow in an email.  

Dallas was one of the first major Texas cities to create a PACE lending structure in 2016, according to Heydinger. The program has been adopted by 50 Texas governments, and now reaches 60% of the state's population. 

DSGNworks principal architect Kevin Wallace said many developers and building owners still remain unaware of how many projects can be completed through PACE. For starters, he said there's confusion over whether new buildings can ever obtain PACE lending for energy amenities.

If it's a new building on a greenfield project, the answer is no, he said. But, if someone is tearing down an old building and putting up a new one in its place or completing any kind of adaptive reuse or redevelopment project, PACE lending can be used to pay for water and energy conservation tools on the project, according to Wallace.

"So if you have a parking lot with lights on it and it's burning energy, then you can actually have an improved property by going new with a new building [on the site], and those [energy] components of that building can be funded by PACE funds," he said. 

With the coronavirus on the top of everybody's mind, U.S. Green Building Council Senior Policy Counsel Elizabeth Beardsley said now is a great time for PACE lending to gain more traction among building owners trying to improve air quality in older and redeveloped properties. 

"The connection of energy-efficient projects and health and indoor environmental quality, that is absolutely there," Beardsley said. "That is a reoccurring theme ... providing a healthy building requires paying attention to ventilation."