TX-PACE Program Proves Successful for Office Building in Need of Upgrades

On November 15, 2017, Texas’ first commercial office PACE (Property Assessed Clean Energy) project was completed in Houston, TX.  The $1.3M project at 1225 North Loop Investments, Inc. is paving the way for commercial office buildings throughout the state, demonstrating that commercial office properties can successfully increase capital, make significant property improvements, increase real estate market value, and eliminate the fear of overinvesting. 

Project Success

1225 North Loop Investments was drawn to the program as the need to replace aging equipment intensified. The 1983 facility had 35-year-old chillers and an antiquated control system. The chiller replacement parts were costly and difficult to find and the ongoing reliability concern was haunting for staff and ownership.  

Instead of approaching ownership with the request of a significant investment for replacement, property management suggested utilizing TX-PACE to eliminate the need for upfront capital. The energy-savings research that was completed for the facility showed that the priority equipment could be replaced with the inclusion of LED lighting throughout the entire facility. By grouping together efficiency measures with short and long-term paybacks, the energy savings would exceed the cost of the project over the 20-year term. 

The project will provide $3.66 million in savings over the 20-year term, while improving tenant comfort and increasing efficiency. Improvements include new chillers and associated water pumps, variable speed drives and air handlers, interior and exterior LED lighting, and building controls. 

What is PACE?

In 2013, the State of Texas authorized municipal and county PACE programs and in November 2015, the City of Houston established a uniform program called PACE in a Box that is currently being used in all of the other PACE programs across the state. As a new Houston program, the mechanics and benefits of TX-PACE are unknown to many, but can be best understood with a few commonly asked questions and examining the latest TX-PACE project.   

Texas Property Assessed Clean Energy (TX-PACE) is a financial tool for Texas’ property owners to use to upgrade facility infrastructure. Simply put, the TX-PACE program provides 100% long-term financing at a low rate, with the option to pass the costs through to tenants as an operating expense. 

• What’s the catch? 

The projects have to lower operating costs and produce enough savings to pay for the project.  The savings generated must exceed the entire cost of the project over the designated term. The term of the financing can stretch as long as the useful life of the equipment included within the project, often up to 20 years. This allows more capital-intensive projects to be completed. 

• How can it be passed through to the tenants? 

TX-PACE loans are paid through and secured by a property assessment voluntarily imposed on the property. Under most commercial operating leases, TX-PACE assessments can be passed to tenants because a property assessment owed to the local government is an operating expense. Under the leases, tenants will enjoy the resulting decrease in utility bills that will place them in a cash flow positive position. Assessments are tied to the property, instead of the owner. Because of this unique structure, if the building is sold, then the assessment automatically transfers to the subsequent owner. 

• What is the role of the government in TX-PACE? 

The PACE statute, Chapter 399 of the Texas Local Government Code, authorizes municipalities and counties in Texas to work with private sector lenders and property owners to finance qualified improvements using contractual assessments voluntarily imposed on the property by the owner. The City of Houston’s involvement is minimal. The City established the program and selected the Texas PACE Authority, a nonprofit, to administer the program at no cost to the City or its taxpayers. 

• Who provides the loan?

PACE in Texas is open-market. Pick your contractor, third-party engineer and even the lender. 

• What are eligible projects? 

Eligible projects include measures for water conservation, energy efficiency, and distributed generation. Examples of eligible projects include new heating and cooling systems, lighting improvements, water pumps, insulation, roofs, windows, and more. Additionally, cogeneration or combined heat and power, solar panels and wind generation are eligible improvements that are becoming more prevalent as owners focus on creating resilient, disaster-proof properties.

• What are the financial requirements? 

PACE is not a business or personal loan. It is a voluntary land-secured assessment that is paid off over time. Texas PACE legislation requires TX-PACE programs to ensure that property owners demonstrate the financial ability to pay the annual TX-PACE assessments. That demonstration must be based on particular statutory underwriting factors outlined here. 

Additional Benefits

The PACE project at 1225 North Loop Investments will not only benefit from the bottom line profitability but according to the www.epa.gov, the project will impact the environment in the following ways: 

• 1,262,075 pounds of coal burned in CO2 emissions
• 2,827,295 miles driven by an average passenger vehicle or 247 passenger vehicles driven for a year in Greenhouse Gas emissions 
• Equivalent carbon sequester of 29,895 tree seedlings grown over 10 years and 1,359 acres of U.S. forests in one year

For more information, visit www.texaspaceauthority.org