TX-PACE (Texas Property Assessed Clean Energy) is a proven financial tool that enables commercial, industrial, agricultural, nonprofit, and multifamily property owners to upgrade facility infrastructure with little or no upfront capital outlay. The program is designed so that owners lower their operating costs and pay for eligible improvements with the savings generated, taking advantage of affordable, long-term financing.
PACE assessments are attractive to capital providers because they are very secure investments. A TX-PACE lien has the same priority status as a lien for any other ad valorem tax and runs with the land. Therefore, the risk of loss from non-payment of a PACE assessment is insignificant compared to most other types of financing.
PACE assessments provide capital providers with an attractive new product to assist existing and new customers in addressing an almost universal pent-up demand for needed commercial and industrial property equipment modernization. In order to protect the interests of holders of existing mortgage loans on the property, the PACE Act requires written consent by the mortgagee to the PACE assessment as a condition to obtaining PACE financing.
The following are some but not all requirements that assist in the protection of the investment:
a) The PACE Act requires quality assurance and anti-fraud measures to be instituted for the program;
b) Independent Third-Party Reviewer (ITPR) – licensed engineers – with no financial interest in the project must find and attest that he/she believes the savings (energy, demand, water, and cost), expected project life, and cost are reasonable and in compliance with the TX-PACE program guidelines based on standard engineering practices. After the construction of the project is complete there will be a site inspection by an ITPR who will determine whether the scope of the project was completed and is operating properly.
c) The PACE Act requires the TX-PACE program to ensure that property owners have access to third-party capital providers with adequate funding for TX-PACE projects.
d) The property owners must demonstrate the financial ability to pay the annual TX-PACE assessments based on particular statutory underwriting factors.
e) To be eligible for TX-PACE financing, the projected savings derived from the TX-PACE improvement must be greater than the cost of the TX-PACE assessment over the life of the assessment.
f) The assessment is secured by a lien on the property itself (not the owner or the improvement).
A TX-PACE lien has the same priority status as a lien for any other ad valorem tax and runs with the land (the unpaid portion transfers to a new owner upon sale); and is not eliminated by foreclosure of a property tax lien.
Delinquent installments of the assessments are collected by the local government in a suit to collect a delinquent installment of an assessment in the same manner as in a suit to collect a delinquent property tax.
As Keeping PACE in Texas began researching best practices, it noted a California trend in which hundreds of early adopting adaptor local governments were opting into one or more state‐wide competing administrative programs with each providing an exclusive or favored funding mechanism that relies on privately or publicly funded municipal bonds. The competition among these government‐selected program administrators and the differing program requirements can be confusing and expensive.
The case for a state-wide, uniform program model was made in 2013 by Connecticut’s new PACE statute, which is the only one that created a single governmental state-wide agency to administer a PACE program on behalf of local governments. In its first eight months of operation, Connecticut accounted for one‐half of all commercial PACE financing in the U.S. in 2013.
Although a state‐administered TX-PACE program is not an option in Texas, the Keeping PACE in Texas coalition recognized that uniform programs covering large areas provide economies of scale. This vision created the PACE in a Box toolkit that is being utilized throughout the state, and serving as a nationwide model. The program enables local governments in Texas to utilize a uniform turnkey program that provides underwriting and technical standards best practices and model documents. The program was designed by over 130 stakeholders including local and national capital providers.
Texas PACE Authority administers the uniform PACE in a Box model on behalf of local governments as a public service and guides applicants through the TX-PACE process.
The goal of TPA is to have a well-resourced, efficient, and financially stable organization, while keeping costs to a minimum and operating in a lean fashion. To that end, TPA charges two types of fees as part of administration, an application fee and an ongoing interest rate residual. These fees cover the basic administrative service to complete a PACE project as well as the ongoing oversight and program reporting to local governments that enact a PACE region.
Application Fee is the greater of:
$2,000; or
Amounting to
1% of total project cost of first $5 million;
.5% of marginal amount above $5 million; and
.25% of marginal amount above $20 million.
Initial $500 to be paid with application. Balance to be paid at closing.
Ongoing Residual Fee amounting to 8 basis points annually on the loan, resulting in a declining payment based on the outstanding principal balance to be paid as part of annual assessment. Note: This fee can be capitalized and paid in full at closing.
When an existing PACE Assessment is amended, the above Application Fee will be calculated on the difference between the original project cost and updated project cost, or $2,000, whichever is larger. An initial $500 will be paid with the amendment application. When applicable, the recurring Administration Fee will be reset accordingly.
Project Cost is defined as the total assessment amount less the TPA Application Fee.
To meet its commitment to lower rates as TPA becomes self-sufficient, the TPA board voted to lower rates in June 2017 and again in September 2019.
- Is the legal property owner
- Is current on mortgage and tax payments
- Is not insolvent or bankrupt
- Holds a title to the property to be subject to a TX-PACE assessment that is not in dispute
- Has consent of any pre-existing mortgagee to the proposed TX-PACE assessment through a written contract
To fix the length of the assessment, the property owner first determines the total cost of the TX-PACE project and the projected utility savings. The assessments term should be stretched long enough to ensure that the savings resulting from the project exceed the cost of the assessment.
Texas legislation requires that the assessment term must be shorter than the useful life of the improvement or, in a multi-measure project, the weighted average useful life of the improvements.
Depending on the improvements, this often ranges from 10-25 years or longer.
Once all documents and materials required as part of a PACE project application have been submitted, please allow 10 business days for review and evaluation. If approved, TPA will then issue a notice to proceed to closing.
Rates are dependent on a variety of factors. Project rates thus far hover around 6%.
PACE in Texas is open-market, and consequently a wide range of parties can underwrite PACE assessments. Eligible third-party capital providers may include:
- Any federally insured depository institution such as a bank, savings bank, savings and loan association, and federal or state credit union;
- Any insurance company authorized to conduct business in one or more states;
- Any registered investment company, registered business development company, or a Small Business Administration small business investment company;
- Any publicly traded entity; or
- Any private entity that:
- Has a minimum net worth of $5 million;
- Has at least three years’ experience in business or industrial lending or commercial real estate lending (including multifamily lending), or has a lending officer that has at least three years’ experience in business or industrial lending or commercial real estate lending; and
- Can provide independent certification as to availability of funds.
All capital providers must have the ability to carry out, either directly or through a servicer, the bookkeeping and customer service work necessary to manage the assessment accounts.
Note that the Texas PACE Authority neither recommends nor endorses any particular PACE Service providers. This directory is provided solely for convenience in consolidating a list of PACE service providers. If you would like to be listed as a PACE capital provider, please contact Texas PACE Authority.
If you want to be listed on the TPA website and meet the requirements outlined above, fill out Texas PACE Authority’s Request for Qualifications and submit. That RFQ can be downloaded: PACE Capital Provider Request for Qualifications