Developers grappling with the cost of new laws enacted to combat climate change are taking advantage a little-known finance tool to help pay for green-building requirements.
The model for the loans, known as Property Assessed Clean Energy, was created in 2008 to fund improvements that create environmentally sustainable and resilient properties. Now, developers are turning to PACE loans to help create more energy-efficient buildings and meet tougher environmental standards.
In Omaha, for instance, the Capitol District, a $205 million mixed-use entertainment development, has become the latest milestone in a long-running effort to revitalize the downtown area. The project’s developer, Shamrock Development, tapped a PACE program to pay for LED lighting, heat pumps, low-flow water fixtures, and other building materials and equipment to enhance energy and water efficiency.
Promoters say a PACE loan is better than conventional debt used for similar upgrades because it is typically cheaper, it has a fixed interest rate and terms are 20 to 30 years instead of three to five. Shamrock Development’s $24.9 million PACE loan, for example, has an interest rate a little below 6 percent and a 22-year term.
What’s more, unlike conventional loans, PACE financing becomes an assessment on the property. It is paid annually along with the real estate tax bill, and it transfers to new owners.
“Developers are always on the lookout for new tools to make their projects better,” said Michael T. Moylan, president of Shamrock Development. “We saw that PACE was going to be good for us — it made our buildings more energy efficient, and long-term fixed-rate financing is always attractive.”