Local Option - Commercial PACE Financing

Summary

NOTE: In 2010, the Federal Housing Finance Agency (FHFA), which has authority over mortgage underwriters Fannie Mae and Freddie Mac, directed these enterprises against purchasing mortgages of homes with a PACE lien due to its senior status above a mortgage. Most residential PACE activity subsided following this directive; however, some residential PACE programs are operating with loan loss reserve funds, appropriate disclosures, contractual subordination or other protections meant to address FHFA's concerns. The Federal Housing Administration (FHA), a branch of the U.S. Department of Housing and Urban Development (HUD), has released initial guidelines for using PACE with FHA-secured single or multifamily properties. This guidance is independent of FHFA policy. Commercial PACE programs were not directly affected by FHFA’s actions, as Fannie Mae and Freddie Mac do not underwrite commercial mortgages. Visit PACENation for more information about PACE financing, and for a comprehensive list of all PACE programs across the country.

On June 2012, Connecticut passed legislation enabling Commercial Property Assessed Clean Energy financing (C-PACE), targeting commercial, industrial and multifamily property owners.  C-PACE is a financial policy tool that allows property owners to finance qualifying energy efficiency and clean energy improvements on their properties through a special assessment on the property tax bill, which is repaid over a period of years (up to 20 years).  Connecticut's C-PACE program is “owner-arranged,” meaning the property owner contracts directly with a private capital provider to obtain financing.  The special assessment (also called a lien) on the property shall take precedence over all other liens except a lien for taxes of the municipality on real property. The lien automatically transfers to the next owner in the event of a sale or transfer of ownership.  The lien is senior to a mortgage, although it is non-accelerated, meaning in the event of default, only the payments in arrears would come due.

To participate in C-PACE financing, interested property owners must:

• Be located in a participating municipality. C-PACE maintains a list of participating municipalities.  Interested property owners should contact CEFIA if their municipality is not on the list of participating municipalities.

• Work with an approved energy professional (such as an auditor or contractor) to identify eligible projects.  CT Green Bank will maintain a list of approved contractors.  In general, improvements must be permanently affixed to the property and should either lower the building’s energy consumption or produce clean energy.

• Apply for financing via CT Green Bank's C-PACE web site.  If approved, CT Green Bank will place a lien on the property and financing will become available. Property owners repay the financing via the local property tax bills over the course of 20 years.

• Obtain written consent of existing mortgage holders.

While there is no financing minimum, PACE financing is best suited for capital improvements above $150,000, due to transaction costs. Please see C-PACE Program Guidebook for more information about the program.