c-pace complex capital stacks€¦ · the capital stack includes $8.25mm of senior bank debt,...

C-PACE Complex Capital StacksIntegrating Financial Resources, Tax

Credits & Other Incentives

Kevin Moyer

Moderator

September 26, 2018

[email protected]

Confidential – PACE Equity 1

mailto:[email protected]

Panel Introduction

• Kevin Moyer, CIO, PACE Equity LLC

• Colin Kalvas, Public Finance Attorney, Bricker & Ecker• Sal Tarsia, Managing Director, Principal Transactions

Hannon Armstrong, Counterpointe SRE

• Will Clark, Vice President – Originations, CleanFund


✓ PACE Equity is a turnkey solution providingfunding capital, energy engineering, and projectgovernance to provide surety of close for buildingowners and developers.

✓ Our experience is unmatched in newconstruction and re-development implementingPACE in complex capital stacks using multiplesources of financing and incentives.

✓ We operate with PACE, Property Assessed CleanEnergy, providing innovative ways for owners anddevelopers to complete capital stacks and leveragebetter returns.

✓ We have national reach in 20 markets across theUnited States, adding more each year.

LAACKE & JOYS, MILWAUKEE, WI

$2.2M | 7% of CAPITAL STACK

NMTC Structure

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PACE EQUITY OVERVIEW

Confidential – PACE Equity

NATIONAL FIRSTSMade Possible with PACE Equity

Here are just a few examples of the new ground we’ve broken in PACE funding:

⇢First PACE Projects in AR, OH, WI, and San Francisco, CA

⇢First New Construction PACE Project

⇢First PACE Project to Incorporate Historic Tax Credits

⇢First PACE Project to Incorporate New Markets Tax Credits

⇢First Project to Use TIF and PACE

⇢First New Construction Office, Hospitality, Retail, and Multi-Family Projects

⇢First New Construction Projects in AR, CA, CO, KY, MO, and WI

RIVERHAUS, COVINGTON, KY

$4.4M | 10% of CAPITAL STACK

City Tax Abatement Bonds

3Confidential – PACE Equity

Complex Capital Stack: Considerations & Issues

• Underwriting challenges.

• Coordinated closings with large numbers of people and entities.

• Integration into local PACE legislation and approval processes.

• Legal considerations & avoiding intercreditor issues.

• Lender Consent with potential multiple senior lenders.

• Construction and disbursement management and coordination.

• Integrating into tax credit and local economic developmentprocesses and timing.

• Timing of the closing and funding's.


HOTEL INDIGO: $7.9M

15% of CAPITAL STACKSeismic Reinforcement, LED, HVAC,

Water Saving, Building Envel.

“Utilizing PACE Equity overall reduced our cost of capital. What made the difference was that PACE Equity brought not only financing but a turnkey service.”

- Stuart Rubin, Project Developer for Hotel Indigo

NEW CONSTRUCTION HOSPITALITY PROJECT

COACHELLA, CA – 2018FIRST NEW CONSTRUCTION PACE PROJECT IN CALIFORNIA

PACE Bonds, Equity, Sr. Debt, CFD Mello Roos Infrastructure Bonds5

6

“PACE Equity financing was the right choice because PACE paired so well with the rest of the capital stack used on this project. PACE Equity was a really critical piece of this project.”

- Joshua Jeffers, Owner & Developer of the Mackie Building

HISTORIC REDEVELOPMENT PROJECT

MILWAUKEE, WI – 20157 SOURCE CAPITAL STACK PROJECT

HISTORIC TAX CREDITS - LOCAL ED - TIF

MACKIE BUILDING: $1.7M

12% of CAPITAL STACK

HVAC, Elevator, Water Saving

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RIVERHAUS: $4.4M


HVAC, LED, Building Envel.

“The RiverHaus financing team was great and successful all around. PACE Equity, as our partner, was key to this project moving forward.”

- Deron Kintner, General Counsel, Flaherty & Collins Properties

NEW CONSTRUCTION MULTI-FAMILY PROJECT

COVINGTON, KY – 2017LARGEST MULTI-FAMILY PACE PROJECT TO DATE

URBAN REVITALIZATION – City IRD Bonds – Tax Abatement

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Hotel Retlaw: $2.4M


LED, HVAC, Building Envelope

HOTEL REVITALIZATION FUNDED BY PACE EQUITY

FOND du LAC, WI – 2016LARGEST PROJECT TO DATE IN WISCONSIN PROGRAM

INCORPORATED HISTORIC TAX CREDITS AND LOCAL ED FINANCING

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LAACKE & JOYS: $2.2M

7% of CAPITAL STACK

Geothermal, Building Envel.

“PACE Equity moved quickly after receiving a New Market Tax Credit Allocation. This project is a great win for us and the community.”

- Stewart Wangard, Chairman and CEO, Wangard Partners, Inc.

NEW CONSTRUCTION OFFICE PROJECT

MILWAUKEE, WI – 2017FIRST GROUND-UP OFFICE DEVELOPMENT TO USE PACE

FIRST PACE & NEW MARKETS TAX CREDIT PROJECT

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ST. LOUIS GROCERY: $1.7M


Solar, LED, HVAC, Roof

“

NEW CONSTRUCTION OF A GROCERY STORE

ST. LOUIS, MO – 2016

Provided Green Grocery Store in Food Desert

PACE in NMTC Capital Stack, USDA Guaranty on Debt

© Bricker & Eckler LLP 2017 | www.bricker.com

C-PACE and Other Development Incentives

[email protected]

Colin Kalvas


Ohio PACE Programs

2


DevelopOhio.com – PACE Map

3


Comparing Capital

4


Layering In Incentives

5

PACE has been combined with at least all of the following other development incentives in Ohio:Abatements: • Community Reinvestment Area (CRA) Abatements

• Sales Tax Abatements• Ohio Air Quality Development Authority (OAQDA) ProgramCredit Enhancement / Lending Programs: • Bond Fund Credit Enhancement• State Loan Loss Reserves• State Energy Loan ProgramOther Incentives: • Tax Increment Financing (TIF)• Historic Tax Credits (HTC)• Alternative Energy Tax Credits• Utility Rebate Programs


Key General Considerations

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• Lien position and intercreditor arrangements• State’s lien for taxes• Prior to, and separate from, all mortgage liens• Parity shared lien position with other real property tax

items

• Disbursement tracking and coordination

• Lender and lessor consent to special assessments

• Timing of closing/funding


Ohio Highlights

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• Sales Tax Abatement• Available through all Ohio port authorities• Allows for exemption from sales tax for all “building

materials” to be incorporated into the project

• Bond Fund Credit Enhancement• Available through several Ohio port authorities• Allows access to capital markets at investment grade

(BBB+/A-) interest rates

• OAQDA Program• Enables a real property tax exemption on the increased

value of real property due to the project


Case Study: Delco Lofts Project

• Urban redevelopment project in Dayton

• Historic industrial manufacturing building

• Redeveloped by Crawford Hoying Development Partners

• 134 market rate apartments, parking, amenities, and first-floor retail

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Case Study: Delco Lofts Project

• $17.6M Senior/Bridge Financing• Federal Historic Tax Credits (+/- 90% face value)• State Historic Tax Credits (+/-75% face value)

• $3.8M Dayton Port Bonds• BBB+ rated• 4.05% (July 26, 2016)• 17-year term• 0.56% annual port authority

credit enhancement,servicing, and trustee fee

• $650,000 Dayton PortSales Tax Savings

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Case Study:Delco Lofts Project

• PACE Financing• LED Lighting• Windows• HVAC• Insulation• Thermostats/Controls

10

2

The CounterpointeSRE / Hannon Armstrong Partnership

CounterpointeSRE has been financing C-PACE assessments since its inception in 2014.

Hannon Armstrong (NYSE: HASI), a Public REIT in the sustainable infrastructure

markets for over 25 years, has approximately $5 billion of managed assets as of

6/30/2018 with nearly $2.5 billion on balance sheet.

In the last year, Hannon Armstrong has closed transactions valued at more than $1.2

billion.

Expert commercial property knowledge and resources to finance sustainable energy

efficiency and resiliency upgrades for the commercial real estate industry- regardless

of the project’s complexity

The real estate acumen and financial strength to get the job done

C-PACE is Ideal for Complex Capital Stacks

3

CASE STUDY

HYATT CENTRIC: C-PACE Financing as a Cost Effective Substitute to Equity

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The Challenge:Without a cost effective way to supplement equity, the proposed rehab and rebuild of a new upscale Hyatt Centric hotel in Sacramento, CA was at risk. Market conditions caused higher material costs to the project, increasing the equity requirement. The capital stack included a first mortgage construction loan, preferred equity, a subordinate city economic development loan and equity.

The Solution:C-PACE financing was used as an alternative to raising $5.5 million of equity and an additional $5 million of higher cost floating rate debt in the capital stack.

The Result:The property owner is saving an estimated $1.5 million of interest carry during the development and stabilization period of the project. The C-PACE is also reducing the amount of equity needed for the project, allowing the property owner to achieve its return hurdles without giving up an ownership stake in the property. It also removes both interest rate risk and term risk from the most critical stage of the redevelopment of the asset.

$1,551,065INTEREST SAVINGS OVER 3 YEARS

$10,466,025 25yr FIXED RATE C-PACE FINANCING

$1,020,187ENERGY SAVINGS

1,037LIVES SAVED

C-PACE Deep Dive Case Studies

PACENation Regional Conference – Columbus, OH

September 26, 2018

CleanFund Case Study: Brookfield Building

Mixed-Use | $2,300,000 | 20 Year Term

Needs: Adaptive reuse; Lower cost of capitalSolution: Redeveloped underutilized building into hotel and apartments

CleanFund Financed Items: lighting, HVAC, temperature controls, water heating improvements

CleanFund in the Capital Stack:

The Brookfield Building sponsors utilized $11.2MM of Historic Tax Credits, $1.39MM of New Market Tax Credits, $3.4MM of senior bank debt, in addition C-PACE and sponsor equity. CleanFund helped the redevelopment of a formerly vacant property into an a source of job creation and income, and proved the compatibility of C-PACE with other financial resources.

Historic

Brookfield

Building

Kansas City,

MO

CleanFund Case Study: Butler Building

Mixed-Use | $24,000,000 | 20 Year Term

Needs: Adaptive reuse; Lower cost of capitalSolution: Repurposed vacant property into hotel, apartments, retail

CleanFund Financed Items: HVAC, lighting, insulation, roofing, glazing, water saving plumbing


CleanFund’s financing came in to replace defaulted mezz debt and offer a lower cost, significantly reducing the debt service requirements to the deal and increasing project returns. CleanFund also helped to optimize a complicated capital stack, which included EB-5 debt and Historic Tax Credits.

CleanFund Case Study: Home2Suites Tracy

Hospitality | $4,275,000 | 30 Year Term

Needs: Construction financing; Lower cost of capitalSolution: Full capital stack to begin development of ground-up hotel

CleanFund Financed Items: LED lighting, HVAC, controls, glazing, insulation


The capital stack includes $8.25MM of senior bank debt, $2.5MM in EB-5 debt, $4.3MM in C-PACE, and $6.6MM in equity. CleanFund enabled the sponsor to fill the capital stack without putting forward additional equity, and also enabled the senior and EB-5 lenders to finalize the project and continue to move the deal forward.

Will Clark

VP, Originations

[email protected]

mailto:[email protected]

c-pace complex capital stacks€¦ · the capital stack includes $8.25mm of senior bank debt,...

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