Kristina Klimovich of PACENow talks to Matt Hunt and Michael Cox, VP and CFO of BluePath Finance, David Pickerill, CEO and founder of Missouri Clean Energy Funding, and Jeff Flathman, Co-founder and president of Energy Solutions Professionals.
Kristina Klimovich: First off, congratulations on completing a sizable PACE project in Kansas City! Jeff, can you tell us the origination and development story behind this project?
Jeff Flathman: Energy Solutions Professionals or ESP is an energy services company based in the Kansas City area, and we help clients address energy saving opportunities and critical infrastructure needs in a budget-neutral manner. We have worked on energy related projects on several properties managed by Signature Property Management, an Overland Park, KS based real estate management company, that oversees a significant number of condos and apartment complexes. This time they asked us to look at the Wornall Plaza Condominiums. We completed an energy audit and evaluation and developed a feasible project.
Generally, to undertake an energy project on a condominium building, the owner would have to raise the money for an upgrade from the condo owners. In this case, however, the energy savings are creating a payment stream to cover the equipment upgrades. PACE financing was a key factor that allowed this project move forward.
KK: Jeff, what was the project scope?
JF: This $670,000 project consists of a variety of conservation measures, including low-wattage LED and fluorescent lighting, heating and air conditioning upgrades, and enhanced building controls. To give you an example, in the winter the temperatures in the garage reached 85F. Now the building has new controls, which would prevent overheating and energy waste. The primary goal for the building owner was to replace the original 1960s boilers that required repairs. These old boilers were replaced with three highly efficient boilers that use 60% less gas. As a result, residents are more comfortable and the building is saving energy and money.
KK: This is a great example of a win-win situation! Jeff, how did you learn about PACE financing?
JF: We already had a working relationship with BluePath Finance and have completed projects with them in Kansas City, MO and outside. After a conversation with the BluePath Finance team we decided to pursue PACE, which resulted in a project with a positive cash flow that motivated the owners to move forward.
KK: Michael, can you shed some light on the project financing?
Michael Cox: Like many commercial energy efficiency and distributed renewable generation projects, the Wornall project had a 10-yr+ simple payback. Standard commercial financing terms are in the 5-10 year range, which wouldn’t result in a cash flowing project. The PACE structure allowed BluePath to stretch the financing term resulting in an expected immediate positive cash flow savings to Wornall. This transaction was structured as a loan between the Missouri Clean Energy District and Wornall financed through a District bond issuance purchased by BluePath Finance.
Also, the Missouri PACE program had an allocation of QECB (qualified energy conservation bond) tax credits, which BluePath utilized to decrease the cost of financing for the borrower.
KK: Dave, I’d like to turn to you and see how this project fits within a larger Missouri Clean Energy District structure. I understand that you have enrolled nearly 40 municipalities in your program already. Can you tell us more about the program model and what it takes to join?
David Pickerill: The Missouri Clean Energy District (MCED) is a state-wide political subdivision which welcomes all local municipalities and counties as members. Our plan is to scale across the state. Kansas City saw PACE as a part of their long term strategic plan and the City Council voted unanimously to join the program this fall. It is simple to join the program and we provide cities and counties with draft ordinances and resolutions. Moreover, MCED handles the collection of PACE assessments and obviates the need for the county tax collectors to handle an additional burden. To date, MCED has over $28M in the pipeline.
KK: Thanks, David. Again, congratulations on completing this first project. Jeff, what is the value proposition of PACE for your company and are you planning to use PACE on other projects in the future?
JF: This process was an eye-opener for us and now we are looking at several other projects where we intend to use PACE. For our clients PACE offers a lot of value since it is tied to the property and not the owner. Plus, finance companies are willing to offer longer terms which makes projects cash flow positive. In other words, PACE opened the door for us to do larger, more comprehensive, and more holistic projects.
KK: Michael, how does PACE fit in your model at BluePath Finance and what is your thinking in terms of expanding across the country?
MC: What makes us unique is that we provide a wide variety of financing products. ESP and our channel partners across the country focus on assessing and developing projects and come to BluePath to provide financing that fits the needs of each project and borrower. PACE is another arrow in our quiver and an ideal product for commercial financings requiring longer terms. We see a very large market opportunity for PACE and look forward to seeing PACE programs continue to develop across the country.
KK: Thank s everyone for taking the time!
Get the monthly "PACE Market Updates" newsletter
Join our list of over 7,500 insiders and receive the latest news and updates on the PACE market -- delivered to your email.