PACE Loans for Co-op Energy Retrofits Are Just Days Away

Help is on the way for co-op boards worried about the high cost of retrofits that will help them reduce their buildings’ carbon emissions and avoid fines under the city’s ambitious Climate Mobilization Act. In June, the first Property Assessed Clean Energy (PACE) loan closed in New York City, opening the way for co-op boards and other building owners to get low-cost financing for clean-energy retrofits.

PACE loans allow building owners, including co-op boards, to finance up to 100% of the cost of improvements that reduce a building’s energy usage. Unlike conventional financing, long-term PACE loans are repaid in installments through a charge on the subject property’s tax bill. The money, however, isn’t available just yet. The loans are provided by private lenders that must be approved by the city – a process that is still ongoing.

“We’ve received about 20 inquiries so far from lenders seeking to prequalify,” says Peter Erwin, associate director for programs at New York City Energy Efficiency Corporation (NYCEEC), which is administering the PACE program. The request for qualifications was put out to lenders in April, and once the initial group of 20 or so lenders is approved, the city will publish a list on the PACE program website (nyc.gov/PACE), which Erwin says could happen as early as the end of July.

While New York State already has a list of approved PACE lending institutions, the city must compile its own list because the two PACE programs are separate. “The New York City program is only for the five boroughs, so it’s strictly a matter of geography,” explains Michael Karlosky, principal at MSK Resources and a PACE financing expert. “It’s an administrative nuance that doesn’t exist just here, but in other states as well.”

The specific requirements set by PACE lenders in New York City for building owners to qualify for financing may also vary slightly. All owners, however, must provide written consent from their existing mortgage holder, as well as an energy audit, which lending institutions use to determine the size of the loan.

“Overall, we’re going to be looking at all the elements of buildings’ financial health,” says Crystal Smith, director of originations in New York for Greenworks Lending, one of the oldest lenders in the PACE program, which is now available in 33 states and the District of Columbia. That includes a history of capital projects and assessments, the percentage of owner-occupied units, shareholder delinquencies and any back taxes owed. “The intent is for us to figure out a building’s ability to handle the debt service,” Smith adds.

While the term of a PACE loan is tied to the useful life of the improvement, up to 20 years, all other terms such as loan size, interest rate and loan-to-value ratio may be set by the lenders. That means building owners, particularly co-ops, need to proceed carefully.

“This is a brand new marketplace, so the loans will not be offered as competitively as traditional mortgages,” Karlosky says. Because terms can vary significantly between lenders, he advises boards to get multiple “bids” just as they would from other kinds of vendors. “That way,” he says, “you can line up different offers so you can get the best deal.”

Until the loan program opens wider, smaller co-ops might have a hard time securing smaller loans because they carry higher fees. Greenworks Lending, for example, will not process loans smaller than $500,000. But once the PACE program takes off and more lending institutions are approved and active in the marketplace, they’ll be more willing to make smaller loans, Karlosky predicts.

Erwin, of NYCEEC, has more good news: “Competition is also expected to drive down rates and incentivize favorable terms for building owners.” 

“It’s early days for the PACE program,” Karlosky says, “and there’s going to be a period of adjustment. But all things considered, this is a great new thing for co-op boards and building owners.”