Picking Up the PACEThe Better Buildings Case

Competition U.S. Department of Energy

Market Efficiency Team-Presentation

Team Members:Bruce Kaufman, Agustina Sclarandi, Gene Settoon,

Lauren Anderson*, Daniel Lutkus*

*Unable to attend

Overview

• Five-Tiered Rollout• Staffing and Administration

Program Structure and Operations

• Market Education• Website

Marketing Strategy

• Real Estate Investors

Financial Considerations

Program Structure and Operations: Tiered Approach

• Controlled & targeted growth• Program initiated industry led• Largest/easiest more challenging buildings• Apply lessons learned to subsequent tiers• Case studies prove uptake projections

Tier 1• Large/Old

Class A

Tier 2• Large/New

Class A• Small Class A

Tier 3• Class B• Hospitality

Tier 4• Industrial• Class C

Tier 5• Multifamily

Housing

Uptake Projections

Program Structure and Operations: Staffing

Staffing• Major cities only (75% population)• One staff member per city (focus & replication)

Intrastate Coordination• State mandates tiers & finance• Cities execute program within existing system

Administration• PACE training for contractors (tiered approach,

fast-track permitting)• Targeted marketing

Marketing Strategy: Targeting Building Owners

Public Disclosure of Energy Use• Mandate that buildings submit quarterly energy usage data &

energy efficiency certifications concurrent with tier rollout timeline

• PACE website compares energy usage & certification by size, occupants & industry

• Driver of market education & adoption Website Information Segment Targeting• Building Owners → Building Owners & Managers Association

i. Compare energy usage & LEED certification ii. Information on State Commercial PACE program

• Rentersi. Information on potential utility expenditures across

renting market – inform leasing decision

Financial Considerations: Types of Real Estate Investors and Lien ConsentReal Estate Investment Trusts

CORE

Best targets for the initial phase of the program because of their low Debt Service/NOI, usually interested in efficiency technology

CORE +

Value Added

Opportunistic Funds

Could apply the earn – out scheme so as to avoid Lenders’ concerns

Lien Issues

- Tiered approach - Advertise the savings of the PACE projects - Ensure that the largest & most impactful projects are done first

Market Efficiency Team

Thank you for your time!

Questions?

Team Market Efficiency

Appendices

Uptake Projections

Tiered Approach Assumptions Summary

Appendix A: Key AssumptionsThe following assumptions were used to generate data in Figure 1 & 2. Assumption 1: PACE Investment ($) / Building Area (sqft) = $3.50, which was the lowest value of 20 different cases that the team evaluated. Thus, projections shown below are conservative.Assumption 2: 66% of buildings built before the year 2000. Based on data from Chicago’s 73 tallest buildings.Assumption 3: 50% of building larger than average size. Based on assumption of normal distribution.Assumption 4: Participation rates for different building classes

Class ALarge/Old Class A Office: 16.8%. Based on uptake rates from Retrofit Chicago Initiative.Large/New Class A Office: 1.2%. Based on uptake rates from Retrofit Chicago Initiative.No difference in uptake rates between large & small buildings. Based on equal distribution between large & small buildings in cities were size restrictions don’t exists.

Class B: Assume 50% of Class A uptake (less demand than Class A, but still energy savings)Class C: Assume 20% of Class A uptake (less demand than Class A & B, but still energy savings)Hospitality: Assume 75% of Class A uptake (More demand than Class B because of client pressure, as demonstrated by Retrofit Chicago)MFH: Assume 50% of Class A uptake (same uptake as Class B)Industrial: Assume 50% of Class A uptake (same uptake as Class B)

Note: Projections assume that PACE funding at each tier is limited to the building type in that tier only, & doesn’t include building types from earlier tiers. Thus, projections are conservative, as some Class A buildings are expected to sign up in later tiers, for instance.

Intrastate Coordination Matrix

Program Components PolicyOwnership

AdministrationOwnership

Reason

Outreach and marketing City City City knows building landscape better than State

Application process City City City application processes already established

Property owner and project eligibility

State City Must have state-wide synchronization for replicability

Project size limits State City Must have state-wide synchronization for replicability

Credit underwriting State City Must have state-wide synchronization to reduce risk

Loan terms and conditions State City Must have state-wide synchronization to reduce risk

Ongoing admin. structure City City Cities better positioned to meet changes over time

Program Website Overview

$1,680,000

$168,000 $250,000

$1,102,000

Budget for Long-term Operations - $3.2M

Salaries & Benefits Overhead Website & Advertisement Misc

Program Budget