New Residential PACE Launch Is a Success in Southern Californiaby PACENow
Guest blog post from PACENow:
The , sponsored by the Western Riverside Council of Governments (WRCOG), was launched in Riverside County (CA) in September 2011 for commercial projects and three months later in December for homes. HERO is shaping up as a success on both residential and commercial fronts.
2,000 Applications So Far
To date, 2,000 residential homeowners have applied, 1,250 of them have met the programs underwriting criteria to spend up to $38 million in eligible improvements. 300 residential PACE projects have been completed with just over $5 million in spending on home improvements. On the commercial side, a $700,000 transaction is slated to close this month and another $20 million worth of projects are in the works and expected to close in the coming year. What makes WRCOG’s program so successful? In this blog post, we will address major program elements and focus on the residential component of the program.
How It Works
The program was set up with the help of Public Financial Management, Inc. (PFM) under California PACE bill AB 811, and assessments are collected with property taxes by Riverside County twice a year. The WRCOG functions as a joint powers authority and 17 municipalities have signed participation agreements with the Council and are offering PACE financing to property owners.
A taxable municipal bond is created for each project and then sold to one of HERO’s designated funding partners: Renovate America, Samas Capital, or Structured Finance Associates, depending on the type of property and scope of project. Renovate America is working with residential projects, while Samas capital is buying bonds for small commercial projects and Structured Finance Associates for larger ones. The program does not require property owners to conduct an audit and interest rates are market driven and determined at the time of transaction. The minimum project size is $5,000 and projects can be financed for up to 20 years, but the financing term may not exceed the “useful life” of the installed eligible improvement.
The basic property eligibility requirements for the program are consistent with DOE guidelines for basics: the property owner has been clear of any bankruptcy for seven years, must be current with property taxes and mortgage payments, must have at least 10% equity in their homes and past payments need to have been made on a timely basis. Out of some 2,000 applicants, 600 were not approved for PACE financing.
Thus far, residential projects have averaged $20,000. Approximately 65% of all residential projects have been for energy efficiency measures. This includes heating and cooling measures (30%), windows and doors (24%), insulation (6%) and other measures (5%). Renewable energy projects accounted for the balance, chiefly solar. Water efficiency projects, eligible under the Program, account for less than 1% of the total.
Marketing Strategy Driving Success
J.P. McNeill, Renovate America’s CEO, notes that one of the main drivers behind HERO’s early and rapid success is its marketing strategy, which relies on the contractor community to market the program to prospective property owners. Renovate America’s staff conduct one-on-one meetings with local contractors to educate them about PACE program. In addition, Renovate America sponsors online group meetings to spread the word about PACE in the community. “There is already a lot of data on various rebate and loan programs that the contractor community is familiar with. As for PACE assessments, the structure is new, while the goal is still the same. We’ve built on what has worked in the past,” says McNeill. Currently, the program has 280 registered contractors and 20-40 new ones joining each month. McNeill points out that there is a lot of private capital that is ready to be deployed. While it may take some time to educate investors about PACE, at the end of the day, PACE bonds share the same strong credit characteristics with other assessment financings that are common nationwide.
Notwithstanding the Federal Housing Finance Agency’s clear opposition to PACE and the potential for retaliatory measures from Fannie Mae and Freddie Mac against PACE assessed mortgages, WRCOG joins Yucaipa, Palm Desert, and Sonoma County as another program offering residential PACE in California. Homeowners who participate are required to sign an acknowledgment of these risks. But McNeill says, “Look at the great results and all the benefits associated with the program: contractors are doubling and tripling their workforce, consumers enjoy an opportunity to finance home improvements, and the community as a whole is benefiting from a public-private partnership.”