PACE financing guidelines are finally available for New York City, and while the program has not officially launched yet, hotel owners and developers in the area should start planning how to use these loans to retrofit their properties. My Partner David Sudeck discusses the program requirements, below.
New York City Releases PACE Program Guidelines: A Big Step Toward Opening a Big Market for PACE Financing
The NYC PACE Financing Program has finally released its program guidelines! Prospective qualified PACE lenders are now carefully reviewing the guidelines, applying for approval to be a PACE lender in New York City, and seeking projects that may benefit from PACE financing. It is time to get ready, but the official launch date for the program is being delayed a bit and has not yet been set. We expect the launch soon.
New York's Law Will Motivate Building Owners to Reduce Greenhouse Gas Emissions
While PACE financing has been available throughout the country for years, the PACE program for New York State was enacted in 2019 as part of the Climate Mobilization Act. As part of that law, Local Law 97 (which has been subsequently amended by Local Law 147 and Local Law 95), established greenhouse gas emission limitations for certain large buildings in New York City. Buildings covered by the law will be required to report greenhouse gas emissions commencing in 2024, and penalties will be assessed for exceeding the established limitations. The legislature enacted the law with the expectation that it will be more expensive to pay the penalties than to renovate the building to reduce emissions.
The State's Commercial PACE Program was then concurrently implemented to provide building owners with a low-interest (usually around 6+/-%), long-term (usually 20-30 year amortization) financing option to support the required energy efficiency retrofits and to support renewable energy projects generally. It is also a form of financing that will result in significant mortgage tax savings (there is not mortgage recorded with PACE Financing) and other benefits.
The NYC PACE Program Loan Requirements (directly from the Program Guidelines) provide:
Among other things, an "Eligible Site" must be an "existing building," so at this point, the program is not available for new construction (which is inconsistent with the PACE programs in most other states – we expect the guidelines will be further amended to allow new construction). In general, such existing building may be commercial, industrial, office, multifamily (three or more units), or residential condominiums currently owned in common by a commercial entity.
"Energy Efficient Improvements," in general, cover any renovation or retrofit "intended to reduce energy consumption." "Renewable Energy Systems" essentially means an energy generation system that generates electricity through various means, including, for example, solar, fuel cell technologies, or other renewable energy technology.
Though the NYC PACE Program guidelines do not currently allow the financing of new construction at this time (again, we expect the guidelines will at some point be amended to allow new construction), it does specifically allow retroactive PACE Financing. This is great news for property owners that recently completed a qualifying project/new construction of a building. Qualifying projects must have been completed "after the later of: May 19, 2019 or 3 years prior to the date on which the PACE financing agreement between the borrower and lender is signed."
We have found retroactive financing to be in greatest demand, and the majority of the financing we are handling, in the current distressed market. PACE Financing has been the lifeline for many property owners seeking to refinance, to pay down their existing loan balances, or to establish much-needed reserves and working capital.
While it is common practice to seek the consent of the secured lender before closing a PACE Financing (even in jurisdictions where this is not a specific requirement), the NYC PACE Program specifically requires securing this consent. There have been a fast-growing number of local and national secured lenders that have consented to PACE, and we expect that PACE will be widely accepted by local NYC-based lenders once they understand the features of the PACE financing.
The definition of "Eligible Site" above indicates that the subject property must be "owned in fee simple by the PACE applicant." While this is not unusual (for example, in California, the fee simple property owner must agree to the voluntary tax assessment), it will be interesting to see if and how this may limit the number of PACE financings, as so many New York City properties are on leased land. A long-term ground lessee will need the fee simple owner of the property (the ground lessor) to serve as the applicant for purposes of the requested PACE financing.
As described in our prior postings, PACE financing (an acronym for Property Assessed Clean Energy) allows property owners to place a voluntary tax assessment (as opposed to a mortgage or deed of trust) on their real property to fund qualified improvements (e.g., those that would reduce energy consumption).
Free webinar program on PACE Financing by industry leaders — June 22, 2021
WHAT: Free online program "Is PACE Financing an opportunity for YOU now?"
WHEN: Thursday, June 22, 2021, at 10:30 am Pacific | 12:30 pm Central | 1:30 pm Eastern.
WHO: panel moderated by Jim Butler, featuring two of the most experienced leaders in PACE Financing in the United States
REGISTRATION AND PROGRAM DETAILS: coming soon to our PACE Financing link here on HotelLawyer.com
If you have any questions or if you would like to explore PACE Financing for your project, please reach out to PACE Financing attorney David Sudeck at 310.201.3518 or by email at DSudeck@jmbm.com.
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JMBM Global Hospitality Group
1900 Avenue of the Stars, Seventh Floor
Los Angeles, CA 90067
Phone: (310) 203-8080
Jim Butler is a founding partner of JMBM and one of the top hotel lawyers in the world. Devoting 100% of his practice to hospitality, Jim is author of www.HotelLawBlog.com and chairman of the Global Hospitality Group® which focuses on representing hotel owners, developers, and lenders. Jim and his team have helped clients as business and legal advisors on more than $87 billion of hotel purchase, sale, financing, and other transactions, involving more than 3,900 properties all over the world. In the last 18 months, they have closed more than $1.5 billion of EB-5 financing and sourced more than half of that for our clients. In addition to acquisitions, dispositions and financing, the Group handles ADA compliance and defense, hotel mixed-use development, labor and employment, management, branding and franchise agreements and litigation. With experience gained from more than 1,000 bankruptcies, receiverships and workouts, they use innovative solutions to unlock and create value for lenders and opportunistic investors for distressed assets. Jim also serves as an expert witness in hospitality matters.
David A. Sudeck
David Sudeck is a member of JMBM's Global Hospitality Group® - a team of 50 seasoned professionals with more than $60 billion of hotel transactional experience, involving more than 1,300 properties located around the globe. David primarily focuses on the formation and registration of condominiums, timeshares, private residence clubs, and fractional interest regimes, the negotiation of hotel, spa, golf, and restaurant management agreements, and the development, acquisition, sale and leasing of hotels, golf courses, and restaurants.