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responsibility to secure or replenish funding for the projects that are financed by the program. This approach puts the onus on property owners to find and secure their own financing from lenders.

There are two potential drawbacks to owner-arranged financing. The first is that putting responsibility on property owners to find their own financing can limit program participation to larger properties or more sophisticated owners who have the knowledge and the network to secure funding on their own. The second is that if a local government’s PACE program uses both owner-arranged and pooled bond approaches, then the owner-arranged financing option has the potential to siphon off the best (i.e., most credit worthy) properties and projects from the rest because lenders will be more interested in providing financing for them and at more favorable rates. If this occurs, then the remaining projects (that are less attractive individually to lenders under owner arranged) will have to use the pooled bond option, which will likely have a higher interest rate because the projects’ combined credit worthiness is lower.

Figure 3 – Owner-Arranged Process Flow

Applicant Find lender willing to finance project


Receive application & approve

Submit application

Place assessment

Receive approval & notice to proceed

Issue notice to proceed

Implement project

Receive payment request

Request payment

Verify project completion

Pay contractor

Pay back via property taxes

Issue progress/final payment (paid from lender)

This owner-arranged financing model is similar to the one being pursued by the City of Los Angeles for a commercial PACE program in partnership with the Clinton Climate Initiative.

3.4 Weighing the Options

Regardless of the type of financing a commercial PACE program uses, the type, condition, and image (i.e., how big and/or well-known a property or its owners are) of the properties included in the pool can have a significant impact on the interest rate available (offered by the funders) for the capital to finance the clean energy projects. A group of projects made up of mostly signature office buildings and premier hotels will almost always achieve more favorable interest rates than small, less well-known commercial projects, unless program planners apply significant credit enhancement (see Section 4.0).


Chapter 13


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