Here are some of the questions we’ve been asked, and our answers. If you don’t find what you’re looking for use the comment box at the bottom of the page, or use the Contact Us page.
- What does it cost to join the NJPACE program?
- As a commercial, industrial or non-profit property owner, how do I get NJPACE financing?
- What types of buildings are eligible?
- What types of upgrades are eligible?
- Can PACE be used for new construction?
- Are the energy upgrades financed by NJ PACE subject to property tax revaluation?
- Does PACE represent some kind of government subsidy or interest-free loan arrangement for large property owners or corporations, at the expense of taxpayers?
- What are the differences between PACE financing and PPAs or leases?
- What’s in it for the Mortgage Lender to grant consent?
- What happens to the PACE assessment in the event of a bankruptcy or a foreclosure?
- What would be the existing Mortgage Lender’s typical PACE exposure per year?
- Does the Lender need to provide any cash? If not, who provides the funds for the project and how is it structured?
- How long does it take to complete a PACE financing or obtain lender consent?
- Can PACE financing take-out an existing commercial mortgage loan?
- What are the current interest rates on PACE financing?
- How are PACE assessments treated for tax purposes?
Q. What does it cost to join the NJPACE program?
Our services are provided at no cost to municipalities, property owners, contractors and other program participants. Transactions are subject only to standard administrative fees that are included in the costs of the projects being financed.
Q. As a commercial, industrial or non-profit property owner, how do I get NJPACE financing?
Make an application and receive a PACE Kit. Typically, the first step is to get an energy audit and determine the clean energy measures appropriate for your property. We can provide you with a list of area contractors or you can have your own contractor register with New Jersey PACE. You then contact us to facilitate technical and financial reviews, approvals and financing. If your municipality has not yet opted-in to NJPACE, we can assist you in getting them into the program.
Q. What types of buildings are eligible?
The property must be non-residential, or have 6 or more dwelling units, and pay property taxes or have a property tax ID. All legal owners of the property must sign the Program Application. The property must be current on property tax and assessment payments, and have no involuntary liens, defaults, or judgments. Where there is a mortgage, the owner must provide evidence that the mortgage holder consents to the PACE assessment. The building must be located in a municipality that has adopted an ordinance approving the NJPACE program. NJPACE is best suited for capital improvements greater than $150,000.
Q. What types of upgrades are eligible?
- High efficiency lighting
- Heating ventilation air conditioning (HVAC) upgrades
- High efficiency chillers, boilers, furnaces, water heating systems
- Building enclosure/envelope improvements
- Building automation (energy management) systems
- Renewable energy systems (solar, CHP, wind, etc.)
For a complete list please visit our Eligible Measures page.
Q. Can PACE be used for new construction?
A: In principle the answer is yes. PACE financing can be used for any renewable energy or efficiency “improvement” to a property. The NJ legislation covers:
“the purchase and installation of renewable energy systems and energy efficiency improvements by property owners as a local improvement.”
Here are some examples that would qualify.
- Installing a solar array on a farm property: this may be considered new construction, but it certainly qualifies, since it’s providing renewable energy to offset the property’s energy usage, and constitutes an improvement to the asset value of the property.
- The installation of energy-efficient HVAC equipment in a new office building, which the builder might not do otherwise. Where it is possible to make a case for “energy savings” vs. an established baseline for calculated energy costs for such a building, any additional or separable costs could be financed.
- The installation of integrated systems, or virtual power plants, including MW-sized battery systems, CHP facilities, etc. that would not otherwise be included by the developer without such financing.
In practice, however, the applications are likely to be somewhat more limited. Where the energy-efficiency equipment is the standard, or the same cost as less efficient equipment, financing the energy systems might be feasible, but could not easily be offset against baseline savings, and might be therefore regarded as stretching the definition somewhat.
Q. Are the energy upgrades financed by NJ PACE subject to property tax revaluation?
A. It depends. “Renewable energy systems,” defined very broadly, may be exempted from the assessed value of a property under state law (N.J. Stat. § 54:4-3.113a et seq.). Here’s what DSIRE states about it:
In October 2008, New Jersey enacted legislation exempting renewable energy systems used to meet on-site electricity, heating, cooling, or general energy needs from local property taxes. (There is not a state component to property taxes in New Jersey). Eligible renewable energy systems* include solar PV, wind, fuel cells, sustainable biomass, geothermal electric, landfill gas, hydroelectric, resource recovery, wave, and tidal systems that produce electricity. Systems that produce energy from solar thermal energy (e.g., solar hot water) or geothermal energy (e.g., geothermal heat pumps) are also eligible for the exemption. The exemption may be claimed for all qualified systems installed on residential, commercial, industrial, or mixed use buildings as accessory uses.
In order to claim the exemption, property owners must apply for a certificate from their local assessor which will reduce the assessed value of their property to what it would be without the renewable energy system. Exemptions will take effect for the year after a certification is granted. The New Jersey Department of Treasury, Division of Taxation is required to develop the rules and regulations necessary to implement this law. According to the law, rules relating to the technical qualifications for eligible renewable energy systems will be developed by the New Jersey Board of Public Utilities (BPU) and the Commissioner of Community Affairs. The Department of Community Affairs (DCA) has determined that the existing Uniform Construction Code, which requires compliance with a manufacturer’s instructions in cases not specifically covered by the code, is a sufficient basis for determining whether or not a system qualifies for the exemption. Thus, as of this writing detailed technical standards are not expected.
The New Jersey Division of Taxation has developed an Application for Certification of Renewable Energy Systems. Prospective applicants should direct questions about the law to their local assessor.
*Biomass, hydroelectric, and resource recovery facilities must meet environmental standards as defined by the New Jersey Department of Environmental Protection and minimize environmental and community impacts.
Q. Does PACE represent some kind of government subsidy or interest-free loan arrangement for large property owners or corporations, at the expense of taxpayers?
A. No. PACE uses the authority of municipal governments to impose assessments on properties in order to finance improvements deemed to be “in the public good,” such as sewers or sidewalks. What’s unique about PACE is that the assessments are voluntary, attached at the request of the property owner, and unique to each improved property, reflecting the costs of the financing provided. This financing can come from private lenders or investors, or from the issuance of special-purpose bonds, either by the municipality or by County Improvement Authorities. Using the assessment mechanism in this way is a benefit to both property owners and investors, by providing secure, transferable, and non-callable financing for approved projects.
But there is no cost to the taxpayer, and no subsidy to the property owner. In fact, PACE financing is currently attracting market interest rates of 6-8%, and includes not only administrative and financing fees but also in some cases costs for third-party verification of energy savings or other benefits. But the total cost must still provide a net positive return to the property owner, and fees and interest rates are governed by market conditions. (They are, for example, less than the PSE&G Solar Loan program, which are currently over 11%.) PACE uses the leadership of governments to provide a suitable mechanism for attracting private capital for bonds or directly for the improvements.
Q. What are the differences between PACE financing and PPAs or leases?
A. PACE financing is similar to PPAs and leases in that there is no upfront cost to the owner to make the improvements. However, by financing the purchase of the system through the property tax mechanism, the building owner gets to keep all of the incentives and tax credits that come with owning the system, while still having a lower monthly cost than with utility-supplied power. In addition, while the “liability” is off the balance sheet, the value of the asset is recognized right away. (For more details, see https://newjerseypace.org/2013/11/16/pace-vs-ppas-or-leasing/.)
Q. What’s in it for the Mortgage Lender to grant consent?
A. PACE financing for energy efficiency upgrades and renewable energy measures makes buildings more valuable. PACE financing can make projects immediately cash flow positive, making it easier for property owners to repay their mortgages. Better cash flow results in improved DSC (debt service coverage) and a lower LTV (loan to value) as property value increases. Studies have shown that owners who make sustainable improvements are less likely than average to default on debt because they have invested in their buildings.
Q. What happens to the PACE assessment in the event of a bankruptcy or a foreclosure?
A. PACE assessments do not accelerate upon a bankruptcy or foreclosure and are not extinguished. They have characteristics similar to other property taxes and assessments. As with any outstanding property tax lien, only the amount of the assessment that is overdue or current is due at the time of foreclosure. Future PACE assessments remain with the property and are assumed by its new owner. PACE assessments are never canceled or forgiven.
Q. What would be the existing Mortgage Lender’s typical PACE exposure per year?
A. Generally, no more than 0.5% of the property value per year. Since a PACE funded project will rarely exceed 10% of the property value, and assuming a 20 year PACE financing term, the amount due each year is approximately 0.5% of property value. Even if the assessment became delinquent, only amounts past due and current are payable. There is no acceleration.
Q. Does the Lender need to provide any cash? If not, who provides the funds for the project and how is it structured?
A. Lenders do not need to provide funding for a PACE project, though nothing would prevent them from doing so, and some programs offer existing lenders a right of first refusal. To date, PACE projects have been funded by many different private market capital providers. Since PACE can be used to fund up to 100% of the cost of an upgrade, it also does not require any funds from the property budget or the property owner. If desired, an Intercreditor Agreement may be used to specify the terms between the capital provider and the mortgage lender, providing a formal mechanism for the capital provider to provide notice to the mortgage lender in the event of PACE non-payment or default. In many areas where a default on any tax triggers a default on all tax obligations, such procedural mechanisms may not be necessary.
Q. How long does it take to complete a PACE financing or obtain lender consent?
A. It depends entirely on the scope of the project and related factors. Single energy conservation measures, such as replacing a boiler, may be completed fairly quickly. More comprehensive energy measures can take anywhere up to a year to complete, particularly if a comprehensive energy audit is performed. Please see the “Timeline” document for details. Lender consent for a project has been received in as little as a day, but can take up to a month for more complicated upgrades.
Q. Can PACE financing take-out an existing commercial mortgage loan?
A. PACE is intended as funding for new retrofit improvements by property owners to replace outdated, inefficient equipment and to install permanently affixed, new equipment that reduces energy or water consumption or produces renewable energy. Additionally, some programs allow property owners to finance work in progress.
Q. What are the current interest rates on PACE financing?
A. While the exact interest rates can only be established at the time of project approval, our current “indicative” rates are 6.5%-7.5%. These rates compare favorably with, e.g., the BPU-approved solar loan program at 11.1%, and offer additional advantages over PPAs and leases. (For a more detailed comparison, see PACE vs. PPAs or Leases.)
Q. How are PACE assessments treated for tax purposes?
A. We’re still researching the answers to this question, which depend to some extent on the choices the owner elects to make with his or her accountant. It’s important to note that we are not tax attorneys or accountants, and do not offer advice as to what options to choose. But it’s our understanding that if they treat, e.g, a solar system as a capital improvement, and the payments as loan repayments, they could deduct the interest, and claim the tax credits and depreciation. Alternatively, the accountant could view the Special Assessment payments as a operating expense, similar to a property tax; but in this case it’s not clear that they could also treat the improvement as an asset belonging to the property owner for other tax purposes.
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