District of Columbia Property Assessed Clean Energy Financing

Note: In 2010, the Federal Housing Finance Agency (FHFA), which has authority over mortgage underwriters Fannie Mae and Freddie Mac, directed these enterprises against purchasing mortgages of homes with a PACE lien due to its senior status above a mortgage. Most residential PACE activities subsided following this directive; however, some residential PACE programs are now operating with loan loss reserve funds, appropriate disclosures, or other protections meant to address FHFA's concerns. Commercial PACE programs were not directly affected by FHFA’s actions, as Fannie Mae and Freddie Mac do not underwrite commercial mortgages. Visit PACENation for more information about PACE financing and a comprehensive list of all PACE programs across the country.

The District of Columbia offers a commercial Property Assessed Clean Energy (PACE) program. PACE financing allows commercial and mulitfamily property owners in the district to borrow money to pay for energy improvements. The amount borrowed is typically repaid via a special assessment on the property over a period of years. In order to receive financing through the commercial PACE program, applicants must first have an energy efficiency audit performed on the property. The audit must show energy cost savings that can reasonably be expected to equal or exceed the cost of the improvements and interest on the loan. Reasonable costs of any energy audit may be included in the amount of the loan upon request by the applicant. In receiving a loan, the participant agrees to pay a special assessment on the property, collected in the same manner as real property taxes, for the purpose of repaying the loan. The special assessment constitutes a lien on the property senior to all other liens except real property taxes, with similar penalties for non-payment. During the application process the applicant must certify that such an assessment does not violate any existing lender agreements.

A special assessment being collected as a result of an energy efficiency loan may remain attached to the property upon its sale. The seller of the property is required to inform the buyer of the existence of the assessment; however, failure of disclosure does not relieve the buyer of the obligation to pay the assessment. For rental dwellings, participant property owners which pass on the cost of the assessment (i.e., the cost of energy efficiency improvements) to tenants are also required to pass on the value of the energy savings.

Properties applying for PACE financing :

• must be located within the District of Columbia
• must not be in default, or have a history of default, on mortgage or property payments
• cannot have a combined debt limit of 90% of current value (including PACE financing)
• must have primary mortgage holders give written consent to take a secondary position to PACE loan in cases of default.

The program will provide financing for projects costing between $250,000 and $10,000,000; larger and smaller projects will be considered on a case-by-case basis. The term of the repayment is up to 20 years. The Mayor is permitted to authorize the issuance of up to $250 million in bonds to fund the program. The National Capital Energy Fund has been created to serve as the destination of bond proceeds, as well as other federal funding such as Energy Efficiency Conservation Block Grants (EECGBs), which may become available to support the program. As of October 1, 2021, the DC PACE program has transitioned to the DC Green Bank.

History

 In April 2010 the District of Columbia City Council enacted legislation providing for the creation of a PACE energy efficiency financing program within the District for residential, commercial, industrial, and other real property. The authorizing legislation describes a wide variety of energy efficiency improvement projects eligible under the program, such as insulation, building envelope improvements, HVAC system upgrades, and lighting. The law also permits PACE loans to be used to finance renewable energy projects (details not specified), as well as any other “modification, installation, retrofit, or remodeling approved as an electric or gas utility cost-savings measure”.

Eligible Property Types:

• Non-profit and special Use
• Industrial
• Institutional
• Multifamily
• Commercial office/retail

Eligible Project Types:

• Soft costs
• Storm water retention
• Water conservation
• Lighting and controls
• HVAC systems
• Envelope improvements
• Renewables and generation