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    4 Ways A New Financial Program is Transforming Texas Real Estate

    Renovation of an 11-story commercial office property in Houston is drawing attention from property owners and managers across the state. 1225 North Loop Investments utilized the Texas Property Assessed Clean Energy (TX-PACE) program to make $1.3 million in property improvements, showcasing a program that uses significant property upgrades to improve a company’s financial position and transform the workplace and community.

    1. Making property improvements a reality

    TX-PACE is a proven financial tool that incentivizes Texas’ property owners to upgrade facility infrastructure with little or no capital outlay. Property owners overcome traditional up-front cost barriers for capital investments with long returns on investment and can use TX-PACE to pay for property improvements including new heating and cooling systems, lighting, solar panels, water pumps, insulation, roofs, windows, and more.

    TX-PACE answers the question, “How are we going to pay for it?” and is transforming how developers, owners, and contractors look at projects, proving that there is a clear path forward for energy efficiency, distributed generation, and water use reduction measures.

    The TX-PACE program accelerates investment in the maintenance of existing facilities, preserving capital and credit lines and empowering owners to retain their available capital for revenue-generating items including employees, technology, products, and growth. Functioning similar to a sidewalk or sewer assessment, future PACE assessments transfer to a new owner at sale, so they cease to be a disincentive to a current owner with deferred maintenance issues.

    Dallas’ first TX-PACE project was completed in 2017 at the historic Butler Brothers Building for $23.9 million.  TX-PACE financing enabled the inclusion of energy and water-saving measures in the redevelopment capital stack, demonstrating that there is a low-cost, long-term replacement to expensive mezzanine financing.

    2. Changing a company’s financial position

    TX-PACE programs enable owners to lower their operating costs and use the savings to pay for eligible water conservation, energy efficiency, resiliency, and distributed generation projects. Owners gain access to affordable, long-term, private financing that is not available through traditional funding avenues.

    The term of the financing can stretch as long as the useful life of the equipment included within the project, often up to 20 years or more. This allows more capital-intensive projects to be completed, providing an immediate increase to net operating income and creating an avenue where investing in efficiency is a business-savvy proposition.

    1225 North Loop Investments utilized TX-PACE to upgrade $1.3 million in chillers, air handlers, lighting, and building controls. The project will provide $3.66 million in savings over the 20-year term, while improving tenant comfort and increasing efficiency. The project needed no out-of-pocket investment and will increase the property value more than $900,000.  The financial options for completing a project like this are illustrated with the comparison chart that shows a traditional 5-year loan that needs a $260,000 down payment yielding annual payments notably larger than the cashflow produced by the project.

    PACE Financing

    The self-funding option (using capital dollars to fund improvements) would take 6.5 years to achieve positive project cashflow, compared to the immediate cashflow produced with the TX-PACE option.

    3. Changing the workplace

    TX-PACE projects redirect current expenditures to positively impact the working environment. Buildings use upgraded HVAC systems and building controls to increase comfort conditions and indoor air quality, retrofit lighting systems to provide uniformity and improved lighting levels, and implement sustainability and efficiency measures that increase the attractiveness for tenants and guests.     

    The indoor environment influences the performance, productivity, health and well-being of office workers. One study found that a building’s temperature and illumination have significant effect on office workers’ performance. The effect of indoor temperature has a 38% contribution on workers’ performance, with lighting levels contributing to performance around 20%.

    4. Changing the community

    Texas faces significant challenges in ensuring that it has the infrastructure to meet the needs of a rapidly growing economy. This is particularly well-illustrated by the challenges in reliability of electrical power and water supplies. The most affordable and readily available supply of energy and water is the existing supply that we can reallocate. TX-PACE enables businesses to conserve state resources while upgrading properties and improving building stock, providing a means to attract top talent and investment to the community. The creation of jobs and economic activity that is evolving as a result of the TX-PACE program is being noticed by other states implementing similar programs. In less than 3 years, more than $35.8 million has been completed in TX-PACE projects, with 302 jobs created. 

    For more information about TX-PACE, visit: www.texaspaceauthority.org

    About Texas PACE Authority - TPA is the nonprofit administrator of the "PACE in a Box" model programs. TPA works with all parties – property owners, contractors, and capital providers to bring energy and water improvements that are both economically sound and environmentally friendly.

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