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Week of February 4 – 10, 2013

By Mike Allen

A San Diego approved financing entity aimed at helping commercial property owners install energy-saving up-grades is close to issuing new bonds to fund a slew of projects this year.

Mahesh Shah, chief executive of Figtree Energy Resource Co., said the company is close to issuing a $5 million private placement bond for funding upgrades on several properties in Fresno and Palm Springs. The firm is hoping to issue similar bonds this year to fund commercial upgrades on San Diego properties. “I’d like to do at least $50 million (in fundings) this year,” Shah said. “Getting into the city of San Diego was a big deal for us.”

In October, the San Diego City Council approved Figtree as a financing agent for a Property Assessed Clean Energy program. The program that operates in California, Florida and a few other states allows property owners to purchase energy-saving improvements such as solar panels and weather stripping through lower cost financing.
In addition to Figtree, other financing companies operating in the same space include San Diego-based Renovate America Inc. and Ygrene Energy Fund Inc.
Shah says Figtree was one of the first to get involved in the PACE program, and issued a $725,000 bond in late 2011 that was “the first multi-jurisdictional PACE issue.”

Things Are Looking Up

Since then, Figtree changed its structure and the joint powers authority needed to issue the bonds. Those changes put funding on hold last year. But with the shift to a new JPA involving the California Enterprise Development Authority, things are looking up, Shah said.

“The PACE market is still developing and we’re not there yet,” Shah said. “We have to educate investors, the contractors, the property owners and city officials.”

One group clearly on board is contractors, who say the program is having a huge impact on their
growth.

Rick Rothman, chief executive of SunUp Energy in San Diego, said the PACE program is helping apartment and hotel property owners install energy-saving systems such as thermal solar (different from photovoltaic) without any capital outlay.

“This is an exciting program and reminds me of the go-go days of the 1980s when we were installing solar collectors all over the city,” Rothman said. “It almost sounds too good to be true.”

Rothman says his firm has installed solar improvements on about 1,600 units last year. He was so busy he had to expand his staffing to get the work done.

“We have about 1,000 units in the pipeline, and we expect to do about 3,000 units this year,” he said. “Because of that work, I hired 15 installers last year. We’ll probably have to hire another 10 more this year as well as open a new office in Los Angeles.”

Under the PACE programs, properties can obtain loans on the improvements based on the assessed value of the buildings, with most capping out at 10 percent of value. Payments on the loans are made as an assessment on the building’s property taxes. If the property is sold the assessment stays with the property.

The lien arrangement that puts these payments ahead of mortgage payments caused the federal regulatory body that oversees Fannie Mae and Freddie Mac to issue a ruling that seriously damaged the program’s ability to make loans on residential properties, Shah said.

Commercial Market Focus

Despite the rule, Figtree can still do residential loans for energy upgrades on homes with mortgages that are fully paid off or on jumbo mortgages, he said.

But the firms focus today remains on the commercial side. “Right now we have about $7 million in applications, and are ready to issue a private placement memorandum (a type of bond) for about $5 million,” Shah said.

Future planned bond issues may be in a range of $1 million to $2 million, he said.

While the interest rates on the borrowings aren’t set yet, it will likely be in a range of 6.5 to 7.25 percent, he said. The exact yield on the bonds for investors would depend on the makeup of the loans bundled together, Shah said.
Investors in these taxable private placements are insurance companies, pension funds, banks, and wealthy individuals who are familiar with such arrangements, Shah said.

“This is a well-known public financing tool that has been used in California in the past 60 years,” he said.

Shah admitted there’s some confusion about how the PACE program works, and what the benefits are, which has impeded its adoption. But he says Figtree offers a lot of services that should enable it to pick up more business going forward, he said.

“We have one of the most flexible models out there,” Shah said.