1. San Francisco Tax Lien Financing Program
for Commercial Building Clean Energy Upgrades
Rich Chien LEED AP
Department of the Environment
City and County of San Francisco
richard.chien@sfgov.org
(415) 355-3761

2. 2010 SF Citywide CO2e Emissions by Sector
Rail (BART & Ferry Waste Residential
Caltrain) 0.6% 4.5% Electricity
1.6% 6.6%
MUNI Buses & Rail Residential Natural
0.5% Gas Source CO2e (MT)
14.3% Cars & Trucks 2,116,126
Commercial Electricity* 861,559
Residential Natural Gas 777,114
Commercial Natural Gas 605,381
Residential Electricity* 358,033
Cars & Trucks Waste 244,625
38.8%
Municipal Electricity* 216,548
Commercial
Electricity Municipal Natural Gas 119,843
15.8% Rail (BART & Caltrain) 89,530
Ferry 34,103
MUNI 25,650
Commercial Natural Total: 5,448,513
Municipal Natural Gas *preliminary
Gas Municipal Electricity 11.1%
2.2% 4.0%
~27% of total emissions
5.4 million metric tons
(12% below 1990)
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3. GreenFinanceSF – Overview
• Property Assessed Clean Energy (PACE) Program
– Extension of traditional municipal land-secured financing
(example: burying utility lines)
• Financing secured by lien/assessment on property
• Paid off via property taxes
• Under PACE framework, GreenFinanceSF can provide
secure project financing for energy
efficiency, renewable energy & water conservation
projects for existing privately owned buildings
• 26 U.S. states now have specific enabling legislation
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4. PACE Financing Basics
Government Sponsor Property Owner
Upfront Capital
Repaid on Tax Bill
• Creates financing district & approval • Identifies work & chooses contractor
process • Repays financing as a line item on the
• Attaches repayment obligation to the property tax bill (up to 20 years)
building via property taxes • Repayment obligation transfers with
• Private investors provide upfront capital ownership
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5. Why PACE
• Collateral is property not owner credit
• Up to 100% upfront financing
• Preserve capital for core business investments
• Long term – up to 20 years
• Lower rates than other available products
• Tax lien structure can mean minimal covenants
• Obligation stays with property in event of sale
• Improvement costs & benefits align under most lease
structures (e.g. property tax pass-through)
• Long financing term + moderate interest rates = cash flow
positive energy improvements
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6. Open Market PACE Features
• Flexible (not one size fits all)
• Bonds purchased by Qualified Institutional Buyers, or Accredited
Investors, as defined by SEC (“PACE Lenders”)
• Each building/project consists of an individual “improvement area,” backed
by single privately-placed special tax bond
• Tenor: negotiated
• Maximum term determined by program
• Shorter of equipment working life or 20 years
• Rate: negotiated
• Illiquid nature of PACE securities mean rates in the 6-9% range
• Fees
• Program fees listed
• PACE Lender fees negotiated
• Project specific underwriting criteria: vary widely by lender and by
project
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7. Property Eligibility
• Program underwriting requirements
– Property located in City/County of San Francisco
– Equipment/materials permanently affixed to property
– Currently pay (or be eligible to pay) property taxes
– Lien holder consent/acknowledgement
– Current on mortgage debt and property taxes
– No recent defaults, bankruptcies or late property taxes
– Property can’t currently be “underwater” on debt
• Using currently assessed OR recently appraised value of property
– Title search to confirm eligibility and ownership
• Project investor may have additional underwriting
requirements
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8. Project Eligibility
• Common and custom EE, RE, WC measures*
• Professional energy audit
• RE projects to be paired with EE
– Reduce energy use 10% as a condition for financing RE
• No effect on ability to take advantage of applicable
incentive/rebate programs
• Use of ENERGY STAR Portfolio Manager
– Free service to track and benchmark energy usage
– Comply with Existing Commercial Buildings Energy Performance Ordinance
*EE=Energy Efficiency, RE=Renewable Energy, WC=Water Conservation
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9. Example Project Economics Scenario
350,000 sq. ft. multi-tenant commercial office
~$3.00/sq. ft. retrofit cost (after rebates), includes:
– New cool roofing, insulation, window film
– HVAC (new chiller, VFD’s, motors, pumps)
– Lighting and lighting controls
– Toilets, urinals, faucets
Project Cost $1,000,000
Interest Rate 1 7%
Term 15 years
Annual Payment $110,000
Annual Energy Savings $150,000
Cash Flow Savings $40,000
VALUE INCREASE 2 $533,000 3
1 Will depend on investor, owner, and project. Typically quoted as a "spread" on index, i.e. 20-year Treasury
2 Value = Net Operating Income / Capitalization Rate
3 Assuming a capitalization rate of 7.5%, the excess savings translates into a value increase of $533,000 without coming out of pocket for the
cost of the upgrade. While these numbers do mirror those of actual projects, this example is provided for illustrative purposes only. Actual
savings, rates and terms will vary.
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10. Get Started @ www.greenfinancesf.org
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11. Thank You!
Rich Chien
richard.chien@sfgov.org
(415) 355-3761
Simón Bryce
simon@renewfund.com
(510) 451-7906
www.greenfinancesf.org
contact@greenfinancesf.org
(415) 937-7223
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