San Francisco company keeps PACE with energy efficiency upgrades

Aaron Binkley was sitting down to lunch last December with the property manager of Prologis Inc.'s headquarters at Pier 1 in San Francisco. Binkley, head of Sustainability at Prologis, told the property manager he’d been thinking about upgrading the building's lighting fixtures to cut down on energy usage in the building.

As the conversation went on, the decided that they should upgrade heating, ventilation, and cooling, and, while they were at it, they would install solar panels, too. By the time they were done with lunch, the two had produced a plan to install an incredibly comprehensive energy efficiency upgrade, and they would soon find the cutting edge financing tool that would make it possible.

Tomorrow, Prologis and the City of San Francisco will announce that the historic property at Pier 1 will be the first commercial building in San Francisco to receive financing for energy efficiency upgrades under Property Assessed Clean Energy (PACE) bond financing.

Upfront costs often pose the most significant roadblock to property owners seeking to install energy efficient building upgrades. Furthermore, owners may balk at taking on additional debt, and lenders are often reluctant to supply the cash.

PACE financing is designed to meet these challenges by allowing property owners to pay for the upgrades over the course of up to twenty years through a property tax assessment rather than through a traditional loan.

Because energy efficiency upgrades increase property value while lowering utility costs, property owners are able to pay off the additional taxes fairly easily. Studies have shown that properties receiving PACE financing have significantly lower default rates than average.

"It's an entirely new type of opportunity for commercial property owners," says Binkley.

Johnson Controls (NYSE:JCI), the global leader in energy-efficient building upgrades, will design and execute the Pier 1 project, which includes a retrofit of 1,500 lighting fixtures, a rooftop solar array and improvements to heating, ventilation, and air conditioning. The project is expected to create nearly 30 jobs and reduce energy costs by $98,000 per year once it's completed.

Next page: PACE's checkered history