Last year, the PACE program was digging a toehold here in Colorado, says Tracy Phillips, Director for CO-PACE. In its first full year, the “Property Assessed Clean Energy” program funded $8 million worth of loans on 11 projects.
This year, Phillips says he expects exponential growth, and in January alone, Phillips closed four loans worth last year’s total. Plus, Phillips has 40 more projects in various stages of funding.
But the program isn’t just for metro-area building renos or new builds like office towers, and some unusual projects have come from outside the Denver-Boulder area – southern Colorado, in fact.
THE MAIN ATTRACTION IN FLORENCE
In spring 2017, principal Craig Giles and an out-of-state investor group purchased the historic McCandless Building in downtown Florence, Colo., just west of Pueblo. Florence’s Main Street is a small-town drag gone good, with locals and tourists flowing in and out of its restaurants, shops and bars.
The McCandless Building itself is a knockout – built in 1894 with four stories, thick brick and masonry below-grade construction, and street-level retail, including an operating barber shop. The second and third floors once provided hotel space, and both floors are built around a 26-foot vault with a roof-top skylight that runs the length of the building. The flat rooftop is a solar installer’s dream – no trees nearby and no mechanicals on top.
Even though the building has great bones, it was in rough shape when the investors bought it. The top-floor skylight was broken and loosely boarded, and pigeons were living (and dying) in the top two floors. The first-floor ballroom and commercial kitchen were stripped and abandoned some time ago, and the mechanical systems in the building are 30-plus-year-old residential-grade systems. And though the walls are thick (1-foot above-grade and 2-feet below), the building had no insulation anywhere.
Giles and his owners had heard of the PACE program and recognized a super way to add value to the building while lowering operating costs since they’ll hold and operate the property long-term. They also loved the idea of having the improvements help them meet their loan equity requirements.
But the team faced challenges upfront. An appraisal had been done on the property, and the appraiser hadn’t considered the efficiency upgrades in an “as-built” scenario. The appraiser also hadn’t factored the modeled lease income so Giles and team scrambled to find another appraiser who understood both issues.
Also, the electric provider is Black Hills Energy, which has cheap electric demand and use charges. Inexpensive electrons can work against a project’s pro forma as low electric rates fail to show sparkling, compelling returns through vast energy deltas.
But as Phillips says, the Colorado PACE program is the only one he’s aware of that allows for savings-to-investment ratios (SIR) less than one, or possibly even demonstrate a negative cash flow. He says banks know improvements to the building envelope and systems are needed, and PACE allows for these upgrades to be rolled in with zero out-of-pocket costs and long-term, fixed financing for property owners.
GETTING FIT IN PUEBLO
Fast forward 60 years to 1954 when another PACE project - 728 W. 9th St. – was built in Pueblo, originally as an auto garage and turned into an upholstery shop circa 1965. The building had stood empty for several years before Melissa Christensen-Harrison and Tony Harrison bought it.
The Harrisons own Colorado Movement Company LLC, and Tony has the credentials to own a fitness center. As a strength trainer at CSU - Pueblo, he helped over 50 athletes achieve All-American status. And Melissa handles the business side, working a day job as controller for a real estate land development company. The husband and wife recognized the potential in the 3,500-square-foot building as a fitness and wellness hub focused on seniors.
Like the Florence project, the Harrisons’ building also has great features buried under neglect and decades of deferred maintenance – a barrel-vaulted roof, black metal trusses and CMU exterior walls. Everything else was ripe for replacement, though – a paper-thin garage door, old garage heaters worthy of the scrap heap, and the demising wall between the front office spaces and intended gym space largely gone. Also, the single-pane metal windows, including north-facing storefront, would need wholesale replacement.
The Harrisons are taking a somnolent building south of Pueblo’s historic district and turning it into the textbook definition of a “highly activated space.” They expect the gym and massage therapy rooms to run seven days a week (15 hours on weekdays) so efficient systems are critical to keep utility bills down and make project financials work.
Because they’re running a gym with three dozen people huffing and sweating, great ventilation and locker-room showers will comprise a big part of their energy loads. So, the couple is springing for a high-efficiency gas commercial water heater, which will pay for itself in no time.
In fact, this is one of PACE’s goals – to make efficiencies and renewable energy net out via energy savings. One HVAC contractor tried to offload an 80 percent-efficient furnace on the unsuspecting couple. Rather than install cheaper, analog equipment, the PACE loan will enable the Harrisons to step up their mechanical systems.
Like Giles and his investors, the Harrisons must also demonstrate attractive financial returns with Black Hills as their electric provider. Yet their project will go from zero to 60, too – derelict to activated – and the couple couldn’t have done it without PACE.
IMAGES: TOP - the McCandless Building in Florence, Colo. HAND - Lump of coal from decommissioned coal-fired furnace in McCandless basement. MID - Garage at 728 W. 9th St. in Pueblo, Colo.
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