Choose Program Eligibility Criteria for Property-Assessed Clean Energy Financing
During the eighth step in the process to launch a commercial property-assessed clean energy (PACE) financing program, the local government (grantee) determines the program underwriting/eligibility criteria that applicants and their properties must meet.
Like any other type of financing, a PACE program must specify eligibility criteria that applicants must meet to be approved for financing. These criteria are heavily influenced by the criteria that the underwriters (e.g., banks or bond underwriters) will require applicants to meet.
Underwriting is the process of determining whether an applicant is credit worthy enough to receive financing. Both banks and underwriters will want to see that a consistent and appropriate set of underwriting criteria have been met by each and every property/property-owner participating in the PACE program. This is especially important when trying to issue a bond; the underwriter and investors want to ensure that all underlying collateral met the same criteria.
To this end, the U.S. Department of Energy issued underwriting best practice guidelines in its Guidelines for Pilot PACE Financing Programs dated May 7, 2010, that are specific to residential but largely applicable to commercial properties as well.
As an example, the set of PACE commercial underwriting/program eligibility criteria can include the following:
- Applicant(s) has/have clear title to the property.
- The property is located within the energy financing district.
- All legal owners must agree to participate and sign the application.
- Applicant has written existing-lender (mortgage-holder) consent.
- A maximum Lien to Value (LTV) ratio (i.e., what percentage the PACE financing will be compared to the property value) is generally capped at 10%.
- Applicant has no recent notices of default or foreclosure.
- Applicant has no recent bankruptcies.
- Applicant is current on mortgage payments.
- There is a limit on involuntary liens (e.g., liens placed by contractors who were not paid for their work) on the property.
- Details about current occupancy of the property are supplied.