SPIRE Credit Union in Falcon Heights, Minn., became one of the nation’s first credit unions to launch Property Assessment Clean Energy (PACE) financing, which makes solar system and energy-saving investments affordable for commercial building owners.
The PACE program began in 2010 when Minnesota gave cities and counties the authorization to place voluntary assessments on commercial properties to cover the cost of solar and energy efficiency projects.
The program started at SPIRE in 2016, when the credit union connected with the St. Paul Port Authority, a local economic development agency and PACE administrator in Minnesota. The Port Authority sought a lending partner, and SPIRE wanted more lending opportunities. Although PACE financing was a foreign concept to the $2 billion asset credit union at the time, SPIRE started researching to see if it fit with their goal of supporting their communities.
“We were trying to get our heads around how to do this,” says SPIRE Chief Lending and Product Officer Cliff Wantz. “When you’re a building owner with a regular loan, you sign as the owner and also sign a personal guarantee. PACE loans are made to the real estate and there’s no personal guarantee, which is an attractive feature to PACE but not typical to SPIRE real estate loans.
“The loan is on the building, and it’s secured by a property tax assessment that doesn’t exceed 20% of the property value,” he continues. “The owner pays the assessment to the county through semiannual real estate tax installments, the county forwards the payment to the Port Authority, and the Port Authority transfers the payment to SPIRE.”
‘It’s a win for the property owner, it’s a win for the environment, and it’s a win for the community.’
Still, the lack of control was unusual to SPIRE. So, while Minnesota legislation allowed the PACE lending structure, the credit union’s lenders worked from scratch to develop a program.
“There were significant challenges on how to do a loan when you lack control managing it. But ultimately you have such a solid repayment structure because you have a tax assessment on the building,” Wantz says. “No matter what happens with that building, at some point somebody’s going to pay those taxes. With a PACE tax assessment, you’re eventually going to be brought current and have a solid repayment source.”
Wantz says most PACE financing stems from nonbank national lenders. One hurdle preventing more credit unions from getting involved is that credit unions can only do commercial loan terms for up to 15 years, while Wantz says national lenders often do PACE loans with 20-year terms. Therefore, credit unions must find a niche, which SPIRE did with 10-year fully amortized loans on relatively small projects.
SPIRE invested heavily into building its PACE program, which earned the credit union a Best in Show Award at the 2022 CUNA Lending Council Conference. There’s flexibility in the credit union’s program, with projects ranging from $30,000 to $2.5 million.
“Most of what we do is solar,” says Matt Meyers, SPIRE PACE lender and senior commercial credit analyst. “We also see it for LED lighting, HVAC, windows, insulation, roofing, and building envelope work. Anything with an energy efficiency built into the project and a payback of 20 years or less has an opportunity to quality for PACE.”
From the consumer perspective, PACE lending allows commercial building owners to finance 100% of their project costs. In Minnesota, PACE is structured so the first payment isn’t due until the building’s next tax assessment round.
According to the St. Paul Port Authority, MinnPACE funds about $50 million in energy-savings investments annually. SPIRE’s PACE financing is equivalent to the energy production required to power 714 homes in one year, and an energy savings equivalent to the annual carbon dioxide emission reduction of 11.5 million miles driven by a car.
Building owners saved more than $700,000 in annual energy costs based on the PACE projects that SPIRE has funded.
“Our core mission is simple: improve lives,” Wantz says. “This program improves the lives of our business owners, who get utility savings. It improves the lives of the community through cleaner air and better energy stability. It’s a win for us, it’s a win for the property owner, it’s a win for the environment, and it’s a win for the community.
“It’s not necessarily about whether the program is profitable,” he continues. “We’re generating nice revenue off of it, but we talk to our teams about how we’re helping businesses save money, do good for the environment, and see the impact this work is having.”