Intro:
Broadcasting live from the Business Radio Studios in Detroit, Michigan. It's time for Detroit Business Radio. Now, here's your host.
The Mag
Lee Cantor here, another episode of Detroit Business Radio and this is going to be a good one. Today we have with us Bob Mettler with Green portfolio solutions. Welcome, Bob.
Robert Mattler:
Thanks for having me, Lee.
The Mag
Well, I'm excited to learn what you're up to a Green portfolio solutions. How are you serving folks?
Robert Mattler:
Yeah, thanks for having me on. We're really trying to help building owners and developers work with a next-gen financing solution for building properties more efficient, and for upgrading properties to use less energy and less water, and also install renewables. So making buildings smarter, healthier, and more comfortable for the folks that are using those buildings.
The Mag
So now, how does the financing element come into play on this?
Robert Mattler:
Yeah, what we're using is actually a state law here in Michigan, and PACE, which stands for Property Assessed Clean Energy, is a statute here in Michigan and 36. In other states, so it started in California, and it's working its way throughout the country. People are using PACE as a financing alternative from a commercial bank loan or private equity because at the end of the day, it's usually less expensive, easier to obtain, and has a lot of other benefits from traditional financing.
The Mag
Now, is this targeted specifically at commercial real estate?
Robert Mattler:
PACE is actually in four states. For residential property owners. It's in California, Missouri, Ohio, and Florida right now. Michigan's looking at bringing in PACE for residential properties. But all those other states, about 31, 32 states, I believe, in the District of Columbia are just using PACE right now, for commercial properties and nonprofit properties.
The Mag
Now, is it used for like building a building from scratch? Or can you take and renovating an existing building like what's eligible for the financing?
Robert Mattler:
Yeah, PACE is covered by state law, most states do allow for pace to be used in the capital stack when you're building the new buildings. So instead of going out and getting traditional mezzanine financing, or private equity 12 14% interest, people are seeing PACE a much lower cost. Bringing in PACE anywhere between five and 6%. Instead of that more expensive capital and PACE is what's called gap financing capital, when you still have a gap in your capital stack on your building that you're trying to build, you can bring in PACE to cover that gap. And again, it's cheaper than me financing or private equity. On the other side, if you're a building owner, and you just want to improve your roof, need to have a roof replacement or installation need to replace your windows, elevator upgrade, anything that is dealing with energy or water inside or outside of that building, you can use PACE to retrofit that building. And it's got many benefits over traditional financing.
The Mag
So now, so that means like if you're the landlord of a building, and you just need, you know, kind of a to refresh it and maybe upgrade some of the stuff you can really be eligible for PACE is that something your firm helps people kind of educate themselves and get that kind of financing?
Robert Mattler:
Yeah, PACE is pretty much a new alternative financing mechanism in most of the states. And, you know, there's a lot of paperwork and there's sometimes some expertise involved. We hold ourselves out as owners' representatives, and getting them through the process to the finish line and getting that closing. So they can get those funds in order to upgrade their building. Or if you're again, building a new building, get that gap financing capital to finish your building capital stack and put shovels in the ground. PACE is unique in many respects from traditional and financing. And it does require some expertise. So we hold ourselves out as PACE experts to help building owners and developers get to the finish line with this financing.
The Mag
So now do you help them just even have the conversation of am I eligible for this? Is this something that I can take advantage of because it's new? A lot of people probably don't know the ins and outs of it as well as you do?
Robert Mattler:
That's correct. We have initial no calls and conversations with building owners to understand what their needs are, what they're trying to accomplish. And depending on what state they're in, and whether they're eligible for PACE financing after we believe that there's a possible path to PACE financing, we helped them with the application. If they need help with contractors, we can help them with that. And I believe one of our best services is making sure that we get the best financing package available for them on both terms and interest rates. So while we use the contact 2, and 3 PACE financing providers, most of these states have private financing. And there are special PACE financing, and equity groups that provide the financing, and we're able to get two or three quotes and proposals term sheets actually on building owners interested in moving forward. So it becomes a competitive process. And we help make sure that the owners are well served in getting the best terms and best financing rates.
The Mag
So now how did you kind of decide to go kind of deep on PACE?
Robert Mattler:
Great question. I have a real estate and commercial brokerage background, I've been an attorney for almost 35 years and was heavily involved in real estate and I was invited to a meeting about 10 years ago, through the commercial law brokerage Realtors group here in Michigan, and two-thirds of that conversation was talking about smart buildings and sustainability. And that was back in 1998. So I've kind of seen the green light ever since then realizing that we have issues with our climate. But more importantly, there's a smarter, faster, less expensive way to build and improve your building. And it really just impacts the bottom line. So I started out with the proposition that we can do a project with PACE that costs you $1. But over the 20 or 25-year term, we're gonna save you a buck 25, Buck 30 For every dollar you put in on these projects. And if you're using PACE, it's usually non-recourse. So no guarantees by the owner. Again, long-term financing. So these projects become net cash flow positive annually, you're putting more money in your pocket than you're paying on the PACE project. And basically, you've got a great green story to tell. And in many aspects, there's an opportunity for you to pass on these construction costs to the tenants, if you have a triple net lease, this is a property tax. And you can pass that along with most often on a triple net lease to your tenants. So win, win, win all the way down the road, Lee.
The Mag
So now the in the Detroit market, is this an area for you that you see a lot of opportunity that just the landlords aren't just that familiar with this, and they haven't been taking advantage of it? Or is it something that a lot of people are aware of, and they're just kind of doing this as a matter of just good business now.
Robert Mattler:
Because PACE is fairly new, it's still mostly unknown, and it's becoming more mainstream, but it's not quite there yet. So I'm talking to building owners and developers that have been in the business for 30, 40 years, and their eyes are kind of opening wide at the possibilities of putting PACE in their capital stack. Similarly, if you're an industrial user, and you want to have a cleaner, healthier, more comfortable building for your employees, they're looking at retrofitting other buildings now, versus, you know, trying to save money each year on reserves and capital X and waiting for 5, 10 years to improve that building. If you have a no-cost, no guarantee no use of your credit, no covenants design option right now, long-term financing 5, 6%. Were the project that were their project. So usually paying off more than the cost, why wouldn't you do the project now, there's very little downside.
The Mag
So now has this COVID crisis impacted what you're up to it off?
Robert Mattler:
Yeah, that's a crazy, crazy thing that's happened. COVID has done nothing but actually enhance people's eyes towards PACE, because if you think about what happened with the COVID crisis, banks, in these types of turmoil situations, to modulus situations always become a little bit more conservative. So if you've got a project right now that you're trying to get your capital for, whereas before COVID, banks might be giving you a 75% loan to the value of your project. They've kind of hedged their bets a little bit and come back now to 60% or 62%. loan to value on your building. So now your gap just got wider, and more developers are very much interested in using pace to cover that larger gap. And if you're a building owner, and you know you're an office building owner and you want to make sure that you know COVID-19 is not going to scare away all your tenants and they won't sign another lease. You need to think about improving your air quality or making that building a little bit better than yours. competitors and building owners are looking at using PACE right now to do just that. And the banks are less friendly on lending on a boiler or a roof for Windows. And that's PACE is a sweet spot. So businesses increased probably doubled since COVID-19. Surprisingly.
Robert Mattler:
Right, because it's it fits hand in glove with the crisis. Right?
Robert Mattler:
Exactly. It's the solution to most building owners' pain right now. And they're discovering PACE. And they're saying no, this is this can't be true. This sounds too good to be true. And, again, it's a public-private financing program. And the government's in it because they want buildings to be spewing out less carbon dioxide. And the building owners love it because it's a fairly, you know, fairly cheap capital.
The Mag
And it's also a benefit to all the people in the building. So it's like you said, it is a win-win-win all the way around.
Robert Mattler:
Yeah, I don't like to talk about the intrinsic value of upgrading your buildings. So if you have less people sick during the year, you can't even put $1 costs on that, for productivity. So PACE enhances productivity. And if you're talking about intrinsic benefits, attracting and retaining more millennials for your apartment building, having a great green story to tell, being the first one in your area to have a lean building, lean, smart, green building. There's very much good PR that's behind these types of buildings right now. And at the end of the day, if you're saving money on these retrofits, why not do it?
The Mag
Now, what is kind of the amount you can use for financing? Is there a minimum and a maximum?
Robert Mattler:
Well, the good news is there is no maximum. The largest PACE project thus far has been the Salt Lake Hyatt building attached to their Convention Center in Salt Lake, Utah. And that was a $55 million capital stack, the PACE brought in on over $376 million in new investment so PACE is a for the largest types of construction, in that case, $55 million. And on the lower end, here in Michigan, we have a sub-program called PACE Express where a building owner can start out with a PACE project, a little over $100,000 to use a much quicker, cheaper program called PACE Express. Most finance companies out there are starting out with PACE projects around $250,000. And then again, it just goes up from there.
The Mag
Now is it something that you can get financing, maybe for just one upgrade? And then just keep kind of like you've been using word stacking, just keep adding and getting more and more like once you've kind of been blessed into this program and you're working it then you can say, oh, I can use it for this, or I can use it for that. And then you can expand it or is it you get one kind of bite at the apple if you go for PACE.
Robert Mattler:
PACE in most states just allows one project per year. So if you just wanted to do one project, upgrade your lighting, for instance, or replace that roof, you can do that with a PACE project for that specific calendar year. When we start talking to owners, and they see the value of PACE, they say, Well, if I don't have to put any money into the project right now, and I know I'm going to need a roof in five years, why not just do the LED and the roof project and upgrade my H vac all at once. And that way you only have one closing. So that's less costly than doing it three years in a row with you know, three closing and all those costs that go along with closing a real estate project. So most times we see owners that are doing multiple projects in a year. And then I might mention too, that it's another feature of PACE you'll never see what the commercial loan is. Most financing companies using PACE financing will allow you to deferred your first payment up to two years after you close. So you could be a building owner improve your building and then not have to make that first PACE payment until two years after you close allowing you to bank all that energy and water savings and get the attention you desire for stabilizing your property before even starting to pay off this loan.
The Mag
But I think that this is where having an expert in your corner like your firm can really help somebody thinks strategically and not just say oh, I heard this thing let me get it, and then not really understanding kind of the nuance to it where you can really maximize your savings and really leverage this for a bigger gain if you knew what you were doing.
Robert Mattler:
Yeah, it's kind of like you know, doing surgery on your foot is a possible to do yes, you really want to do it. No. And here's why. Again, cases are fairly new. If you've got a mortgage we need to get lender consent from your bank because we're putting a tax lien on your property. This is a special property tax assessment. It's not a mortgage. So we need to have the delicate conversations with your bank that it's going to be a benefit to the bank, by them having this lien on the property. And why would it be a benefit to a bank having a lien ahead of their mortgage? Well, some of the reasons are, that we're going to be able to increase the debt service coverage ratio for that borrower. And that's going to make it easier for them to get additional cash flow and pay off that mortgage that they have with the bank. And again, if we're increasing the net operating income of a building, that's directly increasing the value of a building, and the value of a building is very important to a bank because that's their collateral.
So once a bank actually opens up their ears and starts listening to the reasons why they would allow PACE financing, most lenders have no problem providing lender consent. And again, you don't want to have that conversation with your banker, without a little bit of understanding of the benefits of using pace on a project. The other thing I might add, too, it's good to have an expert because there's four or five different stakeholders on every paced project. If you have a loan, that you've got your bank, they're a stakeholder, obviously, the owner is a stakeholder, your general contractor or your sub is going to be a stakeholder, they have to understand the program, there's always a pace administrator running the program, you have to deal with them. And then again, you want to have somebody that's going to get you the best terms and the best financing. So we go out there and get a competitive bid bidding process going to help the owner that there's a lot of time and effort involved in a pace project right now. And I wouldn't suggest anybody trying to do it the first time on their own.
The Mag
And then when they're working with you, is this something that you help them have those conversations with all those stakeholders? Or do you give them the information for them to have? Or do you actually kind of, are there with them to help them have those conversations when it gets into the weeds a little bit?
Robert Mattler:
Yeah, we are the owner's representative. We're involved in every conversation with every stakeholder and making sure the project is moving forward. And we're getting to the finish line in the most expeditious manner possible.
The Mag
Now, you mentioned like this is kind of a new and unique program, how does it play with like opportunity zones? And some of the areas that are also kind of new and maybe people are doing working? But aren't, you know, sure of how everything kind of fits together?
Robert Mattler:
Yeah, that's a great question, Lee. PACE is unique. And one of the many benefits is paces just should be looked at as just another economic development tool in the building owners' pocket or in the developer's pocket. So if you're a developer, and you're in an opportunity zone, you can use that you can use tax abatements, you can use historic tax credits, you can use new market tax credits, you can use a brownfield credit, you can use TIF, you can use pretty much any of the economic development tools available to a developer and that stayed on top of pace. I might also had to pace also works with rebate programs from the utilities. So if your utility, we make sure that the owner is aware of rebate programs, if they're upgrading their H vac or their lighting, there's a lot of free money out there, utilities trying to help building owners become a little bit more efficient. So we're just not talking about PACE, we're really trying to help the building owner understand that this is just one tool, we're aware of others. And again, we try and be their eyes and ears on saving them money all across the board on their projects or their upgrades.
The Mag
Right. It sounds like it's not an or it's an and.
Robert Mattler:
Definitely a capital A and.
The Mag
Now, for you what is the ideal kind of prospect who is the person that you think would most benefit from your counsel?
Robert Mattler:
Okay, well, again, there's two different buckets. The first bucket is developers, we just helped an Ann Arbor multifamily ground-up construction project with almost $2 million of capital. And that capital was used for some very cool things that they wanted to have on their projects, such as electronic vehicle stations, for charging stations for electronic vehicles. They put on solar part of the units have a geothermal and super-insulated building, LED lighting, obviously, just a lot of cool, green, sustainable, resilient features in this building, that you know, were more money, but at the end of the day, the $2 million project we're estimating is gonna save close to three and a half million dollars over the 25-year term that they're going to be paying back on the PACE financing. So that's the developer bucket on the new building, excuse me on the building that's already built bucket. We're talking to an industrial user who wants to upgrade their building because they want to get more tenants in there.
And we're looking at everything from a new roof, windows, and new elevator, and also helping with, you know, providing additional insulation to that building. The building has a very high electric cost every month, even during the summertime. And we're going to bring that down close to 40%. So the savings are going to justify the additional expenditures on all these projects at once. And the owner is looking at taking that two-year deferred payment because he wants to get a tenant in there. After he does the upgrades and not have to worry about paying on pace before he's got at least out.
The Mag
Now, we've been talking a lot about this high efficiency and renewable energy element to this. And this isn't just this fluffy, sounds good, good PR thing, this is really green dollar savings over time, this isn't something you're doing Oh, this is just you know, so we can market this. There's the real value that comes from making these changes. And anything that helps you and encourages you to do it is something you should really think hard about.
Robert Mattler:
Yeah, that's true. When we started this business almost seven years ago, we were a little naive, we were talking about the green benefits to Earth and how it's going to help the environment. And while all that is true, if you're a building owner, you're really worried about the dollars and cents. And I like to start off by saying the pace, not only saves you dollars, but it makes sense, Sense, again, with all the features and unique benefits over traditional financing, instead of waiting to do that roof replacement or waiting to do that upgrade to your elevator, you can do it now start the savings immediately. And then, you know, make the payments down the road if you so choose. So again, it's a financial decision first for most people, and pace would not be taking off in 37 states if it didn't make sense and save dollars for the developers and the owners who are using it.
The Mag
Well, Bob, if somebody wanted to learn more, have a more substantive conversation with you or somebody on your team, what is the best way to get ahold of you?
Robert Mattler:
Yeah, the best way is the phone number is 248. That's Area code 248-762-4370. And the email is green like the color gr e n P a s in Paul S as in Sam, the number 14 at Gmail so greenpsfourteen@gmail.com.
The Mag
Well, good stuff. Thank you so much for sharing your story. You're doing important work and we appreciate you.
Robert Mattler:
Well, I appreciate the opportunity Lee and have yourself a great day. Thank you.
The Mag
All right, this is Lee Canter. We will see y'all next time on Detroit Business Radio.
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