Improve Profits With Renovation, Redevelopment and New Construction

By Bob Mattler Managing Director, Pace Equity | January 15, 2017

There is a new innovative way to pay for hospitality construction projects: Property Assessed Clean Energy (PACE) financing. PACE, adopted as enabling legislation in 32 states and with active programs in about half of them, is gaining momentum as a flexible, available and creative tool in which to finance almost any technology that saves energy and/ or water. PACE can take the place of expensive loans or additional owner equity to finance construction projects that can be repaid long term from those very same energy and water savings.

This article will explain Property Assessed Clean Energy, who pays for PACE, some common building systems ripe for PACE financing, who is using PACE and why. We'll take a closer look through some case studies how hospitality developers and owners are already taking advantage of this new economic development tool.

What is Property Assessed Clean Energy (PACE)?

PACE offers an innovative, affordable method to help solve the challenges today's building owners & developers face. PACE uses the financial power of long term energy/water savings to make improvements possible today, while spreading out the costs over a long period, in many instances up to 20-25 years. PACE outperforms traditional forms of financing in many ways:

  • Borrowing is available through non-recourse financing
  • Replaces more expensive cost of capital
  • Boosts property value without negatively impacting the balance sheet
  • Preserves borrowing capacity for other projects or more essential business plan goals
  • Obligations pass to new owners seamlessly when the property is sold
  • No upfront cash requirements in most circumstances and no out of pocket
    costs

PACE is a financing mechanism providing the power for building owners to recapture wasted energy and water today. PACE also allows developers to obtain low cost capital for their projects resulting in more efficient buildings, lower operating expenses and a more valuable building.

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Eco-Friendly Practices: Corporate Social Responsibility

The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.