PACE change opens financing option to new construction.

Byline: William Morris

It's a very small change, just a few lines of legislative text, but officials say a provision in this year's omnibus jobs and economic development finance bill could unlock hundreds of millions in new development for Minnesota.

The change, part of a sweeping budget bill signed into law last week after a special session of the Legislature, concerns the state's commercial property assessed clean energy program, known as C-PACE or PACE. Originally adopted in 2010, PACE allows property owners to get financing for energy-saving or renewable energy upgrades to their properties, and then repay the cost over a time period up to 20 years as an assessment added to their property taxes.

PACE has been well-received since its adoption in the state, with more than 200 projects funded, said Pete Klein, vice president of finance for the St. Paul Port Authority, which administers PACE in much of the state. The great majority of those projects are for renovations or additions to existing buildings, or renewable energy projects like solar energy fields, he said, due largely to how the program was designed.

"The current legislation was not enabling us to provide PACE to new construction projects, because PACE is limited to 20% of the assessed value of the [property]," Klein said in an interview, noting most projects wind up requesting PACE for 10% to 15% of assessed value. "If it's just raw land and a new building is going on, there's not much value there."

The new language adopted this year allows PACE to be calculated using either the current assessed value or, for new construction projects, the same appraised value for a project being used by the primary lender. That means a much deeper well of financing for developers working with new construction or adaptive reuse of low-value properties.

"Last year about 70% of PACE funding [nationwide] went to new construction," Klein said. "Our neighboring states have new construction capabilities, so we're just following in their footsteps."

It's not even clear the Legislature intended to restrict the original program to renovation projects, said Rafi Golberstein, CEO of Minneapolis-based PACE Loan Group. Minnesota is the only state he knows of that limited PACE value based on the current assessed value of the property.

"We were pushing for this change pretty aggressively, because I think unintentionally, when the statute was written several years ago, it sort of left out new construction," he...