Just for this presentation today, I think it will be a great education for certainly was for me, and I think for many of us.

Um we have staff from Councilmember Kamen's office as uh uh vice chair.

Do you have any comments on behalf of council member Kamen?

Thank you.

Uh so today's uh agenda, we have presenters from the Texas PACE program, which if you don't know what that stands for, they're going to tell you.

It's a great it's a great program that uh property assessed clean energy, and it talks um they've got a lot to to educate us on.

Um so welcome.

Um tell a little bit about yourselves, and uh if you'll introduce yourselves, would be great.

Thank you.

Good morning.

My name is Charlene Heidinger.

I'm the president of Texas Pace Authority.

With me today is James Cargis, our counsel.

Some of you may remember James, he was counsel for the city when this program was created back in um 2015-2016.

So we're delighted to be here today.

Thank you.

Um I'd like to welcome uh councilmember Vice Mayor Pro Tem Amy Peck, Councilmember Julianne Ramirez, and then staff from Councilmember Kamen, Councilmember Thomas, Councilmember Castillo, Councilmember Martha Castex Tater Tatum, and uh Councilmember Sally Alcorn's office.

Please proceed with your presentation.

Thank you.

Um sorry to bother you with this, but how do I advance SLA?

Oh, it's already done.

Thank you.

It's magic.

Um Texas Pace Authority is a 501c3 organization, a nonprofit organization.

We were created to administer pace programs for cities and counties under the Texas PACE Act, uh, only after it became clear that um local governments didn't have the wherewithal to uh advance this program.

So we have a what's known as a local adoption model.

The state gave cities and counties the ability to create this program, authorize authorization, but not a lot of guidance.

Uh there is no oversight of this program.

And so after the statute passed in 2013 on the consent calendar, primarily because of drought, um, we had built a huge business coalition.

We went back to them and said if we want this to work, we need to create a very high quality, trusted program that will deliver the actual energy and water savings, uh, which is the public benefit that the statute was created to provide.

But it had to be everything a local government would need model documents, process uh how to create the program, how to close a project, all of the all of everything that you would need.

And it had to be trusted, and it had to be uniform.

So we wrote what we call pace in a box uh for COGS to run, and our councils of government basically said no.

So as a last resort, this nonprofit was created.

This is all we do.

We do it as a public service at the lowest possible cost.

The challenge with that is that as a scrappy nonprofit, it's hard to get the resources to get this done.

We don't receive revenue from a project, and our revenue comes from user fees, and we got started with grants.

So the owners who voluntarily use this program are the ones that uh fund us.

Uh so there are no taxpayer dollars used, and there's no imposition on your staff.

So getting this started in 2015 was a real challenge because this is an alternative source of financing.

Um power was free.

So a lot of people were like, why would we ever use that?

So we're back here today saying this is enormously successful, but we have not gained traction in Houston the way we should, and we really need help with outreach and education.

So if you do newsletters, if there are businesses or uh other organizations in your uh districts that could benefit from this, we really hope you will help us reach out to them.

So this slide is is a demonstration of the problem we're trying to solve.

Equipment that makes property more energy and water efficient, and all of that equipment increases the resiliency of these buildings.

But this uh energy and water saving equipment is very expensive.

So if somebody's going to invest in a building they already own, or a building that they're gonna buy, or a building that they're gonna build, they're very cost conscious.

So in addition to asking private property owners, businesses and non and nonprofits to invest in their buildings by spending more money up front uh to make matters worse.

This equipment will break even.

It will pay for itself with energy savings with less repair, et cetera.

But it has really long ROI.

It will take years to break even.

Investors want to make their money in 18 months or less.

So this is why we have deferred maintenance.

This is why so many beautiful buildings sit empty, it just costs too much money to bring them back to life, or they're underutilized, or people continue to build the cheapest buildings they can when there's an alternative that they don't know about.

So from the lender's perspective, we're talking about equipment loans, loans that basically have no collateral.

You can't come and take somebody's roof if they don't pay, right?

And so the lenders want to reduce their risk by getting paid back quickly.

So you'll see most equipment loans will be five years or less, or they'll say, well, loan for a longer period of time, but we're gonna redo your interest every every five years, and it makes it very risky.

So on the left, you'll see a conventional equipment loan gets paid back in five years.

I call that the Tower of Pain because there are savings, but you've got to go through a very painful cash flow five years uh before you're gonna get to the savings.

So this program that you have created knocks that tower over.

The owner still has to pay back, but they pay back with a longer, a larger number of smaller installments, they get access to the utility savings immediately.

We will not uh close a project on behalf of the city or any other local governments that we serve unless an independent third party engineer validates that the savings are gonna exceed the cost.

Over the life of the assessment, this works.

Now, why uh have lenders gone from we need to get paid back in five years or less, and now they're willing to go out as long as the equipment's gonna last.

That's how long these can be under the statute.

It's because the city of Houston has stepped up and said, we're not gonna touch the money, we're not guaranteeing the money, but we will collect a defaulted payment in the same way that we would collect back taxes.

So you've created an economic development incentive.

Um think of this like your wastewater assessment.

You are adding value to these properties by giving the owners the opportunity to access affordable long-term savings, and you've said to the lender, we'll back you up if you need to be backed up.

And because of the mechanism that the city has created, lenders will loan over a longer period of time.

So we're really solving the upfront cost cash flow problem.

And we've been able to do that without impacting any uh taxpayer revenue dollars, your budget, or your staff.

And and so that's what makes the whole program work.

That's why a local government has to be involved.

Next slide, please.

All right, so this was our first office building, and this is we should be doing 40 of these a month.

Um, this is a 1980s office building.

Uh the air conditioning was dead, had the old lights that were creating heat.

Um, the owners of this building considered it a cash cow, but it wasn't.

It was 50% empty, the air conditioning didn't work, the tenants were leaving, and the property manager could not get the owners to invest in this building.

But he learned about pace, and here's here's the difference.

So this property was going to save 200,000 a year by replacing the HVAC system and the lighting.

But it cost 1.3 million to invest.

So the yellow line is what would have happened had the owners of this building just paid the 1.3 million up front, they would not have broken even until almost nine years.

Had they borrowed traditional money from a bank, you add the interest, now they're not gonna break even until 10 years.

This is why we have deferred maintenance all over the country, not just here, everywhere.

So with PACE, now here's the here's the key to this project.

They probably would have paid for this equipment at 11 or 12 years, but the statute allows them to borrow over the useful life of the equipment because we need that equipment operational to create the savings so that they can make pay the installments back.

So instead of borrowing over the when they would break even, they borrowed over the whole 20 years.

So their pace payment, their annual pace payment is $120,000, but their savings are $200,000.

So this owner is putting $80,000, it's actually a little bit more than that of cash flow of economic growth into that building using somebody else's money without spending a dime of their own.

So to make this story even better, so now the building's worth more.

Next slide, please.

Okay, so this is not a new idea, although Texas was one of the first states to do it.

So there are 40 states now that have PACE statutes and about 38 that have operational programs.

Next.

Okay, so we are 10 years old this year.

You are the first city to have created a PACE program in Texas.

So we are now reaching almost uh 80% of the Texas population, but to put that in perspective, we only have 195 counties to go.

But we're getting there.

Next slide, please.

All of these use the same documents and the same high quality program.

So this is our growth.

Uh we have uh done over half a billion dollars in 10 years.

Less than 10% of that has been done in this city.

It should be way more than that.

We have done almost a quarter of this is in the city of Dallas, and the difference is we report to the City of Dallas Economic Development Office, and everybody that comes in asking for an incentive or a grant is asked, what are you going to do with our PACE program?

And they've leveraged it to take their dollars to spread it over more projects.

Um we here we started out in um uh administrative and regulatory affairs.

Well, lawyers Laura started it, and but when it was uh adopted and the contracts were signed, we reported to um administrative and regulatory affairs, and they've helped us as much as they can.

And then about a year ago or a little bit less than a year ago, we uh now report to the resiliency office in the mayor's office, which is wonderful.

Um, but we've never kind of had the traction that we would love to have in working with all of you.

We really I know this is energy and water savings and energy and water efficiency isn't quite resiliency, but everything we do facilitates a resilient um improvement to to these buildings.

It's a way for the private sector to support what you are trying to do, right?

We cannot work on government buildings, but there's a great program in the Comptroller's office.

Uh if you're not familiar with it, uh it's called Lone Star L O A N S T A R.

And it's it's a revolving loan fund, kind of like PACE for public buildings.

But we can help the private sector meet the goals of this committee and support the goals of this committee because now there's a way to pay for it.

And so we're delighted to share this information with you today.

Next slide, please.

Okay, so this is the history.

Um, if you had a chance to look at these, I know this is in your record, so I'm I'm just gonna skip this, but except to say that uh we've been here a while.

It's uh it's an honor.

Uh and um uh and again, you were the first city to create the program.

Next slide, please.

All right, so what does PACE stand for?

Property assessed clean energy.

It's the assessment word uh that is the key to this, but it's also often misinterpreted.

We are not uh assessment, doesn't mean what is the CAD say this property is worth.

Assessment here means like a bill.

The city of Houston has offered an economic opportunity to businesses, but it's a private property that it that isn't necessarily gonna benefit all of your constituents.

So if the owners of this, if the owners of this business property or nonprofit property want it want to take advantage of this economic opportunity that you've created, then they agree to allow the city to place a lien on the property for all of the hard and soft cost of this improvement.

And this improvement has been made possible by the city.

And so that property is obligated, is assessed.

It's kind of like a bill, it's it or an invoice.

It's assessed the value of the improvement, and that is technically due and owing to the local government.

So you place a lien, you hold the lien, and you enforce the lien as if people hadn't paid their back taxes.

So the owner finds a private lender to provide the funding, but you've created this economic assessment mechanism that makes the whole thing work.

It can only be used by commercial property, which includes nonprofits, they're non-tax paying entities that own commercial property.

Industrial property, which may be the highest and best use of this program, but they haven't, we're just now getting the attention of the industrial sector.

And then multifamily with at least five units.

And our most recent uh project in in Houston that I'll talk about in a little bit, is an old hotel that is being transformed into accessible priced, affordable priced market-based housing.

We are so excited about that.

And this is like a great use of the other, we can accomplish many of the city's goals with this program.

Next slide, please.

Okay, so just to give you an idea, basically, if it keeps the hot air out and it keeps the cool air in, it's an energy efficiency project.

And if we can teach businesses for the first time to look at their properties holistically, not just picking off the little stuff, pushing the expensive stuff off for another year.

They can do it all at the same time.

If they're working with uh an engineering firm or an architect that that wants to go above code and really do the project right, and they look at the whole thing holistically, then we can accomplish more than just one-for-one replacements.

If you've got a new air, if you can need to replace your air conditioner, but you've got a dark roof that's absorbing heat, your windows are leaking air, you're air conditioning the parking lot.

You've still got old light bulbs that are creating heat.

If you fix all of those energy efficiency issues, you may be able to buy a smaller air conditioning system.

We can really help businesses be smart if they are aware of the program and they have access to engineers and architects and others who understand uh that they can go above code because now they have customers who who get it.

Uh and they're teaching their customers about it.

So we have free training uh for contractors on our website.

Uh it takes about an hour and a half.

Um, there's a little test.

We will advertise them in our service provider directory as as knowing about the PACE program and being able to talk to their customers about it.

So we're really not just creating affordable um long-term financing for property owners, we're trying to create jobs through the entire city.

The roofers, the plumbers, the architects, the uh HVAC guys, everybody can benefit from this program.

Next slide, please.

Okay, so we are trying to incentivize your commercial and nonprofit folks to invest in their buildings.

And we can do that by actually lowering their costs in the process.

So it's economic development, it's going to use less water and less power, which means less water going through your wastewater treatment systems, uh, less power that you have to go that they have to go out and figure out how they're gonna get.

Um, it's also making them more resilient to increased costs.

Insurance companies are gonna start paying a lot more attention to the ability of a building to resist a storm or to react uh in an industrial situation.

If you have time to shut down, you're gonna have less waste in cleaning out uh the product, uh oil and gas product that has to sit there if you lose power.

It's safer for workers, less likely for overheating if they have uh combined heat and power or other sources uh or battery storage so that it can control their shutdowns and and be safer.

Next slide, please.

Okay, so here's what we did in Texas, and most other states have copied this model.

We went and looked in 2013, 2014, what was going on in the rest of the country.

There weren't that many programs ahead of us, but they were very um unattractive to the state of Texas.

They were bond funded, kind of monopoly priced, uh, and um our business community and our local bankers said no way.

So we techsified, we went out and looked at what was going on, we textified it.

And so a local government uh can run the program itself.

No, none in Texas have decided to do that.

So we were created to be your quality control.

But that black line between the government role and the private role is a firewall.

And it's made it harder to uh get the program out there because we're not telling everybody what to do.

We will not tell somebody which lender to use or which contractor to use.

So we've had to really educate the private sector.

The people who know the highest and best use of their building are the people that own that building, right?

And so our job is to support them, but they decide which lender they want to work with, they decide uh which project they want to do.

Um so the idea in Texas is to have a high quality small footprint of the local government project program, but to have as much marketplace flexibility as we can uh because we want uh each building's gonna be different, and we know that the private sector is going to be smarter about this um in the long run and trust the program more.

So high quality program, small uh footprint on our the mandates that we have.

Next slide, please.

Okay, already talked about assessment financing.

Next slide.

All right, so when an assessment comes from the government, again, this is the obligation, right?

It cannot accelerate, and this is the secret to the success.

The only thing that Houston can collect if a project ever defaulted is the missed payment because the future payments haven't happened yet.

So, unlike a private loan, where the whole loan would come due if you fail, here the only thing is a missed payment.

So it's one twentieth, one thirtieth, one tenth of the pace loan.

That makes it easier for the senior lenders because the government gets paid first, so you have to get the written consent of the senior lender, and banks have taken uh a minute to figure this out and realize that they can really benefit from it.

So, one of our big educational efforts is to not only have banks get comfortable or they will consent and allow pace financing on a project that where they are the senior lender or are going to be the senior lender, but that they will become senior lenders that they will become pace lenders.

We need our banks to see this as a product that they can offer to their very best customers.

And we're getting there, but it's it's it's taking a while.

Okay, so these survive forfeiture, so or and they survive sale.

So if you uh have a building and you're getting ready to sell it and you want to fix it up, the new owners will make the remaining payments will make it easier for you to sell because it's a fixed-up building, but you're not gonna get lose money on it because you're gonna sell it right after you fix it up.

We've gotten rid of a lot of um uh private sector limitations to people or disincentives to have people take care of their property.

Next slide, please.

Okay, you don't pay for it, your taxpayers don't pay for it.

The owner who wants to take take advantage of this pays for it.

This is a free market, no mandate, no taxpayer dollar program, and it sounds too good to be true, and that has been part of our problem in getting the private sector to take this seriously.

First, it was like that'll never work, and then it's too good to be true.

What am I not telling you?

When's the other shoe gonna drop?

It's working.

We've done a half a billion dollars in Texas with this program.

It totally works.

Next slide, please.

Okay, so one of the ways that we don't interfere with the private sector is the owner has to find their own lender, and they have to agree with the lender what's the interest rate gonna be, how long is the assessment gonna last, all the other terms that go into a traditional uh loan agreement that's all done without the city of Houston's involvement.

We don't want to be involved.

We want the private sector to have as much flexibility to do business with the people they want to do business in the way they're used to doing business, and that includes the lenders.

Next slide, please.

So here's where you get involved or where the city gets involved.

Once there is an underlying loan agreement and an application has been made, and the engineering we've received the engineering report from a Texas licensed independent third-party engineer, they literally stamp their license stamp on these reports, and that is what builds the trust between the local governments, the lenders, and the property owner.

That this isn't just a nobody's blowing smoke.

This is these are legitimate savings that people can count on.

Okay, so once that's all done, there is a contract between the owner and the city where the owner says, Um, would you please place this lien on my property?

And I promise to pay it back.

And I understand that if I don't pay it back, you'll you'll collect uh with um attorneys' fees, penalties, interest, all of all of that is covered under the statute.

I ask you to to put this lien on my property that creates the security interest.

Then the city turns around and signs a contract with the lender.

In that contract, the city says, lender, pace lender, in exchange for providing this economic opportunity in our city, you get the right to the stream of payments as they come in.

Let me repeat that.

You're not promising to pay.

You get the right to the stream of payments as they come in.

And you're gonna know, and you're gonna know if you're not paid because we are delegating to you the job of collecting the installments.

So this was new in Texas.

Instead of putting these on the tax bill and creating a whole lot of bureaucracy and slow to get paid, we don't put these on the tax bill.

You've delegated to the lender the job of collecting your money.

So instead of you collecting it and sending it on to the lender, you just tell the lender to collect the installments and let you know if they're not paid on time.

And if they're not, they have to send two 30-day default notices to both the um property owner and the senior lender.

And if all of that fails, then we'll val validate what's going on, and most likely your tax collection attorneys would collect these in the same same way.

So, but but the statute makes you whole on all of that, and that has not happened in in Houston or anywhere else so far.

Um, I'm not saying it won't, but we made it through COVID, and we made it through higher interest rates so far.

So we'll see.

Next slide, please.

Oh, and then, and then after those two are are filed, then we after those two are signed, then we race over and file on the property records so that everyone knows that that property has this lien.

This is the opposite of tax lien lending.

You may have heard that sometimes people will buy up tax liens with high interest rates, and they suck all of the equity out of those buildings to the detriment of the owners, but certainly to the detriment of the senior lender.

Here is exactly the opposite.

This lien is making the property more valuable.

We're putting equity in the property.

These properties are getting fixed up with this money, and we will not approve a project unless the savings resulting from that equipment exceeds is projected to exceed the projected cost of that equipment.

So as utility rates go up, as water goes up, as insurance bills go up, these we are protecting these buildings and increasing, we are reducing their risk, we are making them more resilient, um, and we are increasing the operating income.

Next slide, please.

Okay.

Savings to investment ratio.

That's what I've said a couple times.

You have to save more than you spend.

A PACE loan can be up to 25% of the CAD value, but there is a waiver for up to 35% of the appraised value once the property is complete.

So we are providing capital in capital stacks that are really hard right now for um owners and developers to fill out.

You have to have mortgage consent and the assessment can only last as long as the useful life of the equipment.

So we need people to take care of their equipment, and we'll do a weighted average.

Um there are three ways that we're seeing people use PACE.

One, like this slide I showed you before to retrofit older buildings.

We should be doing so many more of those, just keeping these buildings open and alive, um, and keeping the tenants in these buildings and keeping the tenants happy.

Because if your air conditioning works and and your air is cleaner, um, etc.

etc., people are more productive.

Um new construction or gut rehabs, um, we can do that, and then refinancing, we will allow a property owner that didn't know about this program who has invested above code and and done the right things, but hears about it later, we will go back 24 months and do a refinance, but not more than 20 24 months.

Okay, so what we're trying to say to people is is pace is a way to pay for today's upgrades with tomorrow's savings.

We're not asking, we're we're trying to solve the cash flow problem.

Next slide, please.

Okay, here's where in here's where developers are loving this program.

It used to be that a senior lender would fund 80% of a project.

Now they're funding 50, 60, 70 percent, 70 percent if you're a really good customer and you're lucky.

Where is that other 30 percent gonna come from?

Now the senior lender wants to see equity.

They want to know that their owners have skin in the game.

So there's always gonna be senior lender and equity.

But where do you get the rest of it?

So this was a night a 2017 project in Dallas.

This is uh a 1910 mercantile warehouse across from City Hall, busted windows, pretty awful situation, takes up an entire block.

It's now two Marriott properties, they enter from different streets, high-end loft apartments, and first floor retail.

But look at the blue capital stack.

So where do they get their money?

They have senior debt, that was EB5, they had historic tax credits, a great interest rate on that, then they had their 22 million in equity, but they were gonna take out 22 million dollar mezzanine loan at 15 percent.

They learned about PACE from one of the PACE lenders and went, whoa, we have more than the 22 million dollars that qualifies for PACE.

So they took out a 24 million dollar PACE loan instead of the mezzanine loan, and they dropped their weighted average cost of capital.

They dropped their interest costs by 20%.

This building also has um huge savings, 700,000 gallons of water saved a year.

Um, I think their utility bill is 30% less than it was projected to be with traditional just do repairing to code.

So not only do we have new places to live and um quality uh and all these operational savings, but the interest savings are what drives drives developer interest in this program.

Next slide, please.

Okay, here's another way to look at it.

I know this looks like spaghetti, so hopefully your eyes won't cross, but this is another way to look at a capital stack.

So this is a five million dollar pace assessment on a I think it was like 3540.

Well, we'll see in a minute.

And but um, this is a historic cotton gin in Deep Ellum in Dallas.

So let's see where the money came from.

So the state tax credit that's a historic tax credit feeding into opportunity zone funding.

There's TIFF money from the city, there's a federal solar tax credit, and then farther down you'll see the PACE lender in with the senior lender.

So these capital stacks are getting more complicated every day, but PACE fits all of these different ways that you start layering on different financing to get to 100%.

Next slide, please.

So this was a 37 million dollar project, and every uh broker who's trying to find financing for these projects has to have what are the sources, where's the money coming from?

That's where the broker's job is, right?

But the developer is has to say, these are what I need the money for, these are my uses.

And what we're trying to say to people is if you are willing to spend a little more money on your uses, right?

If you're willing to spend a little more money on the better air conditioning system, the more um uh the more resilient and uh energy efficient roof of windows, lighting, new toilets, uh all of that.

If you're willing to spend a little more money on your uses, then you have to go find more sources, right?

Because now you've increased the cost of your project.

But your interest costs as a result of your spending a little more money on energy and water efficiency is actually gonna make your project less expensive.

So the idea is to get these folks who are out trying to find money for developers to understand what a huge savings they can access by spending a little more on better equipment.

Next slide, please.

Okay, here's the city of Houston.

We've done 11 projects, 38 million dollars.

The largest one is a little over 20 million, the smallest one is a couple hundred thousand dollars, but we are saving 36 million gallons of water every year.

We've saved over uh 15.7 uh kilowatt hours of energy.

Um these jobs created are the clean energy jobs, it's a DOE factor.

It doesn't take into account the permanent jobs that go into a building that's brought back to life.

Um, and those permanent jobs are uh critically important to uh to the city.

Next slide, please.

Oh, and and on that slide, um, you have your own PACE page on our website.

So if there's an opportunity to share this information with your constituents, we wouldn't link them to our home page, we would link them to the City of Houston page where they can see these numbers and you can take advantage of these numbers.

We track all the benefits for the city.

Okay, so this top one 702 LLC, that's the hotel I was telling you about.

That's gonna be so the folks that are in this hotel right now are um paying a lot of money.

Um they're one step above homeless to live in a hotel, which is an expensive way to live, right?

But this is gonna turn turn into really lovely apartments for them.

Um so they're gonna end up saving money and dramatically increase the quality of their lives.

Houston Area Urban League, I love this.

We helped them with uh their their costs uh at their headquarters.

So think about what we can do for nonprofits.

If we're lowering the expenses of a nonprofit, we are freeing up their money to reinvest in their core missions.

And so that's also this uh the first uh United Unitarian Church.

It's a solar project.

Next slide, please.

Stone Creek at Copperfield, this was new construction, one of our first new construction projects for senior living.

Uh the Weston Houston Medical Center, um, we're really proud of that.

There are they did their pace financing in two phases.

Old YMCA in Southeast Houston is now a world gym.

HBDI, the Houston Business Development Incubator, we've helped them again, a great nonprofit core mission.

Next slide, please.

Okay, so we've got uh the first uh Weston Medical Center, Regency Inn.

This is an older hotel, motor court hotel um in Southeast Houston Solar Project, one of the very first projects in Texas.

Uh we've already talked about the 1225 Northwest Loop, and then the Houston Premium Outlets.

So we've done six uh mall renovations and three or four mall repurposing.

This is a great program for ugly buildings that need a new life and need a new purpose.

Um and think about the impact on your tax rolls when these older properties are brought back to life.

There are so many indirect benefits to the city.

Next slide, please.

Okay.

So everything we can do together to make the Houston business development property owner community aware of this and that it is actually working.

Um, because what we've got to do is sort of uh figure out how to re-engage people who in 2016 kind of rolled their eyes and said that'll never work.

And we don't need money because we have all the money we can access, and it's one step above free.

None of those things are true now.

And so if we can go back and get in front of them, we now instead of talking about a great idea in theory, have proof of concept.

Next slide.

Okay, so everybody wins.

There's really no downside to this program, and our biggest challenge is education.

We would love to work with you and answer any questions you have.

I really appreciate your attention today.

Sometimes talking financing in the context of resiliency can be quite dull, but nobody's fallen asleep, and uh, so I thank you for that.

But what questions do we have?

When I speak, uh, I always tell people you're gonna have to hear this three times for the light bulb to really go off.

So there is no such thing as a dumb question.

Well, thank you, Charlene.

It's a great presentation.

Although I will tell you, next time I uh see the presentation, we don't want any references to Dallas.

We want Houston to be the premier for these projects.

Um certainly uh great work.

I think um anyway we can help you to get the information out there.

Um I'm sure you have the digital assets that we can promote on social media and such, because I think it is as a fan of um renovations and refurbish, and uh you know, we tend to tear things down in Houston instead of instead of uh you know making the old new again, and so I'm certainly a fan of keeping some uh some of our history together.

So this certainly resonates with me.

Um we have Councilmember Ramirez is in the queue for a question.

Thank you, Madam Chair.

Thank you both for the presentation.

Very interesting program.

And um I I commend you for your work and uh would love to get the word out uh so that more uh companies can take advantage of this or everyone can take advantage.

So um trying to uh completely understand this, can the assessment be viewed as a sort of as a loan payment?

Yes.

And so you can look at this one of two ways.

Um because it is an assessment due and owing to the local government.

Um are you familiar with triple net leases?

Yes.

Okay.

So under a triple net lease, um ordinarily putting on a new roof or repleding an HVAC system would be building maintenance that is the responsibility of the owner.

It but this, what is this?

This is a city of Houston assessment legally due and owing to the city of Houston.

And under a triple net lease, the tenants pay the operating costs, which include taxes and fees, utilities and insurance.

Because this is an assessment due and owing the city of Houston, many property owners, office property owners pass it through to the tenants as uh under the triple net lease because it's due and owing the local government, even though you never touch the money.

The um tenants come out ahead because their utility bills are gonna drop.

So that's one advantage for in the office situation.

What we don't have is a gap ruling, a generally accepted accounting principle ruling on whether because this is a government assessment, it can go off book.

And we've seen companies handle that both ways.

Does that answer your question?

Yes, I I think so.

And so I think you also said that uh the money goes directly to the lender.

So in the lender contract, the money is due and owing the city of Houston in exchange for the um access to the financing, right?

It's an economic benefit you've provided.

And the money is due and owing to you.

We actually had to go get a Texas AG opinion confirming that under the statute before HUD would consent.

So Texas PACE Authority is one of about 10 uh program administrators across the entire country that can work with HUD.

It took us six years to get that approval, but we had to get a Texas AG opinion confirming that this is due and owing the local government and treated like a tax, even though it's not a tax.

But so I guess um does the does the city serve sort of as a pass through, or does the money go directly to the lender?

So every state we looked at when we first got this program going, put these on the tax bill.

And our and our tax assessor collector association testified in front of support of the bill, but when it came to figuring out how we were going to collect, they went, we don't have the software, we don't have the people, we don't have the funding, there's no way we can put these on the tax bill.

So I didn't sleep that night trying to figure out is this like is all this effort for nothing?

And the next day we brought it to one of the working groups creating the modeled pace in a box program, and one of the lenders said, ooh, ooh, ooh, can we do it?

We we service loans all the time.

And so that's where the idea came up that it even the money is due and owing the local government.

That's what makes the whole thing work.

But in the lender contract between the city of Houston and the lender, the city of Houston delegates the job of collecting the installments to the lender.

So the bills are sent directly to the lender.

And and I guess the property owner and the lender work out what the assessment is or the monthly payment, if you will.

Yes, although we are deeply we we are deeply involved in approving uh that to make sure that the whatever the payments are going to be, that they um meet the requirements of the statute and our program, including the savings have to exceed the cost.

And the payment schedule is uh connected to the lien.

So they determine the interest rates, they determine the amount, but we validate that that amount is still going to meet the savings to investment ratio, isn't more than 35 percent of the appraised value upon completion, et cetera.

Are there any circumstances under which the loan becomes forgivable, if you will, the way we sometimes do forgivable loans with housing or the city economic development?

I can't imagine that that would happen because the money comes from life insurance companies and pension funds and funds, and most of the pace lenders are brokers of these various investment firms, and they love these because they are long-term, very safe investments.

And um, I don't really see Wall Street as a very forgiving group.

Okay.

And last question.

You mentioned the uh hotel to multifamily project.

And you probably know we have a lot of empty commercial space here in Houston, and so uh companies have been looking into converting office space into residential.

This is the most brilliant use of pace.

Um, and I didn't put a lot of I probably used too many words in this slide and not enough examples, so I will follow up.

But we have uh the first time we saw that um it's actually a hotel, but the Barfield building is an empty decrepit 12-story building in downtown Amarillo.

It's now a uh uh hotel, but we have several historic buildings in San Antonio that are now housing and hotels.

This is the this is most people will say repurposing is a great idea, but it costs too much.

It is just it's just not doable.

Well, pace can make it doable when you think about taking an office and turning it into apartments.

That's efficient of fixed equipment, it's toilets, it's I mean, there's so much water and energy savings.

This is the way to pay for it.

There's so many empty buildings that are underutilized because when a developer looks at it, there's just not enough money and it it doesn't pencil.

Now we have up to 35 percent of the cost or the value of that building when it's finished eligible for pace, provided you have enough energy and water saving measures.

All of a sudden, there's a huge source of capital to get this done, and it's a lower interest rate than equity or mezzanine.

So if we could just get the business community to take another look at this now that it's proven, we could be there it would make no sense to do a conversion without pace.

Great, thank you.

Thank you.

Thank you.

Um any more questions?

I don't see any any others in the queue.

Uh, we do have one public speaker signed up.

Thank you for your presentation.

I want to uh uh visit with you after I've got a couple of questions for you as to uh connections, potential connections for you and the business community.

James, did you have something?

Well, thank you very much, and I appreciate the time as well.

Um I just want to mention too that you know Charlie mentioned it's a taxified model.

A lot of other states subsequently copy Texas.

And Charlene and our chief operating officer Doug Taylor have received national awards for their work from PACE Nation and what they've done.

Wonderful.

Thank you.

Thank you for that comment, and thank you all for being here.

We're ready for public speakers.

It looks like we have one signed up to speak.

Um if there's anyone else that is here and would like to speak, please um let us know.

Miss Monique Mason.

Come on up, Miss Mason.

Thank you for coming today.

My name is Monique Mason.

Hear me.

Okay.

Yes.

I am wanting to invite everyone, the council members, as well as the resilience committee team to the Texas Grandparents Raising Grandchildren's Day, which will be held this uh September Saturday, September 13th from 10 to 1 at the Tombas Park Pavilion 14, and I have the lies that I can send out.

This event is very important because uh well, it's very important.

There's gonna be news media, uh different agencies and organizations that support grandparents that are raising their grandchildren.

Now we all know that um grandparents raising grandchildren can come about in different ways, such as uh maybe the parent has passed away in the hospital or maybe encarrated.

It does different different reasons, or it can be that the parent is just not available, and grandparents are holding the responsibility of raising grandchildren, and they may not have the resources that are available to them, such as a custodial parent, and that's where Texas grandchildren raise raising grandchild, I'm sorry, Casey's grandparents raising grandchildren came about.

And there will be an annual event on September four teeth was on which is on a Saturday at Tombass Park, and we'll let them invite the council members as well as a resilience committee team.

Well, thank you.

Thank you for bringing this forward, and we've made a note of September 13th from 10 to 1 at the park.

And as a as a uh grandchild of grandparents who raised me, I certainly appreciate what what grandparents do for their grandchildren.

They step up in times of absence of a parent.

So God bless you for the work you do, and thank you for bringing this to us.

We appreciate you.

Thank you for being here.

No more questions, no more speakers signed up.

Uh we'll go ahead and call the meeting adjourned.

It's 1051 a.m.

Thank you all for coming to the first time.