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The San Diego City Council passed a resolution last week opting into the Property Assessed Clean Energy, or PACE, program administered by Figtree Energy Resources Co. for the California Enterprise Development Authority. A month earlier, the city council approved a resolution to opt into the CaliforniaFIRST program, operated by the California Statewide Communities Development Authority and administered by Renewable Funding.
“We will be first jurisdiction that has opted into more than one program,” said Cord Bailey, a spokesman for San Diego Mayor Jerry Sanders. “The goal is to increase competition to try to drive down the cost and to provide the widest selection of products for property owners.”
Originally conceived in Berkeley, Calif., in October 2008 as a way to help homeowners pay the up-front costs of installing energy efficient technologies, the PACE program stalled in July 2010 when the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, ordered the government-sponsored enterprises not to underwrite mortgages for homes with PACE loans. FHFA was concerned because the PACE liens are senior to the mortgage, so the PACE lender would be paid ahead of the bank, or Fannie or Freddie, in the case of foreclosure.
PACE liens are added to the property owner’s tax bill and stay with the property if it is sold.
FHFA lost a California court ruling earlier this year that required the federal housing agency to hold public hearings this summer and reconsider its stance. The FHFA isn’t expected to come back with a decision until early next year, said Mahesh Shah, Figtree’s chief executive officer.
Given the problems created by the FHFA’s stance, both Renewable Funding and Figtree are focusing on providing funding for commercial real estate upgrades for now.
California First was originally created in 2010 as a statewide residential program, but stalled in July 2010 when the FHFA came out with its statement.
Since then, it has switched its focus to commercial projects and has convinced 14 counties and 127 cities in California to opt in.
CaliforniaFIRST hopes to issue its first bond by the end of the year, said Cliff Staton, executive vice president of Renewable Funding. It isn’t looking at projects under $50,000, which it has deemed the lowest amount feasible to put a deal together, Staton said.
For now, it only plans to issue private placement bonds for individual projects, but it could do a pooled bond for smaller projects, he said.
Figtree arranges financing and lender consent for property owners by aggregating and selling the projects as municipal bonds and will consider projects as small as $5,000, Shah said.
Shah’s company is one of the few nationally that has gone to the municipal bond market for financing.
Figtree priced a $725,000 bond through conduit issuer Pacific Housing & Finance Agency to fund seven energy-efficient and renewable-energy projects in Fresno, Palm Springs, Clovis and Exeter in December 2011. It has since switched to working with CEDA, a more active issuer, Shah said.
“We are getting ready to price a multi-million deal between $2 million and $5 million over next 45 days,” Shah said.
Since San Diego opted into Renewable Funding’s CaliforniaFIRST program in September, the city has received a number of applications and is anticipating a sizeable participation in its PACE program, Bailey said.