Picking Up the PACE The Better Buildings Case Competition U.S. Department of Energy Market Efficiency Team- Presentation Team Members: Bruce Kaufman, Agustina Sclarandi, Gene Settoon, Lauren Anderson*, Daniel Lutkus* *Unable to attend

Overview Five-Tiered Rollout Staffing and Administration Program Structure and Operations Market Education Website Marketing Strategy Real Estate Investors Financial Considerations

Program Structure and Operations: Tiered Approach Controlled & targeted growth Program initiated  industry led Largest/easiest  more challenging buildings Apply lessons learned to subsequent tiers Case studies prove uptake projections Tier 1 Large/Old Class A Tier 2 Large/New Class A Small Class A Tier 3 Class B Hospitality Tier 4 Industrial Class C Tier 5 Multifamily Housing

Uptake Projections

Program Structure and Operations: Staffing  Staffing Major cities only (75% population) One staff member per city (focus & replication)  Intrastate Coordination State mandates tiers & finance Cities execute program within existing system  Administration PACE training for contractors (tiered approach, fast-track permitting) Targeted marketing

Marketing Strategy: Targeting Building Owners  Public Disclosure of Energy Use Mandate that buildings submit quarterly energy usage data & energy efficiency certifications concurrent with tier rollout timeline PACE website compares energy usage & certification by size, occupants & industry Driver of market education & adoption  Website Information Segment Targeting Building Owners → Building Owners & Managers Association i.Compare energy usage & LEED certification ii.Information on State Commercial PACE program Renters i.Information on potential utility expenditures across renting market – inform leasing decision

Financial Considerations: Types of Real Estate Investors and Lien Consent Real Estate Investment Trusts CORE Best targets for the initial phase of the program because of their low Debt Service/NOI, usually interested in efficiency technology CORE + Value Added Opportunistic Funds Could apply the earn – out scheme so as to avoid Lenders’ concerns Lien Issues - Tiered approach - Advertise the savings of the PACE projects - Ensure that the largest & most impactful projects are done first

Market Efficiency Team Thank you for your time! Questions?

Team Market Efficiency Appendices

Uptake Projections

Tiered Approach Assumptions Summary Appendix A: Key Assumptions The following assumptions were used to generate data in Figure 1 & 2. Assumption 1: PACE Investment ($) / Building Area (sqft) = $3.50, which was the lowest value of 20 different cases that the team evaluated. Thus, projections shown below are conservative. Assumption 2: 66% of buildings built before the year Based on data from Chicago’s 73 tallest buildings. Assumption 3: 50% of building larger than average size. Based on assumption of normal distribution. Assumption 4: Participation rates for different building classes Class A Large/Old Class A Office: 16.8%. Based on uptake rates from Retrofit Chicago Initiative. Large/New Class A Office: 1.2%. Based on uptake rates from Retrofit Chicago Initiative. No difference in uptake rates between large & small buildings. Based on equal distribution between large & small buildings in cities were size restrictions don’t exists. Class B: Assume 50% of Class A uptake (less demand than Class A, but still energy savings) Class C: Assume 20% of Class A uptake (less demand than Class A & B, but still energy savings) Hospitality: Assume 75% of Class A uptake (More demand than Class B because of client pressure, as demonstrated by Retrofit Chicago) MFH: Assume 50% of Class A uptake (same uptake as Class B) Industrial: Assume 50% of Class A uptake (same uptake as Class B) Note: Projections assume that PACE funding at each tier is limited to the building type in that tier only, & doesn’t include building types from earlier tiers. Thus, projections are conservative, as some Class A buildings are expected to sign up in later tiers, for instance.

Intrastate Coordination Matrix Program ComponentsPolicy Ownership Administration Ownership Reason Outreach and marketingCity City knows building landscape better than State Application processCity City application processes already established Property owner and project eligibility StateCityMust have state-wide synchronization for replicability Project size limitsStateCityMust have state-wide synchronization for replicability Credit underwritingStateCityMust have state-wide synchronization to reduce risk Loan terms and conditionsStateCityMust have state-wide synchronization to reduce risk Ongoing admin. structureCity Cities better positioned to meet changes over time

Program Website Overview

Program Budget