2015 Robert Mattler Michigan Market Leader Detroit, MI

A new way to fund real estate improvements…. Confidential - PACE Equity2 Redirecting energy expenditures

PACE Solution 3 What is PACE? Property Assessed Clean Energy (PACE) is an innovative way for owners to pay for upgrades to buildings PACE covers 100% of the improvement costs, up 20% of a buildings value, repaid through a tax assessment on the property for up to 20 years. PACE is modeled after methods to fund public benefits such as roads, sidewalks, and fire departments. PACE funding comes from private capital sources 350+ Commercial Projects Completed – $150m in funded projects Confidential - PACE Equity

Eligible Improvement Measures Confidential - PACE Equity4 LED Lighting Commercial Boiler VRF HVAC System Chiller Fume Hood Elevator Cool Roof Windows Solar PV Controls Escalator Refrigeration Parking Lights

PACE Solution 5 Private market investors like PACE because assessment liens are a proven, strong credit. Confidential - PACE Equity Property owners see an opportunity to save money and make their buildings more valuable. Existing mortgage lenders support projects that increase the value of their collateral. Local governments like PACE because it creates jobs and helps meet conservation goals. Contractors support PACE because it opens up new sales opportunities Taxpayers like PACE because the city takes on no liability and gets a boost in the local economy. PACE is a win/win for all stakeholders!

6 Where is PACE Available? Pending Markets Active Programs PACE Equity Market Leader Passed Legislation

Benefits of PACE Confidential - PACE Equity7 PACE BenefitBarrier Considered Equity in development capital stack Long-term (up to 20 years) low cost capital Ability to pass on to tenants Differentiated tax & balance sheet treatment ROI Ease in passing costs to tenants in triple net lease (to match savings) Split Incentive Transfers upon sale as assessment remains with the property Flexible options to pre-pay balance at sale of asset Short Term View 100% financing requires no up-front cash investment Effective with complicated ownership structures No acceleration upon bank default No personal guarantees Funds available to fund construction costs Access to Capital

PACE Equity Solution Enabling building owners to take advantage 8 Project Governance  Experience & Knowledge of PACE  Stakeholder Engagement  PACE District Formation Energy Engineering  Bundling of multiple measures  Development of energy models  Performance Assurance Financing  Project Development Funding  Construction Financing  PACE Financing Confidential - PACE Equity Common scenarios for PACE Financing

Confidential - PACE Equity9  Complex Stakeholder Management  Customer  Contractors  Program administrators  Mortgage lender  PACE financing sources  Energy Engineering  Project development funding  Construction financing  Incentives & rebates  Performance assurance  Key Deliverables  Preliminary analysis (business case)  Program approval  Lender consent  Final construction & savings proposal  Program Application  PACE financing agreement PACE Equity Solution PACE Project Governance

PACE Equity Solution Energy Engineering Confidential - PACE Equity10  Preliminary Analysis  Energy audit, scoping, estimated cost & savings  Detailed Design  Create baselines  Create building model to forecast savings  Performance Assurance  Commissioning  Quarterly reporting  Update EPA Portfolio Manager  Enrollment in DOE Better Buildings Challenge

Confidential - PACE Equity11 Ongoing Performance Assurance Included for 3 years

PACE Equity Solution Financing Solutions Confidential - PACE Equity12 Project Development Funding 100% financing with no out-of-pocket costs* *Note: Requires credit approval

PACE Equity Solution Financing Solutions Confidential - PACE Equity13 PACE Financing 100% financing of installed equipment

Confidential - PACE Equity14 Structured Process to manage transaction costs & execution risk… Development Process Turnkey Project Development Develop business case (scope, savings, cost), program approval, lender consent & secure financing Detailed scope, cost, savings, & contractor selections. Ashrae II audit for projects > $250K Submission of full application package. Administrative & technical review. Execute loan & assessment agreements Manage draw payments & post construction performance assurance reporting

PACE Value Proposition Scenario: Tool in the capital stack Confidential - PACE Equity15  Value Proposition:  Cheaper capital than equity  Enables projects that do not meet internal project return requirements  Non Recourse  Tax treatment as an operating expense  No required repayment upon sale of the property  Long tenor – 20 years Debt: 4%-6% Equity: 15% - 18% PACE: 6%-7% (2% after tax) Project Capital: 20%+

Scenario: PACE in the capital stack Confidential - PACE Equity16  Background  $30m Investment to transform an old building  Pre Valuation: $3m / Post valuation $30m  Intended project capitalization: 30% equity / 70% debt  PACE investment determination:  20% of building value ($6m)  Assessment is applied and passed on to tenants as a property tax assessment.  Upon sale, assessment transfers to subsequent owner (does not have to get paid back) Impact: 4x Improvement to Investor Returns

Scenario: Boosting NOI and building value Confidential - PACE Equity17  Background  Invest $2m in HVAC, Lighting, & Windows w/ 10 year payback  PACE Financing term of 20 7% Effective Cost of Capital Impact: $1m immediate improvement to building value.

Case Study: Non-Profit University Club, Milwaukee WI Confidential - PACE Equity18  Customer Objectives  Replace makeup air units to bring the building in balance  Remediate steam traps  Window Repairs  LED Lighting  Fund HVAC as part of renovation to attract new members  Results  $660K in funded building improvements  30% Utility Savings – avg of $75K/yr over term  35% Coverage of renovation budget Project Details  First Milwaukee PACE closing (Summer 2014)  Financing by Milwaukee Economic Development Council (MEDC)  Rate 6.0%, 18 year term  Project governance, energy engineering & savings guarantee by PACE Equity

Case Study: Hospitality Hospitality Development – Change of Use Confidential - PACE Equity19  Customer Objectives  Maximize ROI in the property  Reduce Equity requirements  Minimize incremental design/construction costs  Evaluate building systems based on lifecycle cost  Results  $2.4M in funded building improvements  $8.9m in savings over 20 year term (3.7x investment)  No incremental costs to make it a PACE project  Measures funded by PACE Equity include elevators, domestic hot water, HVAC, & windows Project Details  Closing in May 2015  Rate 5.65%, 20 year term  8.5% of value at completion  Project governance, energy engineering, savings guarantee and financing provided by PACE Equity

Case Study: Industrial Cambridge Engineering, Chesterfield, MO Confidential - PACE Equity20  Customer Objectives  Reduce Energy Consumption  Increase Real Estate Value  Provide a Top Quality Facility for Employees  Results  $610K in funded building improvements  Installed new LED Lighting, Roof, HVAC  Mechanical Portion Cash Flow Positive and Funded Large Cap-X  30% Utility Savings – avg of $52K/yr over term Project Details  First Missouri Show Me PACE closing (Summer 2015)  Financing by PACE Equity  Rate 5.57%, 10 year term  Project governance & financing by PACE Equity

Case Study: Retail Simon Properties Mall, Santa Rosa, CA Confidential - PACE Equity21  Customer Objectives  Install a “Cool Roof”  Increase tenant comfort & satisfaction  Improve overall building performance  Reduce energy costs  Results  Implementation of “Cool Roof” that stays up to 60 degrees cooler Project Details  PACE Program: Sonoma SCEIP Program  PACE Assessment: $463k, 10 7%  Building: 699k sf, Built in 1971, $240m value  Improvements:  Reflective Cool Roof Source: PACE Now

Case Study: Commercial Prologis Headquarters, San Francisco, CA Confidential - PACE Equity22  Customer Objectives  Improve building performance & comfort  Reduce energy by at least 30%  Allocate savings to 5 tenants  Improve cashflow on day 1  Results  Purchased energy reduced by 32%  Annual estimated cost savings of $98,000  PACE made it possible to allocate costs to 5 tenants  Projected annual PV production: 245,520 kWh  No increase in operating expenses Project Details  PACE Program: Greenfinance SF  PACE Assessment: $1.4M, %  Building: 131k sf, Built in 1918, $30m value  Improvements:  1,500 new light fixtures  200 kW Rooftop solar  HVAC Overhaul Source: PACE Now

A new way to fund real estate improvements…. Confidential - PACE Equity23 Our premise is that it takes a lot of effort to get deals across the finish line. Everything from A to Z. Who is going to do that work? Customer? Contractor? PACE Administrator? PACE Finance Provider? Our business is intended to fill this gap by enabling building owners and contractors to execute PACE Projects.

“What Makes a Good Project?” Confidential - PACE Equity24  Project min. size of $250K+  Strategically important investment in building  Building age 15 years+  Mechanical & electrical equipment end of life issues  Building comfort & people productivity issues  High energy usage, people occupancy, hours of operation  Non-profit or Complicated ownership structure  Existing difficulty passing costs to tenants  Desire to improve property with multiple measures with simple payback < 14 years.  Mortgage lender not a CMBS  If no active PACE program, then project size of $1m+ to justify effort to put district in place.

A lot more than financing Confidential - PACE Equity25  Sales Assistance. Engage with the customer to help sell a PACE funded multi-measure bundle  Collaboration Platform. Provide an online project development platform to drive tasks, manage project data, milestones, risk management, and communication  Energy Modeling. Drive the energy engineering necessary for financial underwriting and program eligibility  Lender Consent. We will get the mortgage lender consents  Performance Reporting. Provide quarterly utility performance reporting  PACE District Formation. We can install PACE districts where they do not currently exist  Construction Mgmt. Option to leverage PACE Equity to manage the bid process and retain bonded construction managers that can guarantee outcomes.

National Reach Market Leader Strategy Confidential - PACE Equity26 Objective is to setup a local market leader in local PACE markets – 20 in 2 years. Sales Collateral & Marketing Campaigns IT Infrastructure – CRM, Project Mgmt, Collaboration Template Agreements Line of Credit For Project Development Costs Access to long term project financing & securitization Benefit from existing relationships that generate leads & knowledge Energy Engineering Resources

Scenario: New Construction Confidential - PACE Equity27 Customer Objectives  Reduce Equity  Non-recourse financing  Boost ROI  “Max out the PACE Program” Approach  Define PACE Equity funding goal  Early engagement with Mortgage lenders  Project development & energy modeling to define scope, cost, and savings of PACE Equity Investment  Theoretical energy baseline derived from ASHRAE 90.1  Benefit of lifecycle cost analysis of different systems  Pre-payment structured to support hold term  100% of PACE Equity funds available at closing (pre- construction)  Improvements:  HVAC, Elevators, Windows, Lighting, Domestic Hot Water, Roof, Solar, etc Source: PACE Now

Approach Comparison PACE vs. Traditional ESCO Confidential - PACE Equity28  Benefits of PACE Equity development process  Customer can run open procurement process with vendors of their choice  Expected 100 bps reduced financing costs by leveraging tax lien of PACE  Performance Guarantee is much less expensive and only required for PACE to meet state guidelines. Guarantee requirement for PACE is roughly 50% of savings as compared to 90% for ESCOs.  Annual M&V is not required for PACE projects.  ESCO margin of 24%-35% can be drastically reduced.  PACE has favorable accounting treatment that does not impact debt capacity.

Preliminary Analysis & Approvals Confidential - PACE Equity29  Scope of work:  Prepare energy savings report (compare specs to code requirements/existing conditions)  Submit interest form to city and confirm eligibility  Work with client to obtain mortgage lender consent  Obtain non-binding financing commitment from 1 or more sources of long term PACE capital to support this project through 2 closings.  Prepare Project Development Agreement  Not to exceed budget: $10k  Terms:  Accrue costs up to the budget. To be paid out of closing proceeds.  If client does not enter into Project Development Agreement within 3 months, then client will be invoiced for costs incurred up to the budgeted amount.

Detailed Design Confidential - PACE Equity30  Scope of work:  Create building model (eQuest) to define savings of the selected improvement measures.  Deliver energy report defining baseline conditions and energy savings.  Collaboration with Focus on Energy to obtain custom incentives/rebates  Preparation of application and closing materials  Not to exceed budget: TBD as a result of Prelim  Terms:  Accrue costs up to the budget. To be paid out of closing proceeds.  If closing does not occur, for any reason, within 12 months then client will be invoiced for costs incurred up to the budgeted amount.

Long Term Market Imbalance The ESCO Industry (Energy Service Companies) is a $5B Industry. 91% comes from Federal and MUSH Markets…. US Building Stock (Estimated 2003) Billion Sq Ft Source: Commercial Buildings Energy Consumption Survey 2003 (DOE); Team Analysis INDICATIVE …. Yet the private sector represents 70% of the building stock. Confidential - PACE Equity31

Long Term Market Imbalance 32 Buildings owners have not been willing to make these investments. Why? ROI is not competitive. Split Incentive. Tenants pay utilities and get benefit of investments yielding utility savings. Short Term View. Owners need flexibility to sell property. Access to Capital. Difficulty getting low cost capital due to credit quality or ownership structure. Top barriers to pursuing energy efficiency for your company? Source: Johnson Controls and International Facility Management Association, “2012 Energy Efficiency Indicator – Global Results” Confidential - PACE Equity 70% of the private building stock is over 15 years old and has never been upgraded.

PACE Equity Solution Enabling building owners to take advantage 33 Project Governance  Experience & Knowledge of PACE  Expertise on rebates and incentives  Construction Management Energy Engineering  Bundling of multiple measures  Development of energy models  Guarantee of energy savings  M&V / Performance Assurance Financing  Project Development Funding  Construction Financing  PACE Financing Confidential - PACE Equity Energy Engineering Project Governance Financing

Sampling of Value Propositions Confidential - PACE Equity34 Sampling of value proposition across 5 projects: ScenarioValue Proposition to owners Conversion of an old mostly vacant office building to a branded hotel. Requires total investment of $30m Considered low cost equity. $2.5m represents 1/3 of the total equity requirement at an attractive cost of capital Non-profit building where bylaws prevent debt and there is considerable deferred maintenance. Long term low cost capital that is not considered debt. Improvements paid through savings Industrial building (120k sq ft – built in 1978) Replace aging equipment & addition of solar paid through savings 70 year old resort with deferred maintenance and not able to meet capex demands. PACE is 50% of total improvement budget of $15m. Non-recourse to owner Long term low cost capital New Construction: Grocery Store $1.5m of low cost equity to boost ROI of the owners.

Confidential - PACE Equity35 PACE Benefit Analysis Preliminary Analysis & Approvals Preliminary Analysis & Approvals Detailed Design Structured Process to manage transaction costs & execution risk… Development Process Application & Closing

2 Types of PACE Projects Confidential - PACE Equity36  Improvements to existing old buildings  PACE value up to 20%  LTV w PACE < 80-95%  SIR > 1.0 based on actual energy consumption  Value based on recent valuation  New Construction/Major Renovation  Value is based on appraised value at completion  Savings based on computed code standards vs actual design.  Requires 20% savings over code requirements

Common PACE Scenarios Confidential - PACE Equity38 Adaptive re-use New Construction Aging Infrastructure Non-profit Distributed Generation

Common PACE Scenarios Adaptive re-use Confidential - PACE Equity39 Example: Investment: $2.5m % of value: 15% Energy baseline: existing building condition or code Measures: Windows, HVAC, Elevator, domestic hot water Value Proposition: Reduction of Equity Passing of costs to tenants Sustainable design Example: Investment: $2.5m % of value: 15% Energy baseline: existing building condition or code Measures: Windows, HVAC, Elevator, domestic hot water Value Proposition: Reduction of Equity Passing of costs to tenants Sustainable design

Common PACE Scenarios New Construction Confidential - PACE Equity40 Example: New Grocery Store Investment: $1.5m % of value: 10% Energy baseline: code – ASHRAE 90.1 Measures: Lighting, Refrigeration, Controls, Solar Value Proposition: Reduction of Equity Funding of incremental investment for Energy Efficient equipment Example: New Grocery Store Investment: $1.5m % of value: 10% Energy baseline: code – ASHRAE 90.1 Measures: Lighting, Refrigeration, Controls, Solar Value Proposition: Reduction of Equity Funding of incremental investment for Energy Efficient equipment

Common PACE Scenarios Aging Infrastructure Confidential - PACE Equity41 Example: 100+ year old building Investment: $500K % of value: 20% Energy baseline: existing building Measures: Elevators, Lighting, HVAC, steam retrofit Value Proposition: Accelerated capex investment Better able to attract & retain tenants Example: 100+ year old building Investment: $500K % of value: 20% Energy baseline: existing building Measures: Elevators, Lighting, HVAC, steam retrofit Value Proposition: Accelerated capex investment Better able to attract & retain tenants

Common PACE Scenarios Non-profit Confidential - PACE Equity42 Example: University Club Investment: $660K % of Value: 20% Energy baseline: existing building Measures: Windows, make up air, Lighting, HVAC, steam retrofit Value Proposition Utility savings Funding of renovation costs Example: University Club Investment: $660K % of Value: 20% Energy baseline: existing building Measures: Windows, make up air, Lighting, HVAC, steam retrofit Value Proposition Utility savings Funding of renovation costs

Common PACE Scenarios Distributed Generation Confidential - PACE Equity43 Example: Solar in California Investment: $275K % of Value: 20% Energy baseline: existing energy consumption Measures: solar Value Proposition: Immediate boost in NOI Example: Solar in California Investment: $275K % of Value: 20% Energy baseline: existing energy consumption Measures: solar Value Proposition: Immediate boost in NOI

Robert Mattler Michigan Market Leader Detroit, MI