In today’s high interest rate environment, C-PACE financing can help lower a sophisticated real estate project’s cost of capital.

Bert Belanger, managing director at PACE Equity, joins the show to discuss Commercial Property Assessed Clean Energy financing, how it can fit into the capital stack for an Opportunity Zone project, and what types of improvements are eligible.

Episode Highlights

• How higher interest rates have created challenges for developers, especially with banks requiring more equity and lower leverage, and how PACE financing can help replace expensive mezzanine debt and minimize the amount of cash equity required in a project.
• An overview of Commercial Property Assessed Clean Energy (C-PACE) financing, and how its rates are tied to the 10-year Treasury, offering rates comparable to bank debt.
• A list of eligible improvements that PACE can finance to make buildings more sustainable, including HVAC systems, building envelopes, lighting, and insulation.
• An overview of the Cirrus Low Carbon Standard, a design specification developed by PACE Equity that promotes energy efficiency.
• An overview of Bert’s Opportunity Zone project in Oklahoma City, aimed at transforming the Northeast 4th Street District through mixed-use development.

Guest: Bert Belanger, PACE Equity

• Bert Belanger on LinkedIn | Email Bert: [email protected]
• PACE Equity

About The Opportunity Zones Podcast

Hosted by OpportunityDb founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in the Opportunity Zones industry.

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Show Transcript

Jimmy: Welcome to the “Opportunity Zones Podcast.” I’m Jimmy Atkinson. We’re here to talk about PACE financing today. What is it, and how can it fit into the capital stack for an Opportunity Zone deal? Joining the show today to discuss CPACE financing is Bert Belanger, managing director for PACE Equity, and Bert joins us today from Oklahoma City. Bert, great to see you. Thanks for coming on the show. Welcome. How are you?

Bert: I’m great, Jimmy. Thanks for getting the name right. We’ve…some people know Mark Belanger from the Orioles, or some hockey player named Boulanger, but it’s Belanger. Thanks.

Jimmy: Belanger it is. You’ve got it. Well, great to see you here, Bert. PACE financing, it’s come up a few times before on this podcast, but today we’re gonna take a closer look at property assessed clean energy, and specifically how and when it should be incorporated into the capital stack for an Opportunity Zone deal. Bert, you also have your own Opportunity Zone deal in Oklahoma City, that we’ll talk about toward the end of today’s show. But before we dive in to the topic at hand, a bit of background on my guest today. Bert, you are an OZ Insiders member. You were at our OZ Insiders dinner in Dallas, in early March. It was great to meet you there. It was a great event that we had.

Bert: Yeah.

Jimmy: I know some of my audience of Opportunity Zone investors and advisors may be familiar with you, and your firm, PACE Equity, but for anyone who might be unfamiliar, maybe this is their first time hearing the word PACE. Maybe it’s their first time hearing the name of your firm, PACE Equity, give me a little bit of background on you, and what’s your role at PACE Equity?

Bert: Yeah. Thanks, Jimmy. And it was a great dinner, by the way, and a great place, and a great crowd. It was a lot of fun. And I’ve found, already, some really neat relationships, you know, through that, through your Insider thing. So, yeah. So, I’m based here in Oklahoma City. Our company, PACE Equity, and I’m a market leader, like many other, probably 17 others around the country, that are sort of boots-on-the-ground for PACE Equity. But I started my career a long, long time ago, actually. I went to architecture school at Oklahoma State, and then went to law school at University of Oklahoma. So, I’ve got the whole bedlam thing going on, but…in my head.

But, so, I practiced law for a long time, as a commercial real estate lawyer. I’d like to say probably 20 out of the last 40 years, I tried to find somebody to pay me not to practice law, and I was successful, and went to work for a commercial developer that was in the business of mostly LIHTC financing, and mostly LIHTC construction. We did 7000 affordable apartments across the country, and, really, from about ’97 to 2004. So, I learned how to deal with, sort of, complex capital stacks, in those deals, first, as a consultant, before I was hired by this company, but then with this LIHTC developer. And over the subsequent years, I’ve been… I have a brokerage, a commercial brokerage practice, and then I have a land development deal, as you mentioned.

But primarily, what I do today is source capital for PACE Equity. And I was not aware what PACE even was, what the acronym even stood for, four years ago. But, and that’s not surprising, because Oklahoma’s program was adopted about four years ago. And so, I am a market leader, as I say, based here in Oklahoma. I can follow relationships all over the country. But I have found CPACE, which stands for commercial property assessed clean energy, as opposed to RPACE, which is residential, and there’s very few residential programs across the country, and there’ve been some early problems with them, so, for purposes of this discussion, and really, for the industry going forward, when we talk about PACE, it’s always in a commercial context, for commercial buildings.

And so, been doing this now for almost four years. I was able to close one of the larger transactions, actually, the largest transaction in the state of Texas, a year ago, in November, and it’s actually the largest our company has done. So… Excuse me. Sorry. We had a visitor. Anyway. So, as I was saying, was able to close the largest transaction in the state of Texas. And we’ve closed a number of transactions, actually, about 300 since the company was formed in 2014. So, that’s a little bit of background. I’ve actually been based here in Oklahoma City my whole career, as I said. Went to both of the Oklahoma schools, and so, this is our home, and I focus, on my development side, pretty much on urban infill site development. I’m really a land guy. I find sites for apartments, etc. That’s what I did for the company that I worked for in the LIHTC business. And, but also was involved on the financing side because of my legal background. And so, I feel like that my career has sort of converged down to this point, where I’m working with a tool that I understand, and I also understand how hard it is to get a development deal done, because I’ve been a developer myself. I’m, I guess, a lawyer, a recovering attorney, so I understand the technical side of it, and understand how law firms work, and how the legal system works, but also how, you know, how those things are really important for tools like Opportunity Zones and for CPACE.

Jimmy: Absolutely.

Bert: So, it’s sort of all come together for me, I hope.

Jimmy: I think it has. It seems to be. You’re a Sooner. You’re a cowboy. Bedlam, indeed. We’re gonna talk about…

Bert: Cowboy first. Cowboy first.

Jimmy: Cowboy first, right. Cowboy, and a Sooner. Well, what is PACE financing, exactly? You know, we’ve covered it a couple times on this podcast, but it’s been a little while, and I’m sure there’s plenty of viewers and listeners out there who don’t know about it. I barely know what it is, quite frankly. So, I’m curious about how it works, but also about why it exists in the first place. Explain it to me in layman’s terms.

Bert: Well, I think the best way to explain it is my understanding of the history of PACE, and you go all the way back to 2008, ’09, and ’10, when we all remember, I’m old enough now, it was two or three cycles into my career, that everything stopped. I mean, all the capital markets froze, the mortgage meltdown happened. And so, the government, specifically the Department of Energy, was sitting in Washington with some of their constituents, and they said, “We’re with the government. We’d like to help. Oh, but we’re not gonna put any money into this.” And their constituents at the time were companies that were in the business of creating really robust mechanical systems for energy efficiency, companies like Siemens, and Johnson Controls, and Westinghouse, and GE, and those types of companies. And those companies basically said to the Department of Energy, “Well, there’s a ton of buildings out there around the country that need to be retrofitted with, and might as well be retrofitted with energy-efficient systems. And we know that our systems are really long-term, long-life, long useful life, and we can probably attract private capital into the marketplace, debt capital, if we had some help from the government through sort of a public-private partnership.”

And what they came up with, really, it was conceived at the federal level, and then it was really implemented at the state level, was this notion of CPACE, and what it stands for, as you said, property assessed clean energy funding. And it is private debt cap. It’s not government money. And so, we are not tapping into the Treasury or printing money, you know, to put into commercial projects. My company is a private debt firm, as are all the other CPACE providers around the country. And there’s probably a dozen good-sized… Some banks have tried to be CPACE lenders, and had a little unit, or a separate unit, and some still maybe are. But it is a specialty sort of way of asset-based lending, that requires some real engineering in the back of the house, right?

And so, it’s not a big surprise that our founder of PACE Equity, Beau Engman, was at Johnson Controls, in the C-suite, back in 2010, ’11, whenever these discussions were happening. He saw an opportunity, like others did, to create a private debt fund. And so, we’re a private firm, that is a balance sheet lender. We’re based in Milwaukee, and we, one of the big questions I always get is, “Where’s our money come from?” Well, we borrow, on an open line, from primarily life companies, traditionally. And more recently, we have also had a separate sort of tranche of funding from a pension fund that was particularly interested in the E in ESG, and delivering tangible benefits to the pensioners that they represented. So, that’s generally how it works.

So, it was set up, again, conceived in the, sort of, in Washington, but it’s implemented in each state. Each state has to file, has to adopt an… And I guess they had the good sense to understand that, you know, geographies are different, climates are different. Weather is different. So, every state is a little bit different. They were free to design their own CPACE program the way they wanted to. And so, there’s now 30, roughly 33 states, I think, now. New Mexico just adopted a PACE program, and I think Georgia is considering one. But each state is a little bit different. That makes it a little bit… Because it’s not particularly uniform across the country, that has hampered the penetration and the wide acceptance of CPACE, to some degree. But it is gaining steam. There’s a, I think, a statistic that, up until right before I joined the company, I think the total billions, or the total aggregate funding in the CPACE world was about a billion dollars. And, you know, that’s the whole history of fundings.

Well, a couple years ago, we hit a billion dollars in funding for one year. And I think this last year, we were two billion, as an industry. So, you can see, it’s starting to ramp up, and gaining some fair amount of attention. We were green before green was cool, right? And so, it does dovetail into, now, a heightened awareness about sustainability. But, for me, as a developer myself, and as a person who’s had to make the numbers work, it’s really about looking at lowering operating costs for a building, a commercial building, which can translate to value.

Jimmy: Yeah, and it’s still experiencing a lot of growth. It’s still a relatively new program. It hasn’t been adopted across all 50 states.

Bert: Correct.

Jimmy: I wanna talk more about the growth of PACE in a few minutes here. But, you know, in preparation for today’s episode, Bert, you sent me over a deck that answered a lot of my questions that I had for PACE. So, actually, I wanted to go ahead and share that deck right now on the screen.

Bert: Sure. Absolutely.

Jimmy: Maybe you can walk us through a little bit of this presentation that you have prepared.

Bert: Yeah.

Jimmy: By the way, if you’re listening to this episode on an audio-only platform, like Apple Podcasts or Spotify, I would encourage you to check out our YouTube channel, youtube.com/OpportunityDb. You can find today’s video version of the episode, and you can follow along as we walk through this deck. But Bert, the next question I was gonna ask you was, you know, what are the benefits for securing PACE financing versus more traditional financing options? I see there’s some benefits on this slide here. Maybe you can kind of walk us through a little bit here, and let me know if you want me to advance to different slides.

Bert: Yes. Absolutely. Yeah, this is, our company does a great job. Our website is absolutely fantastic. There’s tons of case studies and graphics that you can download. We have some, sort of, curated material that we can send to lenders, relating to lender’s consent, because that’s a significant issue we’ll talk about a minute. But this slide sort of deals with the basics, and it is, in fact, a public-private partnership, as I mentioned. And it is designed to encourage developers to incorporate sustainable building components into their projects, for obvious reasons, but, go ahead and state them. I mean, not just for the good of the planet, but also for the good of the economics of the deal. We basically, as I mentioned, you know, we are a debt fund. And so we put private capital into a project, on a long-term basis, that really tracks the useful life of the equipment that we’re funding. So, it is, it can be long, it is long-term, and our terms are basically between 25 to 30 years, typically. It is non-recourse, so it is asset-based lending, purely speaking.

It flips to non-recourse, I should say, technically, when all the installation and all the construction is completed. So at CO, our loan, we have completion guarantees and things like that in place, but we do require, but we do flip to non-recourse at CO. Then it is… And it can be used for new construction or redevelopment, renovation. And then we can also actually come in, post-closing, or mid-construction, even, within 24 months, in some states, it’s up to 36 months, but most of them are within 24 months, we can retroactively, essentially, refinance out more expensive cap. So, I think you can see, you know, we are part of the capital stack, and we are leveraged, which maybe can replace some more expensive mezzanine financing, or even pref equity, and increase the IRR and the return on equity that the developer, you know, wants to achieve. Go ahead and go to the next slide, if you would.

Jimmy: Sure.

Bert: This is where…this is a pretty current map of, I think, New Mexico has since been adopted.

Jimmy: Yeah, you said New Mexico just got added here. So, this one should be shaded blue right now.

Bert: Yeah, yeah, just got added. Tennessee is brand new, and I think Georgia’s considering it right now. So, but this is a, the blue are the states that have active enough programs that us and other CPACE providers are closing deals in. That includes Alaska. We got some, we got approval in Hawaii, and so, in ’23, as some of these, Tennessee and other states. And so, you’re gonna start to see CPACE deals get funded there. In the grey states, where we’re no funding yet available, I’d encourage anyone who’s in those states to, you know, to try to help cause it to happen. Because it is a very strong tool in the capital stack, and as we all know, in this, particularly in this interest rate environment, but also in this cost environment, financing is hard to come by.

Jimmy: So who, how, what should they do? Should they write to their state representative or their governor?

Bert: Well, yeah. I mean, I think where the rubber meets the road on CPACE is at the state legislative level. And the way it happened in Oklahoma, for instance, is, there was a developer in Tulsa that was really keen on the idea of getting CPACE in Oklahoma, and so he worked with Commerce, Department of Commerce, and he hired the right consultants, and there are a number of them that helped set up CPACE programs across the country. There are two… We’re also, we are a part of a thing called the C-PACE Alliance, which is, has its own website and its own organization, and we are in the biz, they are in the business of promoting CPACE across the country, and trying to get more states to opt in, and to tweak programs that might have been adopted, that have some issues, that maybe keep the program from running optimally. But this is kind of the current state of where we are.

Jimmy: Very good. Well, that answers my next question. Where is it available? But, you know, let’s go to the next slide here. This kind of shows… Let’s see. This one here, actually, is one I wanted to take a look at next, Bert, was, you know, where it fits in the capital stack, and, you know, how important is this to have some PACE equity come in these days, when it seems like the cost of equity and the cost of debt are both going up, and fundraising has been tough the last 18 to 24 months for private equity real estate deals?

Bert: Yeah. Great question. Great question. It was really interesting, because when I started, in 2021, of course, bank debt was extremely cheap, and it was hard to get people to talk to me when my rate was 6% and the banks were lending at 3% and 4%. Well, we, those days are over. And I think I’m old enough now, and have experienced, I had a 12% home mortgage when I got out of law school. And so, I don’t think that we’re gonna see, you know, really low single-digit interest rates for a long time, and maybe ever. And because of that, you’re right. I mean, banks… I also sit on an advisory board for a community bank, and I understand banks are under a lot of pressure to require more equity, to insist on lower leverage. And so, it’s real challenge when you’ve got that happening, as well as interest rate costs, you know, doubling, basically, in the last three years, with the fact that you’ve got supposedly a lot of equity and money on the sidelines. But they’re pretty proud of it. I mean, you’re, as a developer, you’re gonna give up, you know, perhaps the majority of the upside, in connection with getting your deal done.

So, it’s the most expensive cap, with syndicated equity. So, if you’re looking at this chart here in the left-hand side, and these numbers, I think now are pretty much accurate. We had some that were, you know, a little more aggressive on the leverage side previously, but, you know, you’re looking at a debt stack between, instead of, you know, 80% leverage, you’re looking at now 60% leverage, or maybe 65% or 70% leverage, if you’re lucky. And where we come in is we can replace more expensive mezzanine debt, and we can also help you maybe minimize or reduce the amount of cash equity or value equity that is in the project. Our rates, and we’ll get to that, I’m sure, in a minute, but our rates now are on a par with most bank debt. We are tied to the 10-year Treasury, just like everybody else. And it’s gone up and up, and our current spread over the treasuries are between basically 300 and 450 basis points, depending on the deal. So, we’re in the 7% to 8.5% percent type range. And we can talk about that as to how to get to the lower range, whenever it’s appropriate. But this is how it works in the capital stack. And you see, the green is on top.

You know, part of what we’ll get into is that we are debt. And we certainly do require the equity to go in first, just like your bank does. But we are non-accelerable debt. So, we feel a little bit more like equity than your bank debt does. I mean, if you do miss your payment with your lender, and the debt is accelerated, you can be foreclosed out, obviously, across the country, without exception. CPACE financing is not accelerable. And so, it essentially is not foreclosable. And that’s a big deal, and it’s why… And the reason we’re able to do that is because of this mechanism that we have, through this private-public partnership.

People ask, you know, why…? How can you afford to put in debt that is not accelerated? And how can you put it in for 30 years at a fixed rate of interest? And the reason is, as we go back to that discussion with Department of Energy, they tried to come up with a mechanism that would ensure that our loans stayed current. And the way they came up with that is, is they said, well, each state statute essentially allows for opt-in at the local level, where ad valorem taxes are collected. And you’ve heard of, of course, property taxes, ad valorem taxes, but you’ve also heard at the local level of a special tax assessment district. Each state law is a little different, but whoever at the local level is in charge of collecting local taxes has the ability to create a special tax assessment district. And the mechanism that is really the secret sauce in CPACE is that, for instance, the state of Oklahoma has 77 counties. We have a state law that allows for whichever county wants to opt in can create a CPACE program in their county. Now there are 20 of the 77 counties, which covers most of the population, that have active CPACE programs in the state of Oklahoma.

And what that means is, Oklahoma County, for instance, has declared itself to be, the whole county, a special tax assessment district, for purposes of green energy construction, okay. And in essence, the way the process works is we work with those local jurisdictions, usually through an administrator that has popped up in a state, and sometimes there are multiple administrators. In Oklahoma, there’s one, called INCOG. In Texas, there are a couple. One of them’s Texas PACE Authority, and the other is Lone Star PACE, for instance. But each state is a little bit different, and we essentially make application, with the developer, through the county. And once we’re declared to be PACE eligible, then we go into the numbers, and into the budget, and decide which costs are PACE-eligible. Let’s go ahead and go to the next slide.

Jimmy: Yeah, I was gonna ask you, this PACE financing isn’t available for just any type of project, but there are some requirements, some eligible improvements, as you…

Bert: Yeah. And so…yes.

Jimmy: So, go ahead.

Bert: Right. And this slide clearly sort of says what we’re talking about. Generally, CPACE can be used to finance things that make a building more sustainable. And that means to use less water, to use less energy. In some cases, there is actually a resiliency component, and some states add resiliency as an additional sustainable PACE-eligible component, if you will. So, it can generally include all of these things that you see here, HVAC, all your mechanical, electrical, and plumbing, but then you start to get into things like building envelope, insulation etc., etc. And each of these components has sort of a scientific, I mean, a useful life under the tax code, etc., that is established through engineering criteria. And for instance, lighting has a 20-year useful life. HVAC equipment may range from 25 to 30. Insulation may have a 100-year useful life. And we take the weighted average of these components that we fund, we look at your budget, and we say, “Okay. You’ve got a $20 million hotel you’re building, and I see, you know $6 million worth of eligible costs.” Well, that doesn’t mean I can fund $6 million. We still have our underwriting criteria that we can talk about, but generally, we are going to fund somewhere around 20% of the stabilized final appraised value of the project. And so, that may be 25% or 30% of your actual hard costs that we’re funding, in these categories.

So, and part of our job is to do the engineering for you, and help you understand, as we model and size the PACE loan, how much we can loan to you. The other underwriting criteria is obviously cash flow, because we are real debt, and we’ve gotta see enough cash flow to service your first mortgage debt comfortably, and have enough room to be able to pay us back over 30 years, through the PACE assessment agreement. We don’t have a mortgage. We end up with a document that is a three-party agreement between us, the county, and the developer. And that basically attaches to it our note, with our amortization schedule. So, the whole world knows that this project has a $2 million PACE loan, and it’s due annually X amount every year. And that’s the way it works. As I said, we can’t accelerate our debt, but we do have the right, because it’s in a special tax assessment district, to ask the county if, in the event of a default, to lien the property, not for the $2 million, but for the $100,000 annual installment that they forgot to pay.

So, that is a discussion that always comes up, as to how it works, and when we talk about that remedy, then we’re in a discussion with the senior lenders. So, we always have a, each state requires that the senior mortgage lender naturally consent to PACE on the front end. And so, that is a technical discussion that we end up having early on with the developer, and with whoever else is providing debt capital in their deal.

Jimmy: Good. Great overview of PACE, so far, Bert. Thanks for helping walk through the basics. And it’s experienced a lot of growth. As we mentioned, it’s been growing quite a lot the last few years. More states seem to be adopting it. And also, it’s become more attractive, with interest rates having increased over the last 18 to 24 months. I’m also curious, there’s been renewed focus on green energy, and green energy production because of the Inflation Reduction Act, which was passed a couple years back now. Has that bill had any sizable impact on the PACE financing industry?

Bert: Yes, it has, actually. I think it’s really important to note that we can stack inside… It is true. The Inflation Reduction Act, you know, has a number of bells and whistles in it that promote, in particular, renewables, solar and wind energy, and then also, I think, gives some bonuses for other kinds of green construction, in terms of, you know, accelerated depreciation, etc., etc. And I’m not a tax expert by any means. But it is true that that stuff dovetails with CPACE very nicely. If you’re putting solar on a building, you’re gonna be entitled to some credits, or an EV charger, or something like that for your multifamily project. Those are all CPACE-eligible costs. And in addition, you’re gonna be able to, under this act, have some tax credits, potentially, that can help you build your capital stack or improve your bottom-line cash flow. And so, we stack very well with all kinds of incentives, including these IRA incentives that you’re talking about. But we also stack with New Market Tax Credits, with Historic Tax Credits, with tax increment financing. So, anybody that is in a project that has those kinds of additional incentives, we work with that, and we in fact count it as equity. Because we understand that most of those incentives are not a call on cash flow.

So, yeah, we’ve seen a lot of interest. I personally have a long history in Low-Income Housing Tax Credit world, and I’m working with some developers to try to figure out how we can really align the interests of the landlord and tenants in multifamily rental deals, in such a way that it makes sense for you to actually wanna save energy inside your apartment building. That’s been a big problem. Not really a, I don’t think it’s intentional or devious in any way. It’s just structurally, there’s no incentive for a landlord in a multitenant building to pay much attention to energy efficiency if the tenant is paying the utilities, right? They’re controlling consumption, etc. And so, I have a, sort of a passion of mine is to try to preach the gospel of bills paid structuring, and not just in housing, rental housing projects, but potentially even in commercial buildings. Because, when you have a bills paid structure, then everybody is interested in trying to save energy, and save utility costs, and save operating costs. I myself did a building in Oklahoma City with geothermal. And I knew that geothermal was three times more expensive than a packing per ton. But, in that particular case, I experienced 60%, you know, energy reduction costs, in my building, for my tenants. And I had the leases structured in such a way that we could split that savings. And it gave me a marketing advantage. So, that’s what I’m hoping starts to take root, you know in the marketplace, as we move forward. And I think the, you know, some of these incentives are getting people thinking about that.

Jimmy: Yeah, that’s a great outcome to have, when these incentives can produce results like that. I wanted to shift gears here for a minute, just an adjacent, related topic. A lot of my listeners and viewers may be familiar with the LEED rating system and LEED certification.

Bert: Yes.

Jimmy: There’s a newer one, referred to as Cirrus Low carbon. What can you tell us about Cirrus? What is it, exactly, and how is it different than LEED?

Bert: Thanks for asking. And I’ll take just a few minutes talking about it, and so, all of this information is on our website, but we, because, I already mentioned we have to certify to the county that the money we’re going in, is actually going into CPACE-eligible costs. And because, in most states, they require that you do better than the normal building codes, we decided that it made sense for us to create a standard. And so, we worked with the New Building Institute. And LEED certification is fine. It certainly is a badge of something, in terms of sustainability. But it’s very expensive to get, and it doesn’t really just sort of simply measure energy efficiency. So, we came up with a design specification that we trademarked, and call Cirrus, like the clouds, that is a specification that we can give to your architects, or the developer can, we can work with your developer, and it has some things that are mandatory, that you might expect, that are already covered in most green building codes anyway.

But if you meet the Cirrus standard, we can literally discount your rate as much as 70 basis points. This is sort of a graphic that shows all the various, sort of, green programs out there, and certification programs. And ours, really, I think is one of the most straightforward, in that it dovetails with the rest of them. And, but it does actually yield a tangible benefit. Go to the next slide, if you would. Go ahead and go through that, to the next one. I’m gonna show you… This kind of shows a little bit about the mandatory measures, and then, you know, some of them relate to building an envelope, and some of them relate to gear, or equipment, if you will. But we do a, we actually, you don’t have to figure this out all by yourself. We do a business case cost-benefit analysis for every project that we do, because we price it, basically, at a standard rate. “And then we also say, if you’ll do these things, it’ll cost you, say, $50,000 more, but you’re gonna reap these benefits, including an interest savings that might be maybe a couple hundred thousand dollars.

So, I think there’s an example of that business case a couple sides down, maybe. Yeah. This is a hotel in San Jose, California, where they had a $40 million construction budget, and we ended up doing $7 million in PACE financing. It’s, we looked at their plans, there were five design changes required, that amounted to about $67,000. But you can see, over 10 years, the interest savings at 70-basis-point discount, plus energy savings over 10 years, plus the impact on property value, was almost a half million dollars. So, this is the kind of case study we go through, you know, routinely for our customers. So, I think that’s a good place to wrap up, and, you know, we, as I say, we do have a great website, and it’s, you know, it’s really a privilege to talk about CPACE. I’d be happy to talk with anyone that wants me to look at their deal. We have a very sophisticated model that can help size your project in pretty short order.

Jimmy: Yeah. Before we move on, I wanna talk about your OZ deal for the last few minutes we have in today’s episode, Bert, but before we do, I’m just curious. Just, can you just kind of wrap up the PACE discussion for us? Can you just summarize PACE as succinctly as you can? What’s your elevator pitch? Why should somebody bother with PACE financing?

Bert: I think you have to look at PACE because development is hard. And the costs are high, and we are a very… It all boils down to cost to cap. And we are a very attractive option in the cost of capital matrix. We’re much cheaper than mezzanine debt financing. We are non-recourse, and long-term, and fixed-rate. And we do have very flexible prepayment options. So, I think, fundamentally, anyone who’s doing a sophisticated project of any size needs to needs to see if PACE is available in their state, and if it is, call us.

Jimmy: Well said. Well, we’re running low on time here. We got a few more minutes to cover what you’re working on in Oklahoma City, the NE 4th St. District. Let me share that deck right now too, because you wanted to walk us through this for a moment, as well, Bert. What can you tell us about this project?

Bert: Well, this is a project I’ve only worked on for about a quarter of a century. But go ahead and go to the next slide. Downtown Oklahoma City has experienced a renaissance over the last 25 years. And we’re a pretty strong… There you go. We’re a really good example of how folks, you know, how a city our size has really transformed itself over the last 30 years. And we have assembled, over the last 20 years, a neighborhood that was cut off by the highway, about 20 years ago. And we’ve spent literally, as I say, 24 years and about 200 transactions to assemble over 30 net acres of real estate, in 15 blocks of property. It’s in an Opportunity Zone. It is in its own TIF district. And we can talk more about this later, but it is a project that I think its time has come for Oklahoma. I did, early on in my career, learned about the Opportunity Zones. I say “early on,” whenever it finally happened. Whenever Opportunity Zones became available, we were luckily included in one in Oklahoma, and in Oklahoma City. And so, what I’m doing particularly is working to raise capital to complete our assemblage, and then move this from a land development deal into a viable vertical mixed-use development.

We have zoning in place. We have most of the entitlements in place. If you go a couple slides, just to show the scale of it, relative… There you go. Some people that come to Oklahoma City will understand what Bricktown is. That’s their baseball park in the middle of Bricktown there, on the left-hand side. This is literally catty-corner across the highway. And easily, I think, reconnectable into the rest of downtown. It needs to be reconnected. To the north of us, is a health science center, and we are part of what is now called an innovation district, in Oklahoma City. So, again, I think it’s a deal whose time has come. We have a master plan, I think, that makes sense, if you go ahead and scroll a couple of slides, that focuses on inter-block development. We use the grid in some places, and we don’t use the grid in others, but we can leverage, through TIF, I think, create some really special places over the next few years. We know it’s not a overnight project, but because of the Opportunity Zone aspects of this, we’re hopeful to attract some long-term, patient capital that’ll help us move this project forward.

Jimmy: Looks like a beautiful project. And yeah, it’s been a quarter-century in the making. Bert, really appreciate you spending some time with me today. It’s been amazing learning about PACE. Nice little preview of your project in Oklahoma City. I’m a bit of a noob when it comes to the PACE stuff, so, appreciate your time and expertise. We got a couple more minutes. I wanted to just zoom out before we conclude today’s episode, and I’m just curious, given your level of expertise, your position in the industry, your experience, what do you feel are some of the most important trends in Opportunity Zone investing, or maybe you can broaden that, and call it all real estate investing, that you have your eye on, that you think investors should keep their eye on over the coming years?

Bert: Well, I think that Opportunity Zone legislation was really well-thought-out, and I hope that it’s extended. I believe it will be. I watched the LIHTC program, you know, go through a set of rolling sunsets in the ’90s. And when it finally was made permanent, that’s when the equity markets really paid attention. And I know that you’ve done a great job bringing attention to Opportunity Zones, but I think it’s important for that legislation to continue. I also think that, you know, that cities can be smart. They can also be very dumb about how they handle development. I think the biggest takeaway that I would say to you is that Oklahoma City is really, for those that pay attention, has become a model for responsible tax and spend. And we developed a program almost 30 years ago now, called the MAPS, Metropolitan Area Projects plan, and we essentially taxed ourselves, four times now, to the tune of almost a half-billion dollars each time, in the form of a sales tax. And then we essentially poured that money back into the city, for quality-of-life type projects, that we’ve built, without scandal, over the last 30 years. And if you come to Oklahoma City now, and if you hadn’t been here 20 or 30 years, you’re gonna be amazed. It’s the reason both of my kids are staying here, as 30-something-year-olds, and now my daughter’s almost 40. Tells you how old I am. But I’m really proud of Oklahoma City, and I do think it presents a model for tax policy, and for responsible community public-private partnerships.

Jimmy: Well, tremendous. Bert, thank you so much for sharing your insights today. It’s been a pleasure speaking with you. Before we go, where can my audience of Opportunity Zone investors and advisors go to learn more about you, and PACE Equity?

Bert: Well, we’re at www.pace-equity.com, and I’m at BBelanger, two B’s, E-L-A-N-G-E-R @ pace-equity.com.

Jimmy: Excellent. And for my listeners and viewers out there today, of course, as always, I will have show notes available for today’s episode on our website, at opportunitydb.com/podcast, and there I’ll have links to all of the resources that Bert and I discussed on today’s show, and I’ll be sure to link to his email address there as well. Also, please be sure to subscribe to us on YouTube, or your favorite podcast listening platform, to always get the latest episodes. Bert, again, it’s been a pleasure. Thanks so much for joining me today.

Bert: Jimmy, thanks for all you do.