The new Emerald Cities Seattle RENEW program, explained in 4 easy lessons

Written By: Stratton Report
December 18, 2015

Renew

On December 3, Emerald Cities Seattle launched its first projects under the RENEW multi-family housing program, designed to upgrade the energy efficiency of low income housing units in the city. The first buildings out of the gate with this program are the St. Charles Hotel and the David Colwell Building, both owned by the not-for-profit Plymouth Housing Group.

The Stratton Report caught up with Steve Gelb of Emerald Cities Seattle and learned how the program works. According to Gelb, it was designed to overcome four barriers that in combination were almost total obstacles to performing energy upgrades at Seattle’s low-income housing buildings.

 

Emerald cities

 

Barrier #1—Making energy upgrades (LED lighting, sensor-driven lighting controls, hot water heating controls, optimization of ventilation, low-flow plumbing fixtures, etc., etc.) at affordable housing units owned/administered by not-for-profit organizations is a complex process that takes time and effort to traverse. Clearly far more upgrades would actually occur if there were a knowledgeable guide to help these organizations through the process.

Solution: Emerald Cities Seattle stepped up to take on the role of guide and advisor for the organizations. Gelb remarks: “As the RENEW program [consultation process] grew everybody identified us as the guys with the expertise in the area who had not only the ability but also kind of a responsibility to take that on.”

Barrier #2—The first step in performing an energy upgrade on a building is to get an energy audit from a professional engineer, which can cost $10,000. The not-for-profit organizations owning/administering affordable housing in Seattle rarely had that kind of money to spend on an audit—especially since the audit may not show enough potential energy savings to justify the whole process. The cost combined with the uncertainty of the outcome were daunting.

Solution: Emerald Cities Seattle went to the Sustainable Path Foundation and got money that was used by Emerald Cities to pay half the cost of the audit, lowering the cost and thus mitigating the uncertainty.

Gelb explains:

“So we’ll go in and do an assessment and we have ways for doing it for much less than the $10,000. But we’ll pay for half of it, if the project goes through you pay us back. Because we believe there is a good project because we’ve analyzed your bills, and your energy stuff but we’re basically taking responsibility and taking some of the risk that we’ve given some advice.”

Per the program’s design, these funds will be repaid when the resulting projects receive their “permanent” financing.

Barrier #3—Most not-for-profit organizations do not have the cash on hand to perform the work of energy upgrades, and find it very difficult to take on debt to do so. This is because most affordable housing is financed by tax credits in combination with city funds and state funds, and bank loans to fill the gap and so on and so forth. The buildings therefore have pretty complex financing structures with multiple secured lenders and intercreditor agreements. As a result, the building administrators typically don’t want to go through the very laborious process of obtaining the approval of all the current lenders on the building that would be required in order to take on additional debt.

Solution: Emerald Cities Seattle approached Impact Capital and got the equivalent of a construction loan to pay for the costs of the upgrade—including, potentially, the costs of the energy audit to the not-for-profit building administrator.

According to Gelb: “We went to Impact Capital and said ‘We have a need for short term financing, to essentially lend the building owner money, to do the assessment and then other development work to get these projects going.’ And within 6 months, if the project happens and is executed, then that lending can be repaid out of the project financing itself. Impact Capital was able to set us up with what is essentially a line of credit, which we draw off of specifically to pay for the ongoing development.”
These funds are typically repaid when the “term lender” takes out the construction loan.

Barrier #4—Permanent financing was needed to lower the ongoing impact of the cost of the upgrades.

Solution: The Washington State Housing Finance Commission provides an unsecured capital lease that serves as long term financing for the projects. The lease payments are collected via Seattle City Light bills—and the cost of the lease payments is of course offset by the lower energy bills. The lease funding also repays Impact Capital and Emerald Cities Seattle so that it can continue to fund its half of new building energy audits.

This approach is of course somewhat analogous to a PACE loan—but as Gelb explained, Washington does not have a commercial PACE program, so Emerald Cities Seattle had to step in.

The RENEW program with its unsecured capital leases from the Washington State Housing Finance Commission is also analogous to those of the Connecticut Green Bank in the sense that in both cases public agencies provide subordinated loans/unsecured capital leases at subsidized rates to make green projects happen.

Gelb notes: “I think Connecticut is way out ahead of most other places by doing that kind of program. Our RENEW program is not going to be of that scale, for sure, and I don’t think the Housing Finance Commission is looking to [recycle its funding by selling off its leases in the way the Connecticut Green Bank has sold off its portfolio of liens to a private sector investor]. They have specifically set aside funds from other programs for this purpose. But if the program expands significantly, they have the option to sell the public bonds to build the funds to support this. And they have mentioned that is a possibility in the future. But it’s not what’s happening today.”

Photos by Michael B. Maine