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PACE Financing for Real Estate with Scott Krone - CREPN #235

Commercial Real Estate Pro Network

Release Date: 02/13/2020

PACE Financing for Commercial Real Estate with Mansoor Ghori - CREPN #249 show art PACE Financing for Commercial Real Estate with Mansoor Ghori - CREPN #249

Commercial Real Estate Pro Network

My guest is Mansoor Ghori.  Mansoor is the co founder and CEO at Petros PACE Finance. And in just a minute we're going to speak with him about PACE financing, what it is, and how it can help commercial real estate investors.

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BIGGEST RISK with Mansoor Ghori show art BIGGEST RISK with Mansoor Ghori

Commercial Real Estate Pro Network

So I'll kind of dress this from a PACE perspective because I think from For more of a higher level perspective in terms of the economy, etc. I don't necessarily see a downturn in the economy as a risk to the PACE in which you actually think that is an opportunity. Because all the rest of the money in the capital is going to get tighter. And PACE will provide an opportunity for them to help them get projects done even in a downturn.

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Raising Money for Multifamily Syndication with Dave Morgia - CREPN #248 show art Raising Money for Multifamily Syndication with Dave Morgia - CREPN #248

Commercial Real Estate Pro Network

Today my guest is Dave Morgia. Dave is raising money for multifamily syndication. He's based in the Big Apple, New York City. And he's also the host of the podcast Making Money in Multifamily. And in just a minute, we're going to talk with Dave about raising money for syndication.

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BIGGEST RISK with Dave Morgia show art BIGGEST RISK with Dave Morgia

Commercial Real Estate Pro Network

I'm going to interpret this one as the biggest risks to myself. And my pride. And basically that I have now over the last year exposed myself into this field and made it public through these channels, whether it's a meetup or a podcast or, you know, Instagram, whatever social media. So the, the fear that goes along with failure is the biggest risk to me because I pretty much don't want to be able to say that I didn't do it. I don't want to have my tail between my legs and say that I failed.

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Multifamily Value Add Investing with Lee Fjord - CREPN #247 show art Multifamily Value Add Investing with Lee Fjord - CREPN #247

Commercial Real Estate Pro Network

Today my guests at Lee Fjord. Lee is a multifamily real estate property manager syndicator real estate investor and he's based in the arch city, St. Louis, Missouri. And in just a minute we're going to speak with Lee about finding value add deals in your local market. But first a quick reminder, if you like the show, C R E P N Radio, please let us know you can like you can share subscribe. And as always leave a comment we'd love to hear from our listeners.

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BIGGEST RISK with Lee Fjord show art BIGGEST RISK with Lee Fjord

Commercial Real Estate Pro Network

I would say the BIGGEST RISK in our business in this business of commercial multifamily is is interest rate risk. I think right now. We are at a wonderful place in time and economy with respect to our ability to get low interest rate loans with very, you know, high value to purchase or low downpayment purchase properties, low interest rates, and I think that you know, cap rates in the valuation of commercial property is directly associated with those.

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Real Estate Syndication with Gene Trowbridge - CREPN #246 show art Real Estate Syndication with Gene Trowbridge - CREPN #246

Commercial Real Estate Pro Network

Gene Trowbridge is a commercial real estate broker, CCM syndicator. An author, he wrote the book, it's a whole new business. He's a speaker, a real estate attorney, and a founding partner at the corporate securities law firm Trowbridge, Sidoti LLP, and an expert in real estate syndication. And in just a minute, we're going to speak with Jean about syndication law, and the issues with regulation, the private placement.

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BIGGEST RISK with Gene Trowbridge show art BIGGEST RISK with Gene Trowbridge

Commercial Real Estate Pro Network

Okay, well, you talked about avoiding minimizing and transferring. Okay? So avoiding the risk. In my best legal language; Don't do this!  That's how you avoid the risk of being a syndicator. Just don't do it. And what is the biggest risk, the biggest risk is really, the investors. Never the property properties will get empty and go into foreclosure and all that you can always deal with that.

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Commercial Real Estate Lending with Leslie Smith - CREPN #245 show art Commercial Real Estate Lending with Leslie Smith - CREPN #245

Commercial Real Estate Pro Network

My name is Leslie Smith. And I, my background really started in banking, like many people, but I started in the call center area. So I ran a call center for many years and then moved over to lending for a private company. And the reason I found that interesting is because if anybody's worked for a bank, you know, there are a lot of restrictions. Innovation is tough, and in product development and managing a team and making decisions.

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BIGGEST RISK with Leslie Smith show art BIGGEST RISK with Leslie Smith

Commercial Real Estate Pro Network

I think what's really important when We see investors, one of the things that it's hard for us, and when we're trying to when we're when I mentioned earlier about the story is that, you know, they don't really know what their objective is as an investor.

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More Episodes

PACE (Property Assessed Clean Energy) Financing is a finance tool every real estate investor needs to know about to help acquire or renovate your property.

Scott Krone, principal at CODA Management Group, a real estate design & design firm.  CODA as designed & built single family, multifamily, commercial property convert to mixed use, and churches. Most recently, CODA has focused on re-adaptive use, converting empty warehouses into self storage facilities.  

PACE Financing 

Property Assessed Clean Energy (PACE) is accessed through the US Department of Energy, but not widely available throughout the country.  To access PACE Financing, the state where the property for which the funds will be utilized must be located in a state that has adopted the PACE program.  

The purpose of PACE is to encourage and improve the energy performance of a structure or building.  The money provides financing of these improvements through real estate taxes instead of traditional debt.  This structure changes the picture of debt for lending, as lenders look at the obligation as equity versus a liened debt position against the property.  Your payments are now operational, property taxes. Banks love it!

There are two forms of PACE financing; public and private.  Public is run through the Port Authority. Private 

PACE Structure

The structure of Pace financing is similar to traditional debt financing in that the principal & interest which is spread out over the life of the improvement.  For instance if the HVAC system has a life expectancy of 20 years, they will amortize the payments over 19 years.  

Like any construction project with financing, the monthly draws are submitted to the bank after the work has been completed.  For those elements that are recognized as energy related and included under the PACE financing, a separate draw is requested.  

Your PACE payments are an additional tax assessment usually split into two annual payments.

Tax Structure with PACE

The tax structure for PACE provides multiple benefits.  

  • Funding for your qualifying project needs is provided as a loan through PACE.  
  • Repayment is spread out over the life expectancy of the improvements.
  • PACE financing is considered equity, not debt.
  • Lower capital raise from investors.
  • Property taxes are frozen for the duration of the repayment schedule.
  • PACE financing and property tax lock is transferable.

PACE Eligible Components

The list of qualifying building components look to three areas for improvement; water, energy and renewal energy.  Structural components are generally excluded, however a new roof with additional energy saving insulation is included.  An easy way to think of what is qualified, is to think of LEED certified buildings and the components.

Capital Stack with PACE

In a typical property purchase with debt, the borrower brings the down payment, equity and borrows the balance from a lender.  For PACE qualified projects, your down payment can be lowered because the PACE financing is recognized as equity in the project.  For instance:

Project Total $1,000,000

Down Payment: $   150,000

PACE Financing: $   150,000

Debt Financing: $   700,000 

Typically PACE can provide up to 20% of the appraised value of the property after construction.  

While you have 30% equity in the project, your investors only had to raise 15% of the equity, which dramatically increases the return on the project to your investors.

PACE Lender

To qualify for PACE, you first have to establish a baseline for the existing building systems in place.  Once the baseline is established, the systems to be replaced are evaluated for the estimated savings. CODA has worked with Petros PACE Financing, a lender that specializes in PACE.  

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

 

BIGGEST RISK:

Well, you know, people ask me about this in terms of real estate, what's going to happen with the economy, as you know, with political elections, what is it going to go up or down a recession or continue in this? You know, We're in one of the longest expansion periods in a long time. And for me, on a national level, I don't see that there's going to be a lot of risk within real estate as a whole. 

Based upon the interest rates, I think if the market does begin to slow, you know, the Fed is going to lower the prime. We wait. We may get down to two or even zero interest rates just to keep the economy going. So from that perspective, I think that real estate is still a solid play. 

But if I'm looking for us. What we have determined internally is that there's too much political instability here where we are in Illinois. And so what you were saying in terms of like, can we can we avoid it? You know. 

Illinois is having a decrease in population of 6 percent over the past 10 years, which is putting a greater burden on the people that are remaining. And we have the pension problems. And, you know, historically, you know, people say, well, you know, they just did a bunch of things to approve legislation which are basically sin taxes. 

But my concern is the money is not actually going to pay off those pensions. It's just going to be used to spend in other areas, which is historically have happened in Illinois for the past 20, 30 years. So why is it going to be different? 

What we have done is we've stopped buying in Illinois. And for us, that's how we are mitigating or perhaps even transferring because we're looking at states that are more tax progressive and where we're seeing growth. 

And so that is what we're trying to do is and that's why we've expanded throughout the Midwest. That's why we have the properties in Ohio. We're looking in Louisville or we're looking in Kentucky. We're looking in North Carolina. We're looking at Michigan. 

We're looking at places that are trying to encourage economic development. So either through PACE the Opportunity Zones or the tax benefits for it so that we have greater stability and less risk.

For more go to:

Website: www.codamg.com