I want to alert hotel owners and operators about a new approach to finance upgrades without burning cash or using a bank loan. PACE (Property Assess Clean Energy) has been in development for years but is now ramping and the largest project to date is a Hilton hotel project. In November 2013, the Hilton Los Angeles/Universal City financed $7 million of infrastructure improvement through PACE. The hotel estimates will reduce its utility bills by 50 percent with an improved guest experience. This article explains whether this is relevant to your business and how to get started.
Hotels owners wanting to implement major facility upgrades in 2014 and 2015 will soon realize that there is an increased pressure from utilities, local and state governments to either encourage or mandate energy efficiency. For example in California, the new Title 24 building code coming into force this year mandates a broad range of efficiency measures. While these measures reduce operating costs they are often more capital intensive.
PACE is a new way to enable hotels to become code compliant and energy efficient with an immediate cash flow benefit. PACE is a ‘public-private’ program. PACE enables zero cash down, off balance sheet financing with 20 year terms. This is designed for larger projects starting at $250,000. The interest rates are typically 6.8 to 7.2 percent. The loan term of 20 years is far longer than an equipment loan enabling the operator to be cash flow positive for the term of the financing. PACE is up and running in most of California and is gaining traction nationally with many states signed up to implement the program.
There are two main drivers operators should consider:
A. Energy efficiency and renewable energy. This includes: LED lighting, smart PTAC units, water efficient toilets, EV charging stations, and building control systems. Energy generation including solar PV and solar thermal technologies can be implemented. Solar systems can be placed on the roof or on a car port. It is possible to reduce utility bills by more than 50 percent and with PACE the owner can be cash flow positive.
B. Replacement of aging facility equipment and improving guest experience. It rarely makes economic sense for energy savings to early retire HVAC, a roof, elevators or windows. But if these systems need to be upgraded PACE can be used to finance new, more efficient systems. For example, upgrading to better insulated, double or triple glazed window can save energy by improve the guest experience by reducing noise.
Jonathan Pickering is Managing Director, K2 Clean Energy Capital, LLC. K2 Clean Energy Capital, a member of the California Lodging Industry Assn., is an engineering company that assists with technology selections, collecting rebates and securing PACE financing and construction. He can be reached at info@k2cleanenergycapital.com or by calling (408) 893-8321. Those interested in learning more about PACE in California can register for the “Enhance Guest Experience and Improve the Bottom Line” hospitality event on March, 27, 2014 at the ACE hotel in Los Angeles.
