While touted for nearly a decade as a pathway to provide for the expansion of renewable energy and other energy-efficient upgrades in the U.S. housing sector, Property Assessed Clean Energy (“PACE”) programs have generally not been thought to have met their full potential. One important impediment to the expansion of PACE has now been removed, however, with the U.S. Department of Housing and Urban Development’s guidance (the “Guidance”)1 issued on July 19, 2016 to allow for the Federal Housing Administration (“FHA”) to insure residential home mortgages which are subject to senior PACE liens meeting certain specified conditions.
While banks, hedge funds and other investment firms have long had interest in PACE as an asset class, the Guidance is expected to spur renewed focus in PACE bonds and PACE-related financings. In this client alert, we examine issues most relevant to parties considering providing financing secured by PACE assets and/or purchasing PACE bonds. Given the many existing PACE programs and expected development of new programs, it remains important that potential investors and finance providers carefully analyze the specific terms of a program before moving ahead.