More than $250 million in private sector investment for energy conservation upgrades to 120 private business in 39 Colorado counties has been facilitated by a special district formed by the Colorado General Assembly in 2010.

The Colorado New Energy Improvement District (NEID) was formed to oversee and approve loans through the Colorado Commercial Property Assessed Clean Energy Program (C-PACE). C-PACE enables the owners of eligible commercial real property to invest in new energy improvements, and to assist owners who choose to join the district in completing the improvements to their property, according to the state’s website.

Building owners can modernize building energy infrastructure, lower energy costs, increase building comfort and asset value — with no upfront costs while enjoying positive cash flow. C-PACE projects also advance public policy goals to create local jobs, reduce greenhouse gas emissions and increase renewable energy deployment, according to state officials.

“The annual energy cost savings will, in most cases, exceed the annual assessment payment, thereby enabling capital intensive equipment upgrades,” according to state’s C-PACE website.

The district is unique because it’s not a geographical district, it’s a taxing district composed of commercial property owners who voluntarily join the district to gain access to funding for energy improvements to their properties.

What’s also different about this district than other special districts is that it levies assessments on included properties to repay loans obtained from private investment sources, including more than 50 banks, over up to 25 years.

The assessments take the form of property tax assessments, much like sewer system assessments, that are collected by the county tax assessor in the county where the building is located.

Participants — including primary mortgage holders — agree to have the assessments, which are actually loan payments to the private lenders, put on their property tax bill.

The benefit, according to Tim Leonard, president of commercial real estate development and management company Deepwater Point Company, is that private lenders are more willing to loan money for the improvements. As a tax lien it gives lenders a higher degree of security for their loans than they might otherwise see in a strictly private transaction. That’s because any new owner continues to pay the tax assessments for the loan.

“Much greater security. And it puts them in a priority position they would never be able to do, if it were like any other normal mortgage,” Leonard said in an interview with The Denver Gazette.

It’s prudent that the existing mortgage holders have to give consent to the NEID priority over other loans and debts that might be owed on the property, Leonard said. In short, the new energy loan is bumped to the top of the list when it comes to who gets repaid, and when, in the event of a default such as a bankruptcy.

And that’s why NEID exists. Ordinarily, in a private transaction, such a loan would remain at the bottom of the priority list behind, for example, the primary and/or secondary mortgage holders.

But by running the money through NEID it becomes a government property tax debt, and government debts usually take priority during defaults, bankruptcies, and at tax lien sales.

This system of funneling loans to businesses through the NEID follows a nationwide program for funding energy improvements, used in at least seven states, called Commercial Property Assessed Clean Energy” (PACE).

Colorado’s version, C-PACE, brings eligible property owners together with private investment sources to fund up to 100% of new energy improvements with loans that can be paid back over up to 25 years.

The program is administered by Sustainable Real Estate Solutions (SRS), a Louisville, Kentucky, PACE management company retained by NEID at a cost of $310,000 in 2022, according to a state audit. SRS gets 2.5% of a project’s finance amount, up to $75,000 per project.

The program is supposed to be self-sustaining, but the state has issued $254,093 in grants since 2017 — including a $141,447 grant in 2022.

Projects completed by the program so far run the gamut from small businesses like John’s Cleaners in Boulder, which borrowed nearly $126,000 in 2016, to Santa Fe Drive Development LLC, which borrowed nearly $10 million in March 2021, and the U.S. Olympic & Paralympic Museum in Colorado Springs, which “retroactively” borrowed $8.4 million from C-PACE in January, according to NEID records.

While NEID has authority to issue up to $800 million in bonds, it has not done so to date, according to NEID officials.

Building owners go through a process guided by SRS that assists in originating, underwriting, and closing projects using its on-demand building energy and sustainability performance assessment, benchmarking, underwriting, measurement, and verification solutions through its Sustainable Real Estate Manager® platform.

The vetting and approval of a project, and financing commitments from capital providers, takes place before NEID gets involved. Once the application is complete, SRS submits it to NEID where the loan amount is approved by the NEID Board of Directors, and the assessment is recorded with the local property tax assessor’s office. County tax assessors get a 1% fee for the service.

SRS said it provides C-PACE programs with a streamlined, standardized, technically sound, and transparent underwriting methodology that has earned the confidence of contractors, building owners, mortgage holders and capital providers around the country.

“This proven project underwriting methodology has facilitated the development of over $650 million of PACE projects nationwide,” according to SRS’s website.

NEID is governed by a seven-member Board of Directors appointed by Gov. Jared Polis that includes representatives from the Colorado Energy Office, the real estate development industry, banking, the energy efficiency and renewable energy industries and public utilities.

Current board members include:

• Michael Turner, chair – director of Strategic Initiatives & Finance, Colorado Energy Office
• Eric Cowan, recording secretary – associate Finance Program manager, Colorado Energy Office
• Grant Nelson – partner, Integro Strategic Finance
• Sean Ribble – director, Greenworks Lending
• Matthew Baldner – regional president for Denver Metro, ANB Bank
• Hillary Merrill Dobos – principal and co-owner, Lotus Engineering and Sustainability
• George McGuirk – technical consultant, Xcel Energy
• Stephanie Greene – managing director – Carbon Free Buildings, RMI
• Rachel Mountain – co-owner at Namasté Solar