SAN FRANCISCO — San Francisco has started a program to finance energy efficiency in commercial buildings through loans backed by property taxes.

The city has green-lighted up to $100 million in financing for an “open market” Property Assessed Clean Energy, or PACE, program, which will help secure bank loans to commercial property owners through competition. The loans will be repaid by a special tax assessment on the property that may extend for up to 20 years.

The GreenFinance SF Commercial program extends to retrofitting buildings for energy efficiency, renewable energy and water conservation.

San Francisco public finance director Nadia Sesay said the program has stringent underwriting requirements and contains no exposure for the city.

It requires written consent from existing lien holders before a project is approved.

PACE “is meeting the objective of trying to find the middle ground for the participants and the mortgage industry,” Sesay said.

She said the city is awaiting clarification from the Federal Housing Finance Agency before it moves ahead with a similar residential program that could include bond issuance.

Officials expect a potential for aggregation and securitization of the loans in the program and early projects will be able to leverage the federally funded debt-service reserve fund, according to the city’s website on the program.

So far 27 states have approved PACE-enabling legislation, which was initially designed for both residential and commercial properties.

But many cities and states have backed away from the residential side of the program after the FHFA told Fannie Mae and Freddie Mac not to buy mortgages with PACE-type liens attached because of a lien’s priority over mortgages when homeowners default.

Some municipalities have moved ahead using revenue bonds to back the commercial side of the program, though some investors have been concerned about debt backed only by a mortgage lien.

Different issuers have offered different credit enhancements on bonds sold to fund the commercial program. For instance, Boulder County, Colo., one of the first PACE issuers, uses an appropriation pledge and Ann Arbor, Mich., plans to use a special tax assessment.

San Francisco has contracted with Renewable Funding, an Oakland-based PACE firm, to assist with the program, which was developed with help from the Clinton Climate Initiative, the U.S. Department of Energy, and the California Energy Commission.

Similar programs in California exist in Los Angeles, Placer, and Sonoma counties.

The approximately 16,000 commercial buildings in San Francisco are responsible for half of its energy usage and more than 25% of its carbon footprint, according to San Francisco Mayor Edwin Lee’s office.

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