Vermont Legislature SmartTranscripts:

[Rep. Kathleen James (Chair)]: We're live. Hi, Amanda. Amanda, hi, can you hear us?

[Rep. Christopher Howland (Member)]: She can't hear you.

[Amanda Samai (Managing Director, CastleGreen Finance)]: Hi, yes. Hi, hi. Hi, Can you hear me?

[Rep. Kathleen James (Chair)]: Yeah. We're going to go around the room and introduce ourselves and then we'll turn it over to you.

[Amanda Samai (Managing Director, CastleGreen Finance)]: Terrific. Thank you.

[Rep. Kathleen James (Chair)]: Great. All right. Welcome back, everybody, to House Energy and Digital Infrastructure. We are working on S138 and learning about the C PACE program. I'm representative Kathleen James from Manchester.

[Rep. R. Scott Campbell (Vice Chair)]: Scott Campbell from Saint John Barry. Richard Bailey, Memorial two. Chris Morrow, Windham, Windsor, Bennington. Michael Caledonia two. Christopher Howland, Rutland four.

[Rep. Dara Torre (Clerk)]: Dara Torre, Washington two.

[Rep. Bram Kleppner (Member)]: Graham Kleppner, Chittenden Thirteen, Burlington. Laura Sibilia, Windham two.

[Rep. Kathleen James (Chair)]: Great. And joining us?

[Dana Lee Perry (McCrasson Group)]: Dana Lee Perry with the Crasson Group. Nick Chittenden with Downs Rackland Market.

[Rep. Kathleen James (Chair)]: Great. Amanda, over to you. If you could we are just at the beginning of our testimony on s one thirty eight. So all we've done so far is walk through the legal language with our legislative council. And so we have a I would call a vague understanding of the statutory language. And so we are really anxious to hear from you guys at a higher level about what CPAs programs are, how they work, why they're beneficial, and all the perspective that you guys bring to the table. So if you could introduce yourself for the record, and we are anxious to hear from you.

[Amanda Samai (Managing Director, CastleGreen Finance)]: Great. Thank you. Good afternoon, everyone. My name is Amanda Sami. Am Managing Director of PACE programs at Castle Marine Finance, which is a C PACE origination firm. We operate nationally wherever programs are in that, excuse me, enacted. And I'm excited to be part of the process and appreciate you taking the time to review this sort of very impactful type of financing. Senate Bill 138, and with a proposed amendment, which we can talk about in a moment, will update the state's existing PACE statute. I know that I listened into some of the discussions previously and the biggest difference here is that this is a commercial program, not a residential program and I'm happy to answer any questions about that. But we believe and have seen the impactful nature of PACE financing for commercial property owners, as they look to develop properties, either through new construction or through renovations or improvements to existing structures to increase properties, operational efficiencies through energy efficiency improvements, through sustainability, or even resiliency. And we can talk about some of the resiliency efforts that we've seen that have been impactful. Most of those in states like Vermont center around water, either water conservation or stormwater runoff from that perspective. So the updating of the Vermont statute would bring it in line with the 38 other states that have passed commercial PACE statutes and modernize it. And this type of financing is very often used in conjunction with another type of financing through a mortgage lender, more traditional real estate financing. And one of the important provisions that we discussed previously, or was discussed previously was lender consent, which is important. And the reason that we like to see lender consent is because the lenders of the property, the lenders to the property have to sort of understand fully the amount of leverage the property owner is willing to take on and how those programs can work together or against each other. And lender consent is sort of very important here, the entire PACE program as it's presented is a voluntary program, property owners request to receive private capital under the C PACE program and the municipality would vote to allow this type of financing to be available to its constituents. And its participation is through as was discussed levying of the special assessment through the property tax process. But the private that but the capital is all private, and it's there's no pledging of the balance sheet of the municipality and there's no sort of credit impact to the or private or public monies that are being utilized for this type of financing. The amendment as I mentioned previously that we'd like to be considered is to section thirty two seventy six F, which currently addresses the combined C PACE and mortgage financing can exceed 90% of the assessed value. That was an oversight. It should have been corrected previously to read 90% of the appraised value as complete and stabilized. And the reason this amendment will be very impactful is that for new construction assessed about property values often significantly lag. So if the property owner were to be constrained by the 90% of the assessed value that would be very little financing available to them because of this. So when we most the other states that have modernized that address this contemplate that it's of the appraised value which envisions that the property was built and that it's stabilized and fully operational. And that's the 90% of a set of appraised value that we'd like to consider as an amendment. And what that does is also it allows the property owner to work with their mortgage lender because all mortgage lending is done on the same sort of premise. The mortgage lender also looks at what will this property be as built and as stabilized and how much are we willing to lend to that property with that in mind.

[Rep. Kathleen James (Chair)]: So it's like, it's saying that the C PACE loan won't be constrained by the assessed value, which is that lower undeveloped thing, but rather sort of as complete or as built.

[Amanda Samai (Managing Director, CastleGreen Finance)]: That's correct. Yep, an appraisal would be obtained you know, and that's what mortgage lenders and that's what CPA's financing firms use to determine how much they're willing to lend into these properties. So it's a very traditional sort of underwriting, procedure, but the assessed value of the property as the property owners entering into that into this is likely to be very low if it's an undeveloped piece of property. Right. So the assessed value will lag and the assessed value will ultimately assume that there is now a hotel or a multifamily building on that lot when it when they sort of go through their reassessment procedures.

[Rep. R. Scott Campbell (Vice Chair)]: You use the phrase appraised and stabilized. Is that the phrase we should use? Is that the sort of accepted?

[Amanda Samai (Managing Director, CastleGreen Finance)]: That's the accepted, that's correct. And that's what mortgage lenders use. It's a well known sort of there's FOREIA and AIA compliance appraisals that the mortgage lending groups use and that we use as the same. So when we think about a property with a mortgage or a contemplated mortgage, we like to create efficiencies for the property owner and work with that mortgage lender to sort of use the same documentation that they have used, use the same procedures and underwriting because ultimately this type of financing is very similar to a mortgage, except for the provisions that as you noted in sub chapter three that here the property owner agrees as does the lender that the C PACE assessment will be senior, the C PACE assessment to the extent of the annual payment that is due only the annual payment is really deemed to be senior to the mortgage and upon you know, a non payment of the property owner of that assessment. Unlike a mortgage, the entire amount of the assessment is not doing payable only the annual amount, including any fees or penalties that would other accrue accrue based on the financing agreement with the property owner and the lender or otherwise sort of allowed by statute with regard to property taxes would be due as an annual payment. The consent of the lender is something that we always require. You want the you want the lenders to be on board, you want them to understand how much the property owner wants to obtain in financing and that consent of the lender is completely voluntary as well. So banks, other non bank lenders are sometimes constrained not just by what they think the property should be, what they should lend to the property, but by internal constraints such that they generally are never able to satisfy the full amount of financing that a property owner might need for their project, allowing for another lender to come in and satisfy that that's fairly typical in the commercial real estate lending world. And that and by enacting this at the state level and allowing municipalities to participate in it, you open up another pocket of financing for these developers and these property owners, they might use pace, they might use another type already available to them, but this gives them another option to complete their capital stack to get projects built. So, if there's any questions I can facilitate or answer or be helpful with, we've seen it be very successful. We have a sister company here that provides mortgage financing under a USDA lending program. They as well as we have had numerous inquiries into the state of PACE in Vermont. That sister company focuses on underserved and rural communities. So there is significant appetite for this and they often will work with a PACE component of the capital stack to give the property owner all all of the capital that they need to develop their project. So we really see it as impactful financing for properties to get them over the finish line. And from perspective of the sustainability and resiliency and efficiencies, the standards that you mentioned and that are in sub chapter three are very common across all these states. They create operational efficiencies, they help property owners save money by allowing them to get financing to put in these sort of very impactful energy saving components or renewable components or even resiliency, which most states that had earlier pay statutes like Vermont who passed it very, very early on with a focus on residential. They've modernized their statutes to allow for resiliency given the impacts that we've seen more recently attributable to floods and even hurricanes, wind out in California, that's fire and earthquake and other types of seismic measures or resiliency that that's impactful for property owners. So we appreciate the opportunity to be in support of this bill. We think that as amended with that change to the from assessed to appraised value, this could be very impactful to local communities, the economic development and also to the property owners that really want to put these improvements into their property.

[Rep. R. Scott Campbell (Vice Chair)]: I have a couple of questions before we go. I

[Rep. Kathleen James (Chair)]: have a ton of questions. No, you go first.

[Rep. R. Scott Campbell (Vice Chair)]: One is probably obvious, but if a property owner made a partial payment on their annual or biannual property tax bill that included the PACE assessment, then the first what what whatever part of that payment was due to MACE payment, that would be taken off first and the mortgage lender would see whatever's left.

[Amanda Samai (Managing Director, CastleGreen Finance)]: No, the mortgage lender, so they run separately, the mortgage lender will have their own agreement with the property owner as to what their prepayment functionality is, whether they can, if and when they can prepay their mortgage that's completely separate. If a property owner makes a prepayment oh, under I'm sorry.

[Rep. R. Scott Campbell (Vice Chair)]: I was not talking about a prepayment. About if the owner was not able to make the full property tax payment when it's due, but they made a partial payment, then that partial payment would first go to cover the C PACE part of the assessment. Is that correct?

[Amanda Samai (Managing Director, CastleGreen Finance)]: So what we typically see municipalities do when you get to that level is if a property owner does not pay in enough to cover the full PACE payment amount, we will often see that the municipalities will require the money that the property owner sent to first pay down the municipal real estate taxes with anything left over going to pay down the PACE property assessment. And if there is an amount outstanding at that point that on the PACE assessment, then the amount that is still outstanding, and I'm not sure how it works in Vermont, if you can make partial payments of your taxes and assessments, or if the, I don't know if they take what they can get or they send it all back and say you haven't made a payment because you didn't make it in full. That's something that we sort of look at at the local level, but if they did not make enough to cover the PACE assessment, then that portion would be considered delinquent and would follow the same procedures as it would by statute, which is the same as what a special assessment, either a fire or a sewer or a real property tax delinquency would look like in that jurisdiction.

[Rep. R. Scott Campbell (Vice Chair)]: Okay, so I actually, I get that was confused about the mortgage and the property tax part, but that now I understand what you're saying.

[Amanda Samai (Managing Director, CastleGreen Finance)]: And often a mortgage lender may escrow, they escrow their mortgage payment, which they pay monthly as you noted previously, mortgage payments are typically made monthly, they may require that the property owner escrow a monthly portion of the PACE assessment. However, the PACE assessment is only built on the property taxes at the frequency at which the jurisdiction bills, which I think is twice a year, once or twice a year, depending Typically. On

[Rep. R. Scott Campbell (Vice Chair)]: One other question, another topic is, it did not appear on first read through of the bill that there's any sort of requirement that the efficiency measures or renewable energy measures are financed in cash flow positive way. That would be the goal, I'm sure, but there's not a requirement in here that I saw. Is the way other states do see PACE?

[Amanda Samai (Managing Director, CastleGreen Finance)]: That's correct. Because while you may have some improvements that prove to be immediately accretive to a property owner, there are others that still like resiliency, for example, add to the property value, but don't result in a dollars of operational savings that you might see in that way. So it's hard to limit them from that perspective and states that had previously tried to do that, where they were only considering energy efficiency improvements have subsequently gone back and amended statutes to remove that provision because it was very limiting from that perspective.

[Rep. R. Scott Campbell (Vice Chair)]: Okay, great. That makes sense. I just want to make sure I understood. Thanks.

[Rep. Kathleen James (Chair)]: Yeah. Of course. Rip Kleppner and Laura.

[Rep. Bram Kleppner (Member)]: Can you explain to me why a commercial property owner would choose to borrow money this way instead of borrowing directly from a lender? And the other half of that, why would a lender choose to lend through a CPAGE program instead of lending directly to the property owner? So

[Amanda Samai (Managing Director, CastleGreen Finance)]: we have a sister company that does mortgage lending, that's not what we are, we are a CPAs lender and the difference lies in the security provisions. Because the CPAs is levied in the land records and it follows the property, not the property owner, it's a slightly different type of underwriting. If the property owner chooses to sell the property and a new property owner steps in and would like to leave that financing in place, can do so seamlessly, there's no re underwriting of the new owner because the property has already been underwritten. So it provides some flexibility for property owners that they don't have with a mortgage. And it often what we find is that there are multiple types of capital that fund projects that are going go into the, you know, the sources of capital. It's unusual for a lender, one lender to fully satisfy all of the capital needs of a property owner as they're, let's say constructing a property. So they might have internal constraints that don't allow them to exceed a certain percent of leverage, but they're okay with the property and are going out and obtaining other types of debt to finance their property up to some percent, which then they want to see equity behind that. So it's very common, you often see senior lenders with then mezzanine debt, or you know, BPs lenders behind them. So banks will allow and non bank lenders will often allow another lender into the structure, because they sometimes just can't fill what the property owner needs to make the property pencil to make the property work. And if a property owner is able, as a property owner, they're going to go out and try and increase the efficiency of their building project and get the lowest and the most funds that they can get for that. And if there is a gap that they need to fill, they'll look to alternative sources and PACE is one of those, because PACE can only be used to finance energy efficiency, resiliency, renewable, the amount of capital that's available to property owners under a PACE program is limited in and of itself, because not 100 of every project will be eligible by those parameters. So there's typically a more traditional commercial mortgage lender and then if the property owner still has a need, they would seek out this type of financing. So again, it's an it's an alternative for property owners above and beyond what they currently have, which are other types of sub debt or mezzanine debt.

[Rep. Bram Kleppner (Member)]: And one follow-up question, which I had earlier, commercial loans typically ten or twenty years, C PACE loans, what's the typical term and what's the sort of max term you've seen?

[Amanda Samai (Managing Director, CastleGreen Finance)]: Typical terms are between twenty and thirty years. They're meant to align to the estimated useful life of the improvements that are being financed. So mortgages, you'll often see a stabilized property with a mortgage twenty to thirty years as well. So so they sort of align from that perspective. But in all instances, you want the financing to align with the estimated useful life of the improvements that you're putting in.

[Rep. Bram Kleppner (Member)]: So a lender lending through C PACE is willing to lend for a longer term than traditional commercial lending?

[Amanda Samai (Managing Director, CastleGreen Finance)]: I would say commensurate with commercial lending, like you can get a commercial loan twenty to thirty years if it's a stabilized property construction loans tend to be shorter. But a property owner might go into a project with a with a three year construction loan with two one year extensions, but a twenty five year CPAs financing. And that twenty five year CPAs financing was fully amortizing over that twenty five years creates a profile that when that property owner goes to refinance the construction loan, they can either find a lender to take out the entire capital stack, which would be the construction loan and the PACE, or they could choose to possibly leave the PACE financing in if they like the rate and they like the terms of it. So it gives them, you know, it's very flexible and gives property owners maximum, you know, sort of optionality from that perspective.

[Rep. Bram Kleppner (Member)]: Great. Thank you. Mhmm.

[Rep. Christopher Morrow (Member)]: Morrow? Seems like this is more geared towards larger projects. What would you say would be like the smallest kind of project that you would finance for something like this?

[Amanda Samai (Managing Director, CastleGreen Finance)]: So the PACE projects, it varies by lender. Some lenders are willing to do smaller projects. The designation of commercial is by statute. It's multifamily with more than five or industrial or other commercial, you know, by definition properties, it's not meant to be a residential property owner. But every lender will have a different profile. If a property owner owns, you know, a smaller commercial building where they need to replace the lighting and the HVAC and the total cost is $850,000 there'll be a lender likely for that. Our firm tends to lend on the larger side given our sister affiliation with the USDA program, you know, with a $2,000,000 minimum, but other lenders will have different minimums and smaller organization and organizations will fund smaller loans, but the designation as commercial is imperative sort of from our lender perspective.

[Rep. Christopher Morrow (Member)]: So you're saying some lenders like $850,000 loan would be on the low side for this

[Amanda Samai (Managing Director, CastleGreen Finance)]: That's right for commercial properties, you know, but there are some lenders in the commercial space that will will do smaller projects and, you know, it's available as well. It's you're more constrained by the definition of commercial versus residential. So it would open up a lender group that would probably be able to satisfy smaller projects. It has to be, know, sort of worthwhile for the property owner, if they can, the smaller the project, there tends to be some more financing options available to property owners. The larger projects are where this optionality really creates a lot of impact.

[Rep. Kathleen James (Chair)]: So in other states, are you seeing, I was curious about since it's the municipal party that adopts the, you know, that kind of creates the district, are you mostly seeing like big cities or big towns or like how small does it get here? Just curious about how, what kind of uptake we could expect to see in Vermont.

[Amanda Samai (Managing Director, CastleGreen Finance)]: Yeah, I think you're probably most comparable to Connecticut, which does it by, know, the individual towns, these towns assess Connecticut at us almost 100% participation in their program, you know, they were one of the early adopters. You really find that when you have a property owner who wants to use the financing or thinks it's beneficial, that's where you get a lot of leverage from the local constituency to ask the city council to pass it to make it available to them.

[Rep. Kathleen James (Chair)]: Okay. Yeah,

[Rep. Dara Torre (Clerk)]: R. Torre. I'm curious if commercial real estate is using this product to convert from commercial to residential?

[Amanda Samai (Managing Director, CastleGreen Finance)]: So yes, like an office to a multifamily conversion, for example, yes, we do see those types of projects. It, there's flexibility, it all stems from just that definition of commercial. So if we're, if we're able to lend by statute on a project, we'll consider all the types of properties that fall under that and all the uses that all goes into sort of our underwriting process as we're lending private capital in, you know, that's when we start to look at the project on a holistic basis in terms of, you know, our capital going into that to the project, how successful will that be?

[Rep. Kathleen James (Chair)]: Yeah. Brad Powell?

[Rep. Christopher Howland (Member)]: But you're only financing the energy efficiency portions of this project. You're not financing the building materials. Correct. So and and the assessment is that appraisals at the time you make your loan?

[Amanda Samai (Managing Director, CastleGreen Finance)]: We would order. Right. We would order an appraisal that would contemplate the property as fully built. So detailed plans and specs, we engage the appraiser, this project is a hotel, it will be you know, 100 unit hotel it on x acres, it's going to have these types of amenities, those are the things the appraiser takes into consideration. That's how the senior that's how the mortgage lender would determine how much they're willing to lend into the project as

[Rep. Christopher Howland (Member)]: well appraised after the completion of construction,

[Amanda Samai (Managing Director, CastleGreen Finance)]: Generally completion and stabilization, especially for the types of properties like a hotel or things or a multifamily as they're ramping up rentals to get to what's deemed to be stabilized on an operational basis, which is typically two to three years after full after construction is full stabilization.

[Rep. Christopher Howland (Member)]: Stabilized then means if you had a hotel program where you're adding additional units at some point is stabilized when it becomes bringing in money for rents.

[Amanda Samai (Managing Director, CastleGreen Finance)]: Yep. Stabilized is when you've rented to your optimal renting levels. It takes a little while to get a hotel through branding, you know, to be, you know, to have full utilization or even a multifamily, it takes a little while to ramp the rental units to a point where it's considered stabilized.

[Rep. Bram Kleppner (Member)]: Thank you for calling me back.

[Rep. Kathleen James (Chair)]: Brooke Kleppner? Oh, sorry, and then Bailey?

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Do you happen off the top of your

[Rep. Bram Kleppner (Member)]: head if there are states who have defined resilience in statute?

[Amanda Samai (Managing Director, CastleGreen Finance)]: So there are states that will identify what is most impactful for that state. For example, California allows wildfire mitigation and seismic especially, Oregon allows seismic resiliency is meant to fit in a more in a more broad the way this is this is sort of encapsulated which looks to national standards or if you have other state standards that are set up through other programs, but typically it's meant to meet the appetite of that individual state and that in that economic or that climate, whatever you're most subjected to Florida allows for wind mitigation, hurricane strengthening, but winds, fire, flood in areas that are prone to flooding, there's flood storm water mitigation, water conservation. So it really is meant to be what is deemed to be most impactful for those properties in that local area. You could further refine it if there are things that you believe are more important or that you would want to limit. But generally, the term resiliency is meant to sort of increase the resiliency of that property to disasters that could impact local level economics. So by allowing a broad base of resiliency measures, you're creating a more sustainable project, which will utilize potentially fewer town resources in the future, should there be some sort of climate change or climate mitigation, whatever you determine, but if you limit it specifically, you're limiting the optionality of that. So, but it is available.

[Rep. Christopher Howland (Member)]: So,

[Rep. Kathleen James (Chair)]: just to make sure I'm understanding, so I think I hear you saying the best approach for the resiliency projects might be to, sorry, who determines whether a particular proposed resiliency project would meet the criteria of the program, it's the lender?

[Amanda Samai (Managing Director, CastleGreen Finance)]: Believe by statute, we have to engage a third party, an energy engineer or another type of accredited individual that would review the building specs to sort of say, if you implement this storm water drainage system, it will increase the resiliency of the property, you know, they make that determination.

[Rep. Kathleen James (Chair)]: Okay, that's right.

[Amanda Samai (Managing Director, CastleGreen Finance)]: It's a third party, you know, we always look for sort of independent verification from to the property owners development plans as to what is impactful and what would meet the standards of the program.

[Rep. Kathleen James (Chair)]: Okay, R. Bailey.

[Rep. R. Scott Campbell (Vice Chair)]: Yeah, I got a couple of questions on, you're actually loaning the money to the municipality and it's up to the municipality to collect that loan.

[Amanda Samai (Managing Director, CastleGreen Finance)]: The financing is between the property owner and the lender, and it's utilizing the assessment process whereby this municipality, based upon the agreement of the property owner and the lender of the dollar amount, the municipality will levy in the land records and assessment in that dollar amount. So let's say it's a $5,000,000 project, the lender has agreed with the property owner on all the terms of that, the municipality agrees to levy in the land records recordation that this lien for the $5,000,000 exists and that by statute it's superior to other liens on the property or pari passu with municipal liens and the amortization or the repayment schedule is between the property owner and the lender, but it will fully amortize over some period of time, call it twenty five years, but all the terms of that, I believe that the contract, the requirements of the contract are in the statute, such that record of that is available. If another lender wanted to come in, they would do a lien search and they would see that that lien exists. So what that does is it gives us as a lender sort of senior position and what that does for the property owner, it gives him a different type of capital that's funded through a different mechanism that looks to that security provision when it determine when we determine our financing rates, and we determine our terms. So it's slightly different than a mortgage in that in that sense. But it's not us lending to the municipality who then turns around and lends all the municipality agrees to do is allow it to be filed in the land records and then take the annual payment and put it on the property tax bill and collect it from the property owner.

[Rep. R. Scott Campbell (Vice Chair)]: So it is, the municipal is collecting them.

[Amanda Samai (Managing Director, CastleGreen Finance)]: They'll collect it or they will designate under there with a third party administrator to administer that program. And there's flexibility in that. So the state is a little bit less prescriptive, allowing the program administrator and the municipalities to determine some of the key features of the operational aspects of it as it works for them.

[Rep. R. Scott Campbell (Vice Chair)]: And my final question is, is the butcher participation rate, has it been successful, been mediocre?

[Amanda Samai (Managing Director, CastleGreen Finance)]: So PACE, we found that PACE has, and I've been involved in the sector sort of for ten plus years, growing more as more property owners use it, more property owners like it, they've learned about it, it's still relatively new from that perspective. You know, 10,000,000,000 in commercial PACE financing has been done nationally through 2025 with last year over 3,000,000,000 across the 38 states that have enacted it. And some states have just recently updated statutes that weren't sort of really workable under the old construct like Alabama, we've seen New Hampshire recently revise their statutes and sort of open up and now we should see some real traction in those states. But some of the earlier states that adopted programs that have been very successful have done the bulk of that 10,000,000,000 that's been done to date. So yes, it's been very and it's been very impactful for property owners because it, if you think about a bank or a non bank lender lending up to some percentage, a property owner has to go to the market to find more capital, that type of capital has traditionally been at a much higher cost than what a PACE lender because of this security in the land records provision can offer financing. So it allows property owners some flexibility. And I'd like to just sort of reiterate that the completely voluntary nature of this and the fact that the lender, the mortgage lender has to consent. So it really does create just another option for properties to and for property owners to get projects done and become operational.

[Rep. Kathleen James (Chair)]: Yes. So I just heard something that I hadn't had missed probably before as I scrambled to catch up here. Your website is great. So I wish I'd read your website before. I'm sorry. Didn't have a chance to do that for our testimony today. So I would recommend all of the e books. Lots of info on the CastleGreens website. So I heard something that I had missed before, which was lower rates. I I had definitely missed that. So it the the benefit to a a commercial project trying to put together their capital stack is that they're looking to put together all the sources of funding, and here's this C PACE lender that's gonna that's gonna help us with all of our energy efficiency work or putting in the HVAC or whatever. We've got this new different source of revenue and I I just clued into the first time that you guys might offer lower rates than they could get if they're looking elsewhere for funding.

[Amanda Samai (Managing Director, CastleGreen Finance)]: That's right. So

[Rep. Kathleen James (Chair)]: So that's part of what makes it and then I'm still missing I'm really sorry. I we're out of my wheelhouse here. I'm still missing the the benefit of of I understand the benefit of being first position. Mhmm. I don't quite get how being the connection to the land records. I sorry. We're gonna have to go back to just a few of the super nuts and bolts things. Mhmm.

[Amanda Samai (Managing Director, CastleGreen Finance)]: No. No problem.

[Rep. Kathleen James (Chair)]: Why this is why this is so helpful to a property owner. So I'm I'm gonna build a a hospital, and I wanna take out a CPACE loan because

[Amanda Samai (Managing Director, CastleGreen Finance)]: So as you're looking to start your project, you'll go out to the market to look for financing. You might find a lender, a bank who's willing to give you 80¢ on the dollar and will require you to have 20% equity in your project. And if you found that lender that will give you 80% of your project costs, you're probably done. So, but if that, if all you can find is 60% of your project costs and that lender knows you need and is willing to sort of accommodate up to 80% debt on the project still requiring the property owner to have 20% equity in because all lenders like to see property owner would have equity in their project, then you would go out and trying to find the next 20% of capital and you and you would have options available to you. One of those could be C PACE, one of those could be what's called a mezzanine or sub debt and sub debt sits behind the senior lender, it's called second lien debt. And because of that, it's a little bit more risky. And they the pricing of that type of next piece of debt tends to be a little bit more expensive. C PACE has a senior position to the for the annual assessment. Again, it's only ever the annual assessment that's doing unpaid that has that seniority position. But it's, it's the full amount of the PACE is levied in the land record. So the only way that can be removed is if it's paid off. And that creates for groups like myself and the gentlemen who are speaking on behalf of the other PACE origination firms that you'll hear from later that allows us to sort of access capital in the market and having our investors that look for this look that type of secured lending, they like the provisions of that they know that that annual payment is prioritized. And for that, we go to the market, we try and find the best rates available for our property owners. And very often that will be at a rate that's less than their mortgage, especially for construction projects. So your ultimate average cost of capital for your 80% will be blended down by the participation of the C PACE.

[Rep. Kathleen James (Chair)]: Okay, So, levied in the land records part means, so you guys are first position and the only way that you will get your money back because it's recorded and your first position and that's recorded and the only way for it to be removed from the land records and the lien to be removed is if it's paid off. So in other words, this is a secured loan for you guys. You are going to get your money back. Ergo, you can offer lower rates than the project could find if they're out looking for some other loan that's not as secured so they're going to charge more. Correct. I know that was like kindergarten.

[Amanda Samai (Managing Director, CastleGreen Finance)]: No, no, that's big part of it. Yes. And for the property owner, it's just an option, right? They understand that to obtain this type of financing, that's the type of lien that they're voluntarily, you know, asking to be put on the property, they understand that and for the lender, the lender understands that if the property owner misses that payment, the entire amount of the financing does not become due and payable, the only that annual payment amount must be brought current in order for everything to continue on. And that's what they would might call a protective advance, the mortgage might step in and make that payment to keep their security interest.

[Rep. R. Scott Campbell (Vice Chair)]: I have another mechanical question also. So the payment is on the property tax at the time of the property tax is due. Right? And the municipality collects the property tax and the payment all in one check from the owner. Am I correct so far? And then the municipality sends the amount due on the PACE loan to the lender. Is that correct?

[Amanda Samai (Managing Director, CastleGreen Finance)]: In the most simple function, yes. If they have elected to use a program administrator, that program administrator might help them figure out the amount that's applicable to the PACE payment and direct that payment. But yes, that is if the municipality is acting as its own, you know, administrator of their PACE program at that local level, that that's what would happen. They would agree to pull out the amount attributable to the PACE portion of that and send it directly to the lender.

[Rep. R. Scott Campbell (Vice Chair)]: Okay, well, but no matter what the municipality has to have some capacity of handling a property tax payment that includes payment on two things. One is the property tax analysis. It's a little bit of a thing for a property for the municipality.

[Amanda Samai (Managing Director, CastleGreen Finance)]: And I would love to tell you there's going to be 50 projects in every town, but the reality of it is there's a couple, you know, your larger towns will have probably have more staff to handle that or they would might consider administering that out to a third party if they felt that it would be too much for them to handle. The program allows for the municipality to be compensated for any additional incremental work that this might cause.

[Rep. Kathleen James (Chair)]: Great. And I assume it's becomes an economic development strategy that towns or cities would be willing to engage in because it's going to help commercial properties pencil out.

[Amanda Samai (Managing Director, CastleGreen Finance)]: That's right. We see that a lot. There's only a few states that don't have workable PACE programs at this point. And like I said, we have a sister company that's a rural lender and they're seeing deals actually not consider certain states because they don't have PACE. So they'll move to it, they'll move to a neighboring state that has it and build their plant or their project, or their development there, because they have the ability to access this different type of capital, which is helpful to them. So it really does

[Rep. Kathleen James (Chair)]: So it PACE lender? Sorry,

[Amanda Samai (Managing Director, CastleGreen Finance)]: Our rural lender is a USDA lender. They operate under the USDA one RD program and have other types of rural property. We have sister companies that lend into all property types, but one focus specifically on rural lending opportunities of which we're seeing a number in Vermont looking for capital.

[Rep. Kathleen James (Chair)]: Okay, well, we've taken more of your time than

[Amanda Samai (Managing Director, CastleGreen Finance)]: It's we okay, my colleagues who are speaking in the PACE world here after I'm sure hopefully we'll have sort of more enlightening information and they'll do a great job as well. But we're all united in this. We really think this could be a great great option for property owners in Vermont.

[Rep. Kathleen James (Chair)]: Great. Well, thanks for your time. I'll definitely look over your website and we have the language you suggested on the amendment. I don't know whether we posted that or whether I sent it to the committee, but we have it.

[Rep. R. Scott Campbell (Vice Chair)]: Yes. Thank you. This was hugely helpful.

[Rep. Kathleen James (Chair)]: Yeah. Thank you so much. Yeah.

[Amanda Samai (Managing Director, CastleGreen Finance)]: I appreciate the questions. Thank you. Thank you all.

[Rep. Kathleen James (Chair)]: Have a great day. Thanks. You too. Okay. Bye. Alright. So we are running behind. That's okay.

[Rep. R. Scott Campbell (Vice Chair)]: She was afraid. Yeah.

[Rep. Kathleen James (Chair)]: Should I admit the next one? Are they coming together? Or No. This is just the next witness is just him for Okay. Michael? Hi. Hi. I'm sorry we kept you waiting. We'll just quickly introduce ourselves. We're the House Energy and Digital Infrastructure Committee, and, I'm representative Kathleen James from the town of Manchester.

[Rep. R. Scott Campbell (Vice Chair)]: Scott Campbell, Fox eight Jasperry. Richard Bailey, Lamoille two. Chris Morrow, Windham, Windsor, Bennington.

[Rep. Christopher Howland (Member)]: Michael Southworth, Caledonia two. Christopher Howland, Rowland four. Dara Torre, Washington two.

[Rep. Bram Kleppner (Member)]: And And, Dara Claire, Chittenden, 13 Burlington.

[Rep. Kathleen James (Chair)]: Laura Sibilia, Windham, two. And we have a couple folks in the room.

[Rep. Christopher Howland (Member)]: Dana Lee Perry with the McCrasson Group. Nick Cherrick, Dallas Rutland Martin.

[Rep. Kathleen James (Chair)]: Great. Michael, if you could just identify yourself for the record and tell us a little bit about your firm and then fill us in on C PACE.

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: Sure, thank you very much, Madam Chair. My name is Michael Yockey. I am the Senior Vice President and Senior Counsel for Policy for Petro Space Finance, also a board member of the C PACE Alliance, which is the industry trade group for commercial PACE across the country. And I've been involved in C PACE for quite a while. I've written a lot of state statutes. I've written a lot of programs. I helped the senate on its version that came over and looking forward to do what I can to help you make Vermont the fortieth state to have an active seat based program in America. My family, part of the members of my extended family, used to live in Burlington for quite some time.

[Rep. Kathleen James (Chair)]: Oh, awesome! Alright!

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: So, just wanted to say, CPASE is active, as I said, in 39 states and the District Of Columbia. It is a unique financing and powerful financing tool for climate change, for resiliency. It is a way of creating a form of financing for property owners that has lower cost and longer lead time for payment, which has an impact on their cash flow ability to go forward. It's been very successful across the country. And what the senate version has done with a little small little change we're asking for that I have to admit, I just did not see in the 45 versions that went through we went through on on the senate side as a change on the on the definition of of assessed value. But it is something where if you can it is a it is a important tool to help property owners get financing to do the kinds of things that as a public policy, policymakers such as yourself want people to do, have more energy efficiency, conserve water, harden their homes against natural disasters, install renewable forms of energy, heat pumps, things like that that are very important nowadays. What it is, is that by using the ability of local government to put a governmental assessment on the property, in many ways it acts in the capital markets kind of like a municipal bond, it is secured by a municipal lien. And that enables us to access capital that has a much longer term to it and much lower interest rate. So that means that if right now, before C PACE, if someone wanted to improve their factory, they would have to go out and try and find someone to lend it to them, find the cash for it, but usually commercial loans at that time were much higher, much shorter in term. It had a much more impactful to them on their ability to make their costs back and pay things off in addition to the normal operating expenses that they undertook. Seabase has been a way for people to sort of overcome that hurdle, and we've gone from an industry that was maybe doing $15,000,000 a year to over $2,000,000,000 a year right now across the country. And one of the keys of this is that we do this in concert with the property owner, but also with any other secured lender on the property. The the the requirement of lender consent is I think one of the hallmarks of how CPAs works. That means anyone who has a mortgage on the property, a secured lien on the property, has a consent to the CPAs going on it in order for CPAs to be to be available. That has, by the way, an interesting impact because it essentially means that property is underwritten about three times in order to make sure that this is going to work. It's underwritten first by whoever has a mortgage or wants to put a mortgage on the property. It's underwritten second by us, and it's underwritten third by that same mortgage company or lender who is looking at this as to what the impact of what we will do on their property. The reason we're able to get consent, quite frankly, is because this is where we behave very much like a bond. When someone is delinquent, it does not accelerate the entire amount, only the amount that is billed and is due is payable and delinquent. That means that a bank, for example, if we are in front of them, doesn't have to worry about, say, if we lend $2,000,000 to a property owner, if they're delinquent, the whole 2,000,000 doesn't accelerate, like say, if you accidentally forget to write your check for your home mortgage, get a letter that says, the whole amount is due unless you pay it up. In CPAs, it's only that yearly payment that is due that lowers the risk for any mortgage or the secured lenders of the property, which is why they consent because it increases the value of the property by making it more energy efficient, by making it cash flow positive, by making it more resilient to natural disasters. These things have a way of improving property values, and in addition to basically working in terms of the public policies that you're seeking to put in place in statutes like these across the country. So the one the one amendment we would like to see is to change the word assessed value to language that talks about essentially that the value of the real estate as appraised, as complete, or as stabilized. That's like a lot of word salad, but the word salad has meaning because if you simply go by assessed value, what other states found when they had to change their rules or their laws is that if you're dealing with, say, an underperforming property, property that needs to have a good rehab or is even bare ground, the assessed value is going to be like here. If they need this much money to put together everything, they may get that much from a bank or another lender, but they need something that much from C PACE, but the value is all the way down here because that's the assessed value. The key again to this is that this is a valuation that's done by every other, every commercial lender on the property. We're not asking for anything that is out of balance as to how these kinds of loans and financings are made, is simply make sure that we're operating on the same field that a bank or any other lender is going to be looking at in terms of what the value is and how we figure out what the appropriate loan to value ratio is, where the debt coverage is of that particular property. So, that, I'm going to be quiet and let you ask any questions that you may have. And thank you very much for your time.

[Rep. Kathleen James (Chair)]: Great. All right. Who's up? Yep. R. Scott Campbell. You

[Rep. Christopher Howland (Member)]: used the word municipal financing. Are there any federal or state tax benefits for loan being a municipal, financed through a municipality?

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: No, and no, there aren't, and the reason is actually a good reason this is all private capital, even though this is simply using the municipal lien to do it. What that also has is a benefit for the local governments, which is that it is not their full faith and credit that's backing this at all. Simply the fact of the lien itself and its super priority is what gives that sort of financial advantage. But for the local government, there's no financial exposure, there's no legal exposure. The statute and the bill as it's written is very clear that municipalities have no financial obligation. Say if the property owner doesn't pay, they would have to make it up to the lender, it's 100% of the financial risk is on us. Again, that's sort of why the triple underwriting that goes on is very important because that ensures that there's something there to to finance and and to underwrite. But there is no tax benefits. But then again, there's also no no financial or legal liability to the local governments. And I used to be a local elected official in California and this is something that I hear all the time when I'm working on these statutes or programs across the country.

[Rep. Christopher Howland (Member)]: In the event of a default of everything, the tax lien on the grand list tax assessment is superior to your PACE loan? Yes.

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: In the waterfall, is what's called the lingo is a first and prior lien, which means that it's in the same category as a governmental assessment. But the bill specifically states that in the order of priority within that, are underneath local taxes. They always get paid first before we would see a dime in a tax sale or a tax lien sale or whatever the process would be.

[Rep. Christopher Howland (Member)]: And a municipal tax sale would, with the provision of repayment and the tax sale, buyer of the tax property could redeem after twelve months in the state of Vermont. Right. And then this lien would go, the private lien would go away.

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: No, it would not. That's sort of, again, as if you had an assessment district and you were property owner that didn't pay their taxes and there is still this assessment on the property, whoever assumes that property would still be assuming the increments for that assessment district. This would still stay on. We have seen it have an impact on tax sales anywhere in the country, again, of the benefit that it has provided to the property.

[Rep. Christopher Howland (Member)]: I think I understand it.

[Rep. Christopher Morrow (Member)]: What's the smallest feasible project something like this is typically used for?

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: Well, we I mean, for commercial properties, it sort of depends. If you're kind of like a mom and pop store, you have a single building that's, say, thousand a square feet or something like that. We've seen in the early days, was very true that you would have, you know, 50,000, $100,000, $200,000 improvements to a property. You might get a new heating system. You might get a new water system as well. There are companies that do this that range the gamut from those that do, you know, $100,000,000 C PACE financing to those that that do the oh, excuse me. The 50 to 100 and and the 200 to $250,000 finances. There are a couple of companies that we work with and partner with to make sure that the whole range of commercial enterprises are covered.

[Rep. Kathleen James (Chair)]: Anybody else?

[Rep. Christopher Howland (Member)]: This is great. Well, yeah. So if municipality decides to outline PACE area, then any property within that municipality can go through the procedures to apply for PACE finding.

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: Yes, yes. Let me sort of PACE is kind of like drinking from three fire hoses at the same time. So let me make this try and simplify it. Generally, the answer is yes, anyone can apply, but the only ones who actually will apply are those who have found a willing and able capital provider partner that has looked at the property, has undergone, does the underwriting with it. What municipality will not be inundated with applications, what they will receive almost 100% of the time is, for lack of a better word, a fully baked application that's gone through the underwriting and credit process where the other lenders have already consented to it, and that's presented to the municipality for essentially final approval. So in city of any size, we would love to see it to be ubiquitous as any other form of financing. But the reality is because you need lender consent, because it's hard to explain to property owners, much less people like myself, each municipality will probably only get a handful of applications per year. But

[Rep. Christopher Howland (Member)]: the first step is for the legislative body of the municipality to approve the program.

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: So once they approve,

[Rep. Christopher Howland (Member)]: then it's open up to anybody who wants to apply.

[Rep. R. Scott Campbell (Vice Chair)]: Exactly. I'm wondering about lenders. What kinds of lenders are typically involved in this type of program? Well,

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: this is going be a long story, they're generally private capital lenders. They can vary from banks to debt funds, to simply insurance companies, to essentially private companies that are classified by the SEC as either accredited investors or institutional buyers. They have to have a certain threshold of financing, etc. They go into it. But in reality, because it's like drinking from a bunch of fire hoses, there's probably about two dozen companies in the country that do this. That number is slowly growing as people kind of get used to it, but it's hard to do. It sort of depends on the locality. Colorado, for example, 43% of all seed based transactions are handled by state and local banks. In other parts of the country, it's more 80 to 90% private capital companies such as myself and the one that my colleague Amanda Semai testified, who I believe testified with you earlier. Her company does the same kind of work.

[Rep. R. Scott Campbell (Vice Chair)]: So typically not community loan fund type outfits, right?

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: Generally not. They have different sorts of accesses to capital. They have governmental and state and other kinds of funding. This is all purely private. Insurance companies kind of like this as an investment because it's a secured investment in sort of the mid range tier, but it's not high interest nor is it really, really, really low subsidized interest because of access to federal or state or local

[Rep. R. Scott Campbell (Vice Chair)]: credit enhancement. So this is purely market rate financing, no subsidy involved, no

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: But its market rate is determined by the market, and that market is determined by the fact that this is a of, for lack of a word, super secured lien on the property.

[Rep. R. Scott Campbell (Vice Chair)]: Right, right. There's no tax advantages to the ledger. Right, right. Thank you.

[Rep. Kathleen James (Chair)]: Great. Alright. Well, thank you so much. Appreciate your time. Thank Oh, sorry.

[Rep. Christopher Howland (Member)]: One more question again.

[Rep. Kathleen James (Chair)]: Yeah. Sorry. Rutland has a question.

[Rep. Christopher Howland (Member)]: So in investment world, is this the next best thing to government bond?

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: In the investment world, I mean, there are a lot of next best things. It is a good thing. It is something that is catching fire, not just here, but in the international community as well. The green bond community is really looking at this as something that they want to try and market as well. It does well. It's not the highest interest rate. It ignores as dead solid secure, much as dead solid secure muni bonds or treasury bonds used to be. It's in that middle tier, but is very secure. And there's a very good market for it. We just wish more people knew about it, and more property owners would take advantage of it. But it's very good. And that's why, like I said, its growth curve has kind of been like

[Rep. Christopher Howland (Member)]: this over the past five years. So your company pulls together other people's money into a private private fund?

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: Not really. I would say other well Institutions. Yeah. Yeah. We're we're we're not we're not depositors. We're not an investment fund. What do is we have access, all of us have access to lines of credit that are backed by essentially the people who wish to buy from us, the life insurance companies, annuities, pension funds, things like that. So we essentially help originate these loans using those lines of credit, which are then paid back when we sell them to these insurance companies and pension funds and others people who are looking for that secured tier of investment for their beneficiaries.

[Rep. Christopher Howland (Member)]: So similar to an originator in my local bank who brings in several buildings in the neighborhood and then writes off a $10,000,000 bond someplace, sells it to somebody?

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: Essentially, although it's actually on a one off, are a few that have bundled them together, but for the most part, are all individual private placements. There's kind of like a box, right, that the insurance companies or the pension funds say, if you originate inside this box, we'll get it from you, we'll buy that from you. And that's sort of these dedicated lines sales that we have. There are a few, especially the ones that do the smaller transactions, that have bundled them together and sold them as a single asset security in the capital markets. We'll call you the man with the red tie.

[Rep. Kathleen James (Chair)]: Michael, thanks so much. A question for you. I'm seeing that we've got some written testimony posted from some of our national experts like you today. And the letters are sort of general support for the bill and a little bit of background and then reiterating the amendment you'd like to see us make. Do you have any kind of one pager or intro to C PACE? Do you guys have anything that you could provide to us that we could post? A lot of times members of the public are looking for information or we're going back and looking for information. Do you guys have some general C 101

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: material? I do. I teach a course on C PACE 101 for the community development finance agencies and other folks. I have a PowerPoint that I can send to you after this call, after I hang up.

[Rep. Kathleen James (Chair)]: That would be awesome. Thank you. That would be really great.

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: Sometimes we presume too much, we shouldn't do that. But thank you so much for the time and opportunity. And thank you, Mr. Red Tie, for all the great questions.

[Rep. Kathleen James (Chair)]: Thanks so much, Michael. Appreciate your time.

[Michael Yockey (Senior VP & Senior Counsel for Policy, Petros PACE Finance; Board Member, C-PACE Alliance)]: Thank you. Take care. Bye bye.

[Rep. R. Scott Campbell (Vice Chair)]: Thought it was something about another guy with red tie. Yeah.

[Rep. Kathleen James (Chair)]: Alright. Is our is Kurt here? Yes. Hi, Kurt. Hi, Kurt. Hello. Hi.

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Hold on. Let me put my video on. There we go.

[Rep. Kathleen James (Chair)]: Thanks for joining us. We'll just quickly introduce ourselves so you know who you're talking to. So we're the House Energy and Digital Infrastructure Committee, and, my name is Kathleen James. I'm from Manchester, Vermont.

[Rep. R. Scott Campbell (Vice Chair)]: Scott Campbell from Saint Johnsbury. Richard Bailey, Lamoille two. Chris Morrow, Windham, Windsor, Bennington. Michael Southworth, Caledonia two. Christopher Howland, Rutland Poore.

[Rep. Christopher Howland (Member)]: Dara Torre, Washington two. Bram Kleppner, Chittenden thirteen, Burlington.

[Rep. Kathleen James (Chair)]: Laura Sibilia, Windham. And in the room?

[Rep. Christopher Howland (Member)]: Dana Lee Perry with the Crasson Group. Nick Cherrick with Downs Rackland Martin.

[Rep. Kathleen James (Chair)]: Super. So we're just, this is our first day of testimony on S-one 138. So we walked through with our alleged counsel. We walked through all the kind of statutory language. And then we have heard from, so far, from Castle Green Finance, from Amanda there, and from Michael at Petro Space PACE and, the C PACE Alliance. So now we're over to you if you wanna identify yourself for the record, and, we're here to talk to you.

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Greg, yeah. Hi. Kurt Paulum. I'm a managing director at Counterpoint Sustainable Real Estate, a CPA's capital provider, based here in Stanford, Connecticut. And, pleasure to speak with all of you today. Hope I can be helpful. Although, since you just listened to Michael Yacke, he's he's honestly, he's he's really good at this stuff, especially on the on the legal side. So he knows how to how to put together, the the the ins and outs of a program better than I do. I I specialize in on the on the credit side, so I have a real estate background. I'm also a Vermont resident. On the weekends, I reside in Manchester Center.

[Rep. Kathleen James (Chair)]: Oh, what? Yes. Alright. Well, let's chat.

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: We day have

[Rep. R. Scott Campbell (Vice Chair)]: So I'm

[Rep. Kathleen James (Chair)]: like So I reside in Manchester Center, so we will have to have a little Yes. Change.

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Yeah. My my daughter is there. Well, she she's in still right now, at Mansfield, Mount Mansfield Academy, but she'll be headed back to Manchester in a week.

[Rep. Kathleen James (Chair)]: That's awesome. Alright. We'll connect.

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Right. So yeah. Hi. I mean, I've read the latest turn of the of the legislation, and, I've read the proposed changes as well. I think I think the changes are are necessary, but we can get into that.

[Rep. Kathleen James (Chair)]: Okay. So did you have a testimony you wanted to walk us through?

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: As far as just yeah. I I actually didn't know what I was signing up for here. Reached out to me and said because I've already I I testified with the the other the other subcommittee.

[Rep. Kathleen James (Chair)]: Yeah.

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Just just on, you know, what PACE is and what we do and why it's important. Yeah.

[Rep. Kathleen James (Chair)]: Okay. Okay. Go for it.

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Well, C PACE, I can tell you, Counterpoint sustainable real estate is, really one of the oldest capital providers in in the C PACE, business. Been around since about 2015. I I did a first go around here 2016 to '18 and then came back in 2023. We have about a billion under management that we've originated over the past, call it, ten years. We're nationwide, and we're only commercial. We we don't do residential. The founder of Counterpoint, Eric Alini, he did he did have a residential on on our PACE business in mostly in Florida and California that we later sold. So we just do commercial. We do, beneath anything from small million dollar lower seismic retrofit or solar in mostly in the Sunbelt States all the way up to, very large, pace, hundreds of millions, for construction or renovation or gut gut rehab across the nation. And so, I mean, that's CPACE, as you know, it's a it's a it's a in this case, it's gonna be not pari passu. It's gonna be subordinate to real estate taxes, but in most states, it's either pari passu or it is subordinate. But it is senior, of course, in the other lanes, including a mortgage. And, you know, it it's been, we've been very successful in in financing a lot of of clean energy, resiliency, projects and upgrades to buildings and properties across the nation over the last, again, eleven plus years. And, we're at, what, 40 states. And we're down to last last few, including Vermont. Be happy it would be very, good to have Vermont on board. I know you're also it's also gonna cover our pace, which, as a homeowner in in Vermont, I can appreciate having access to financing like that for doing things like solar and heat pumps. So, I'll stop there now and see if anybody has any questions.

[Rep. Kathleen James (Chair)]: I do. I guess, I'm curious to hear about the range of, you know, I always love to hear the kind of the technical language come to life, and I I'd love to hear about a couple of projects you've worked on. Like, what kind of work was completed? What kind of things did they do? What are some of the most innovative uses? What are the most common uses? Can you walk us through a couple interesting projects?

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: I can. Probably start with the most recent ones. Well, we did just do we're we're excited to actually do, like, our first co op, seat pace in New York City because under local law 97 and, right there watching me my colleagues are watching me live while I'm on this. That's great.

[Rep. Kathleen James (Chair)]: Yep. Yeah.

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: They knew they knew they knew this would be broadcast on on YouTube. Anyway, so, yeah, co op. That was this the co op was was even though it was a million dollars, it was, innovative because it was financing needed energy upgrades, in New York City, you know, heating oil. I'm in a building during the week, I'm in an old building with heating oil. And so the you know, we're we have the carbon serial carbon mandate, in local law 90 seventh New York. So installing heat pumps, is going to be, beneficial both from standpoint of carbon reduction and I'll just also just modernizing your heating and cooling elements in in a really what's an you know, it's an apartment building. It's a co op structure. So we expect to see a lot more of those types of smaller projects in a larger scale projects. I'll take New York City again. We we financed the energy and resiliency measures in two very large film studios. It's really gonna be for streaming in the Brooklyn area, and they're gonna have, you know, just a large energy and resiliency element to those, to those CPASE measures. So it just it it, you know, it's gonna vary from project to project as far as what qualifies. You know, in Florida, we we do, because of the the storm damage risk, we did a complete gut rehab of an office property in Downtown Miami where know, all the windows are now, storm resilient. It's hurricane force winds and blast through there and not take the windows out. Modern HVAC and and elevator improvements. So those are that's just an example of some of the projects we see on a daily basis. We are hoping to see we've looked at things that are more interesting, like geothermal. We're seeing more of that being proposed in, I mean, New York City as an example. So, you know, I think there are certainly opportunities. I know living in Vermont, how important we all feel about carbon reduction and climate change. So I think see PACE being enacted there is is gonna really help further, those those directives.

[Rep. Kathleen James (Chair)]: Great. Questions. Yeah. Scott.

[Rep. R. Scott Campbell (Vice Chair)]: So I'm wondering where where your capital comes from. Where where where does your where does your where do you know about you?

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Great question. So I would tell you counterpoint when we started, we were our capital came from Hannon Armstrong, which is they were a read. They they, dereaded, but they are, because they were really not really a read. They they do a large scale energy infrastructure type financings. That wound down. And in 2023, we were majority, MassMutual purchases. They're majority owner of Counterpoint, about 70%. So to answer your question, capital, we do we invest directly for MassMutual, and we are sort of their call it their green investing arm. So everything we do because we don't just do CPASE here. We do, we do regular commercial, bridge lending on properties that have just recently completed but not stabilized. They have to have a green element to them, sustainable element, either energy or resiliency measures. And then we do larger scale energy infrastructure projects where where it's private capital, but it's, we have things that we're working on with, things like an army base where they're doing this massive upgrade again to heat pumps, and we're helping to finance that. And those are those are longer term investments there that we make again for MassMutual. So, you know, what's good about especially right now with the volatility in the markets and private credit, like, Mass Mutual is just their life insurance company money. Right? It's a very solid, very stable source of capital, and they we invest for the long term. We invest through cycles. We have a very rigorous, disciplined, investment process here and and committee process. So we, in which we, you know, we we pride ourselves on. But so that that's how we're funded and and where all the capital comes from.

[Rep. R. Scott Campbell (Vice Chair)]: And when you're assessing a project, how assess do the viability of a project? Are you looking at cash flow for the borrower? Are you looking at meeting codes or other requirements that a project has to meet? How are you assessing the viability of a project and whether it's Sure. Yeah.

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Great question. Fundamentally here, are a commercial mortgage real estate finance shop, but most of us come from, backgrounds in, Wall Street finance, starting with our founder who was at, Merrill Lynch for many years. And so we mostly are on, like, the other whole loan lending or CMBS side. So we approach it from on a commercial side from, yes, an income producing

[Rep. Christopher Howland (Member)]: Well, don't give me that again.

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Sorry. So so an income valuation perspective. But, you know, when it comes to CPACE, we're also very rigorous in making sure that we are adhering to the statutes and the guidelines of the program that you know, and the jurisdiction where we're, placing the assessment. So we do even in states where there's not a a strict energy audit type requirement. We do our own. So we make sure that, you know, what we're actually financing, meets those requirements as far as energy savings or resiliency measures. And so it's a multistep process where we're doing the the credit risk. We're we're doing an underwriting, in-depth, underwriting. We're getting an appraisal report. We're getting the energy audit report. We're getting environmental reports as well. So it's, it's it's pretty rigorous process. Then we go through a multi phase investment committee process.

[Rep. R. Scott Campbell (Vice Chair)]: For an energy efficiency project, you'd be expecting the loan to be a cash flow positive situation for the borrower?

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Yes. We look at the long term viability of the property as an income producing going concern piece of real estate. We do all property types, including, you know, more special ones like this the movie studios, but, you know, we do the more standard ones all the time. So office, retail, industrial, multifamily. And and in every case, we, yes, we determine our own value valuation on an income producing basis.

[Rep. R. Scott Campbell (Vice Chair)]: K. When you say income producing, can you I'm not sure what that means.

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Well, I mean, it's right. So if it's it's an apartment complex, just that it's going to remain viable as a as an apartment building in perpetuity and able to attract tenants and generate market rents.

[Rep. R. Scott Campbell (Vice Chair)]: Okay.

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: And then an office property, you know, that we're gonna have a a property that attracts tenants and and occupancy.

[Rep. R. Scott Campbell (Vice Chair)]: I see. Yep. Thank you.

[Rep. Kathleen James (Chair)]: Rectory oh my god. I'm sorry. Rutland. Rutland, Sibilia. Yeah. Thanks for your testimony. Can you talk a little bit about defaults rates, what you've seen in that regard?

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Well, the answer in our case, with our book is is very, very few. We have I can't really meet I don't even need one hand, and we have, like, a billion dollars worth of assessments, thousands of them. Thousands is that's kind of also because we've done a lot of smaller ones. But we have, up until last year, I think we had one or two. We have one larger workout situation right now, but in that case, we're we're not and it's in California. Not expecting that to be, any issue. The the when it gets usually, if it gets to the point that in C PACE, you know, we don't have, we don't really have an ability to do anything. We're a very passive C PACE is a very passive investment. So unless the property owner defaults on paying taxes and the the assessment, we don't get we and our council don't get involved, and we we don't take any action. And, again, that's I think, fortunately, just also because of our credit culture and and how we look at things and our investment process, we we don't really, I wouldn't say, get terribly aggressive. Right? We're investing life life insurance company money. So the answer is we we really don't have very many to speak of out of our very large book of assessments. And that, you know, the the process by which we would actually go and have to work loads and and, you know, to replace the ownership with somebody new, that's gonna depend on each state and each process. If it's, judicial versus nonjudicial, there's just a bunch of of elements there that play into, how quickly that takes.

[Rep. Dara Torre (Clerk)]: Yeah. I'm just curious because Connecticut, I know, has a a well established green bank. How how do you interact with them on a particular project?

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Yeah. We well, we did just do a very large one there. So they the green bank, they they have a limited source of capital, so they do a lot of smaller sort of owner occupied where it's some of it's real, like, you know, commercial, others, gray area, again, with an owner occupied property. They also do things that we don't usually do these days, like churches, schools. Not that we that we won't, but we're pretty selective about it. You know, when we first get under Hannon Armstrong in 2016, we did acquire a a fairly large portfolio from the Connecticut Green Bank, and and it's still performing well. But, so we do we tend to step in when it's large you know, too large for them to really take on. We funded, one in very large mixed use development in Darien, Connecticut, which was the PACE was 60,000,000. So in that case, we just work with the Green Bank to actually place the assessment, get through the the program requirements. And so that that's the relationship these days is, is pretty much like that.

[Rep. Dara Torre (Clerk)]: Oh, they like third party? They play a role that the municipality can tap into?

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Yeah. They're administrators. Yes, the Green Bank does. Call them, again, an originator, like, the small balance type assessments, but we haven't, because that's that's kind of they had enough capital to do that, but on the larger scale projects, that's where you'll see capital providers like us or Petros or Nuveen Green, which you know, the founders of Nuveen Green started at Connecticut Green Bank. We know them well. And, so it's it's a, you know, it's a good relationship. It's a good program. It's one of the first. Right? So yeah.

[Rep. Kathleen James (Chair)]: Alright. Thanks so much for joining us. Really appreciate your time, and I'll have to I'll wrestle up your email from our committee assistant and send you a hello.

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Sure. No. It's it's my pleasure. I hope I was helpful.

[Rep. Kathleen James (Chair)]: Yeah.

[Rep. Bram Kleppner (Member)]: If you

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: need me to come back and talk again, I'm happy to do so.

[Rep. Kathleen James (Chair)]: Sounds good. Thanks so much, Kurt. Appreciate it.

[Kurt Paulum (Managing Director, Counterpointe Sustainable Real Estate)]: Very much. Have a good afternoon. Alright. Bye.

[Rep. Kathleen James (Chair)]: If folks are okay, if we could just go off live and just take, like, a five minute break. I know we've got other folks coming in, but I've torn out. Alex, are our next folks coming in on Zoom or in person? It's just one person.

[Amanda Samai (Managing Director, CastleGreen Finance)]: He'll be here on Zoom.

[Rep. Kathleen James (Chair)]: Okay. Is he here already? No.