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A decade since a Sonoma County banker switched on what’s now known as property-assessed clean energy, or PACE, loans, this type of financing is forecast to become the nation’s fastest-growing. And the Santa Rosa company he started to help local governments implement it is moving quickly into much larger Petaluma headquarters as PACE programs light up nationwide.

Among the nation’s top PACE loan originators and securitizers, Ygrene Energy Fund (ygreneworks.com) has been building its infrastructure — new top management and offices — in recent months as the company expands into operating PACE programs in new states and funding more commercial real estate projects.

Ygrene hopes to shift its headquarters from 16,000 square feet in multiple downtown Santa Rosa buildings to 40,000 square feet in former Athleta offices in south Petaluma as soon as next month. It’ll be the floor of the South McDowell Landing building that the women’s activewear company, owned by Gap, occupied until it left the city last fall.

“From a company perspective, Santa Rosa is a great place to start a business and grow,” said Rocco Fabiano, president and CEO of Ygrene since December.

But as the company has grown quickly — now about 275 employees in 10 locations, including 175 in the North Bay — the headquarters staff is sometimes tripling up in offices and filling up the city’s executive suites.

“For us, it was difficult to find 40,000 square feet of contiguous space in the Santa Rosa area,” Fabiano said. “And for us, it is more appealing to move farther south, because we’re growing very rapidly and drawing from a population base in San Francisco and the East Bay.”

100 MORE LOCAL JOBS

Ygrene plans to employ up to 500 by the end of this year, with probably about 100 more working locally.

A surge in lending activity is behind Ygene’s growth. The firm’s PACE loan originations grew 200 percent last year to nearly $500 million.

“We expect this year to be significantly higher,”Fabiano said.

The company’s YgreneWorks program administers PACE lending in 320-plus cities and counties mostly in California and Florida.

“We’re in a few states now, but we’re talking to others about expansion,” Fabiano said.

Besides Santa Rosa base of operations, the company has small offices in Sacramento, San Jose, San Diego, Seattle, St. Louis, Walnut Creek and Atlanta but two in Miami to serve the large Florida market for Ygrene.

Legislation to allow PACE residential and commercial loans has been adopted in 33 states and the District of Columbia, and programs have launched in 19 states and the district, according to New York-based PACENation, and advocacy group for the financing. But residential PACE loans currently are offered only in California, Florida and Missouri.

Missouri and Georgia are two growth states for Ygrene, Fabiano said. Ygrene is helping to develop the commercial PACE-oriented Clean Energy Atlanta program.

SETTING THE PACE

PACE loans are traced back to spring 2006. Ygrene founder Dennis Hunter, founder of Sonoma National Bank and a real estate developer, brought together three other local lenders to create the Green Energy Loan program. The original goal was to help homeowners pay for efficiency upgrades to reduce energy use and related carbon emissions by connecting loan to senior liens paid via property taxes over the loan term, passing from one property owner to the next.

But Berkeley got its program up and running first, rolling out the first PACE loans to homeowners in 2007.

A parallel effort led to the creation of the Sonoma County Energy Independence Program, or SCEIP, in spring 2009. Led by then-county finance chief Rod Dole, the program worked to gain the necessary backing from the state legislature and lenders to create special assessment districts to make the loans work.

Dole testified before Congress on PACE financing in 2010 and helped get some districts going in California and across the country.

After retiring from the county, Dole joined the board of directors of Ygrene, which launched in 2010.

But residential PACE lending hit a wall in 2011. The U.S. departments of Housing and Urban Development and Veterans Affairs deemed problematic the senior position of PACE liens on properties with HUD- and VA-backed loans insured by the Federal Housing Administration. HUD and the VA reversed course on residential PACE last July.

MAJOR PLAYER

Ygrene is one of the largest originators of PACE financing, according to a February analysis by Morningstar Credit Ratings. It’s the largest one for commercial PACE loans in California and Florida.

The company provides 100 percent financing on terms of up to 30 for property owners to undertake energy-efficiency, renewable energy, water conservation and climate-related upgrades to their properties. Since the company started in 2010, it has approved over $1.85 billion in financing. Ygrene estimates completed projects contributed to their locales 9,570 jobs and stimulated $1.5 billion in annual economic activity.

Roughly 90 percent of Ygrene’s lending has been for residential projects, and the 10th that is commercial is heavily into “resi-mercial” projects such as for smaller multifamily properties, Fabiano said. But with an average loan amount of $23,000–$24,000, Ygrene hasn’t been involved in projects for large commercial properties.

The company looks to move more into commercial project financing this year, Fabiano said.

“Larger commercial projects have a longer lead time, involve more complex financing and need to get more banks involved,” he said. “It will take longer for that market to mature.”

FUNDING YGRENE

Backing Ygrene’s growth and lending capabilities are three rounds of equity funding, hundreds of millions of dollars in credit lines and recent rounds of packaging PACE loans for the securities markets.

Beyond equity Hunter put in to turn the lights on at Ygrene, the company raised $30 million in operating capital from Virgo Investment Group and existing funders a year ago. The largest equity round was announced in December, $95 million from a fund run by Lightyear Capital, a private-equity firm specializing in financial services.

The company also has over $200 million in warehouse lines of credit from consortium banks.

Last year, Ygrene entered the secondary loan market, sponsoring $329 million in four private and public PACE securitizations in the fourth quarter. Ygrene’s $184 million GoodGreen 2016-1 Trust public asset-backed security was the first AAA rating for PACE securities.

Led by Renovate America, Ygrene and Renew Financial, PACE originators sponsored more than $1.57 billion in PACE securitization last year, according to Morningstar. The rating service forecasts about $2 billion going to the secondary market this year.

CALIFORNIA SETS THE PACE

With more than $3 billion in PACE originations to date, this form of lending could be the fastest-growing, according to an article in the Wall Street Journal. The piece also passed along warnings from Mortgage Bankers Association about potential pitfalls from this type of lending and quoted some homeowners who were questioning their ability to pay for PACE loans obtained through Ygrene, Renovate America and others.

Long-running questions about homeowner protections in PACE financing spurred California to adopt assembly bills 2693 and 2618, both effective at the first of this year. Applying to fourplexes and smaller dwellings, the laws have four main model guidelines for residential PACE programs nationwide, according to green-building law writer Stuart Kaplow. Loans must be less than 5 percent of market value, less than 15 percent of property value up to $700,000 and 10 percent for the value beyond that, disclosure of these new laws and allow owners to cancel loans within three business days.

Ygrene has been changing its policies to be more consumer-friendly in the past 12 months, Fabiano said. The company was involved with creators of that legislation and has an executive on the board of PACEnation.

“Other than implementation of our ‘know before you owe,’ we are consistent with the legislation,” Fabiano said. “We’ve always had contractor referrals, but not all loans come through referrals. And we’ve been an leader in policing the industry and make sure we do right by the consumer and do everything within our power to help the consumer understand.”

Ron Reinking of Newmark Cornish & Carey has been representing Ygrene in the Petaluma sublease negotiations. Glen Dowling and Tony Sarno of JLL have been representing Gap and Athleta.

Jeff Quackenbush (jquackenbush@busjrnl.com, 707-521-4256) covers real estate and wine.