Financing Seismic Retrofits at a Hospital Campus with CPACE

Policies

California’s seismic policies date back to 1973, with the Alfred E. Alquist Hospital Seismic Safety Act. Seton Medical Center was required to meet the seismic standards outlined in California’s SB 1953, which amended the Alquist Act and outlined a gradual strengthening of hospitals’ seismic resilience.

PACE financing was first enabled in 2007 when California lawmakers passed an amendment to the state’s existing laws allowing PACE for renewable energy and energy efficiency improvements. Since then, the state has passed additional legislative items that have allowed both residential and commercial PACE to flourish in California, with over $2 billion in PACE financing for clean energy improvements invested throughout the state to date. As of 2017, there are 11 active commercial PACE programs in California.

Typically, when using PACE financing, there is a required level of energy savings that must be realized through the project for it to qualify for such financing. This is commonly referred to as the savings to investment ratio (SIR). The SIR generally must be above 1.0, meaning that the lifetime savings generated from the project must be greater than the cumulative PACE tax assessment. This can make certain retrofits, such as seismic improvements which do not commonly yield significant energy savings, ineligible. However, thanks to California’s mandate regarding seismic safety, seismic upgrades are not subject to SIR requirements and Seton Medical was able to qualify for PACE to make significant and potentially life-saving upgrades

Building Description

Located in Daly City, California, Seton Medical Center is a 357-bed, 377,331-square-foot hospital that serves 1.5 million residents in the San Francisco and northern San Mateo County area. Seton Medical is an acute care facility that provides comprehensive inpatient and outpatient medical specialties, as well as emergency and urgent care services. The main structure of the facility was built in 1963, with several auxiliary buildings around it added more recently. These newer structures meet the current seismic standards, so the entirety of this project focuses on the original building.

Financing

CleanFund and Petros each provided $20 million of their own capital to fund the project through CPACE financing. Seton will also receive $15 million in funding from the county, provided in $5 million increments over three years. Together, these funds will pay for both the seismic and energy efficiency upgrades.

CPACE is a financing structure that allows property owners to finance an entire project upfront and repay the cost incrementally as a line item on their property tax bill. Since the financing agreement is tied to the property rather than the owner, there are fewer barriers to investing long-term in building efficiency.

CPACE financing is increasingly being used to fund resiliency improvements. It is one of the fastest-growing forms of financing in the U.S., and the ability of CPACE to support long-term loans makes it an attractive option for improving the reliability, resiliency, and efficiency of the built environment. To learn more about using CPACE financing for resiliency projects, see the Better Buildings Commercial PACE for Resiliency Toolkit. For more information about CPACE in general, see the CPACE Fact Sheet.

Process

Seton Medical Center is the largest employer in Daly City (a suburb of San Francisco) and a key acute care provider for the San Francisco peninsula. Seton delayed necessary seismic improvements due to budget constraints, but faced penalties and the risk of being closed if it failed to comply with the state’s seismic requirements by the beginning of 2020. Because of the urgent need and nature of the work, financing the project using CPACE made more sense than issuing additional hospital bonds.

CleanFund recognized the opportunity to provide CPACE financing at an unprecedented scale, despite the financial complexity (difficult to measure income streams, operational turnaround, underwriting structure, etc.) of the deal. CleanFund partnered with Petros PACE Finance to mitigate risk on such a large deal. The two collaborated on underwriting standards and credit parameters and—after carefully consulting with the hospital, appraisers, and in-house healthcare facility experts—the $40 million deal was agreed upon.

Technologies Applied

The core structure of Seton Medical Center will undergo beam reinforcement, fiberwrap of concrete columns, spread footing foundations, and many other improvements to make it more resistant to ground motion or soil failure due to seismic activity. Additionally, non-structural systems such as mechanical, electrical, plumbing, communication, medical gas, hospital equipment, fire sprinklers, and emergency lighting services will be reinforced so the hospital can continue to provide medical services in the event of an earthquake.

During the course of the project the building’s envelope will be fully exposed, so deferred maintenance will be conducted and obsolete systems and energy components will be installed or upgraded on an opportunistic basis. Because the project is in the assessment phase, the specific efficiency technologies or upgrades to be installed are still being determined.

Measuring Success

The success of the project will be measured primarily by the hospital’s adherence to California's seismic requirements under SB 1953. This includes:

• Compliance with relevant structural performance requirements (SPC). Specifically, the hospital must increase seismic code compliance from SPC-1 to SPC-2.
• Compliance with relevant non-structural performance requirements (NPC), ensuring that non-structural items are not dislodged during a seismic event.

The project also aims to improve the energy efficiency of the facility, though no specific targets have been set.