Going Green in Multifamily

The Fannie Mae Multifamily Green Initiative was created to provide loans for properties investing in energy efficient, cost-cutting improvements and lifestyles. The Green Initiative program allows for an increase of 5% in loan proceeds as well as a 10 basis points (bps) reduction off the all-in interest rate.

Why Environmentally Friendly Assets Mean More Green For Your Portfolio

Whether you already own “green” property or are looking to make the green leap, Fannie Mae® has several options with its new group of Green Financing programs. The Fannie Mae® Multifamily Green Initiative was created to provide loans for properties investing in energy efficient, cost-cutting improvements and lifestyles. The Green Initiative program allows for an increase of 5% in loan proceeds as well as a 10 basis points (bps) reduction off the all-in interest rate.

Additionally, Fannie Mae offers Green Rewards, the Green Building Certification Pricing Break and Green Preservation Plus as a part of Green Financing. The Green Financing program supports:

Properties seeking to make energy-saving and water-saving property improvements;
Properties already Green Building Certified;
Affordable and conventional properties nationwide;
Acquisition, Refinance or Supplemental loans;
Multifamily, Cooperative, Seniors, Military & Student (Fannie Mae, 2016, para. 1)

What Loans Are Offered for Green Multifamily Properties?

Green Rewards are offered by Fannie Mae Multifamily to provide lower pricing and additional loan proceeds to fund green property improvements. For loans provided through Green Rewards, there are no restrictions to the loan term or loan amount.

For owners that are ready to improve and repair their property following the loan close, Green Rewards offers Refinance, Acquisition, and Supplemental Loans while Green Preservation Plus offers Refinance and Acquisition loans.

Green Building Certification Pricing Break provides Refinance, Acquisition, and Supplemental Loans for owners of Green Building Certified properties prior to rate lock.

Is Going Green Really Worth It?

By tracking energy and water costs over time, property owners can discover huge potential for saving money and making improvements. On average, a commercial building wastes 30% of its energy consumption. By transforming multifamily investment properties into green institutional assets, you can earn back that 30% plus all of the financial and environmental benefits that come along with being environmentally responsibly and savvy.

Many apartment owners increase rates they charge tenants in order to keep up with the rising costs of water and energy. Potential tenants may be discouraged by low affordability and higher costs due to inefficient water and energy systems. With environmentally friendly improvements, multifamily property owners can effectively minimize and even eliminate the excess expenses associated with wasted energy that is passed on to renters.

Making the Smart Upgrade

The Fannie Mae Multifamily Green Initiative offers various loans for multifamily property owners undergoing smart upgrades and green renovations. To receive a loan, an applicant must agree to use a percentage of the proceeds to finance energy-efficient upgrades and retrofits. Improvements that are covered with these loans include electricity-generating systems, upgrades needed to obtain Green Building Certification and water-saving and energy efficient equipment.

Although going green is truly a life long pursuit, in order to qualify, all green improvements to a property must be made within the span of a year. Throughout this period, property owners must track the property’s total water and energy costs and usage with the Energy Star Portfolio Manager and submit the Energy Star Score each year. Lenders will verify the completion of the agreed‐upon property improvements and verify reductions in energy use.

Water and Energy,Cost Cutting Basics

Review and determine how much you are currently spending for energy and water. This will help you identify target areas for necessary improvements. Start your green process by making low or no cost improvements. Then, begin by gradually upgrading to efficient products and energy-saving systems. Improvement ideas may include using Energy Star products and rebates. You can also consider installing or upgrading to:

Installing a reflective and/or a solar panel roofing system
Upgrade windows to energy efficient windowpanes
Use awnings above windows to cut down on cooling and heating costs
Upgrade to energy efficient lights
Use ENERGY STAR products and rebates.

After energy saving renovations are made, the utility expenses of water and light are cut dramatically. The cost of maintenance and operation will also decrease if energy efficient products and designs are used.

Create New Revenue with Green Upgrades

With lower costs across the board, from a decrease in water and energy costs to money saved from green tax breaks and green solar powered systems, the property’s asset value and affordability will dramatically increase. This new affordability will attract more tenants and generate more income. Additionally, the production of surplus energy created with self-sustaining energy systems can generate new streams of income as well.

Getting Your Green Building Certified

The Fannie Mae Green Initiatives program was created through a partnership with Fannie Mae Multifamily and the U.S. Environmental Protection Agency to create the Multifamily 1-to-100 Energy Star Score for Multifamily. Following Fannie Mae’s 2012 nationwide survey of 1000 multifamily properties, the US EPA launched its 1-to-100 Energy Star Score for Multifamily on September 16, 2014.

With the launch of the 1-to -100 Energy Star Score for Multifamily properties, you can now earn Energy Star certification, awarding properties with superior energy performance. Being Green Building Certified means that a multifamily property meets the criteria for environmental sustainability, including water and energy efficiency. Owners of newer property that are already environmentally friendly can apply for certification as well as owners of improved property that has been retrofitted for efficiency. Using the energy star portfolio manager, multifamily property owners can benchmark their property and earn a certificate upon receiving a property score of 75 or more.

Once a Green Building is certified, renters should expect to see a decrease in water and energy costs. Living in an apartment that has been retrofitted with sustainable systems also allows renters to enjoy a space that adapts to climate changes more comfortably. With increased efficiency and sustainable properties, owners can expect the property sales prices to increase as well.

Properties that have Green Building Certifications qualify for interest rate reductions with their loans. However, the property must receive its Green Building Certification by the time the loan is closed.

With So Many Options, Why Not Go Green?

With so many options available for the green-minded multifamily business owner, why not transform your property into a green asset? Whether using Green Initiatives or Green Rewards to improve sustainability or to achieve Green Building Certification, it definitely pays to evaluate your business practices today to plan for a greener tomorrow.

Frequently Asked Questions

What are the benefits of going green in multifamily real estate?

Going green in multifamily real estate can provide many benefits, including increased loan proceeds, a reduction in the all-in interest rate, and lower energy and water costs. Fannie Mae's Green Financing program offers several options to help property owners make energy-saving and water-saving improvements. The Green Rewards program allows for an increase of 5% in loan proceeds as well as a 10 basis points (bps) reduction off the all-in interest rate. Additionally, Fannie Mae offers Green Rewards, the Green Building Certification Pricing Break, and Green Preservation Plus as a part of Green Financing. By transforming multifamily investment properties into green institutional assets, owners can earn back the 30% of energy consumption that is typically wasted, plus all of the financial and environmental benefits that come along with being environmentally responsible and savvy. Fannie Mae's Green Initiative and basis points provide more information on the benefits of going green in multifamily real estate.

What are the most cost-effective green upgrades for multifamily buildings?

The most cost-effective green upgrades for multifamily buildings depend on the specific property and its current energy efficiency. According to Due Diligence for Multifamily Investing, a green report can help to determine what opportunities there are to increase the energy efficiency of a property. These could include special windows, roof or wall insulation, new thermostats, LED lighting, energy-efficient appliances, and a variety of other upgrades. The report will also generally include the cost and the ‘payback’ period of each upgrade (i.e. the time it would take for the upgrade to pay for itself in the form of increased energy savings).

According to Going Green in Multifamily, Fannie Mae offers Green Rewards, the Green Building Certification Pricing Break and Green Preservation Plus as a part of Green Financing. These programs support properties seeking to make energy-saving and water-saving property improvements, properties already Green Building Certified, affordable and conventional properties nationwide, and acquisition, refinance or supplemental loans.

What are the best ways to finance green upgrades for multifamily buildings?

The best way to finance green upgrades for multifamily buildings is to take advantage of Fannie Mae's Green Financing programs. Fannie Mae offers three different green financing options: Green Rewards, Green Building Certification Pricing Break, and Green Preservation Plus.

Green Rewards allows borrowers to take out 5% more in loan proceeds by factoring in the water and power savings that they'll experience in the future, so long as borrowers are able to demonstrate that the property will save at least 20% on their energy and/or water costs.

Green Preservation Plus is focused on helping developers of multifamily affordable housing (MAH) properties by increasing LTV allowances up to 85% and allowing for lower DSCR ratios if borrowers can prove that green upgrades were made that equal at least 5% of the original loan amount.

Lastly, the Green Building Certification Pricing Break is designed to give a 0.10% interest rate discount for Fannie Mae acquisition or refinance loans on buildings that have an up-to-date Green Building Certification.

For more information, please visit Fannie Mae's Green Initiative Financing page.

What are the most common green certifications for multifamily buildings?

The most common green certifications for multifamily buildings are EarthCraft, ENERGY STAR® for Multifamily, ENERGY STAR® for Qualified Multifamily High-Rise, Green Communities, Green Globes, GreenPoint Rated, LEED, National Green Building Standard (NGBS).

Source: Freddie Mac Green Advantage Program

What are the best practices for marketing green multifamily buildings?

Marketing green multifamily buildings is a great way to attract potential tenants and increase the value of your property. Here are some best practices for marketing green multifamily buildings:

Highlight the energy-saving features of the building, such as energy-efficient appliances, LED lighting, and special windows.
Include information about the cost and payback period of each upgrade in your marketing materials.
Include information about the environmental benefits of the building, such as reduced water and energy consumption.
Include information about the financial benefits of the building, such as lower utility bills for tenants.
Include information about the health benefits of the building, such as improved air quality.
Include information about the social benefits of the building, such as increased community engagement.
Include information about the green certifications the building has achieved, such as LEED or Energy Star.

For more information on green multifamily buildings, check out Fannie Mae's Green Initiative.

What are the most important considerations when going green in multifamily real estate?

The most important considerations when going green in multifamily real estate are the financial and environmental benefits that come with being environmentally responsible. Financial benefits include lower energy and water costs, increased tenant rates, and potential for energy savings. Environmental benefits include reduced carbon emissions, improved air quality, and reduced water usage. Additionally, Fannie Mae offers several loan products to help finance green initiatives, such as the Green Initiative, Green Rewards, Green Building Certification Pricing Break, and Green Preservation Plus.

The Green Initiative program allows for an increase of 5% in loan proceeds as well as a 10 basis points (bps) reduction off the all-in interest rate. Green Rewards are offered by Fannie Mae Multifamily to provide lower pricing and additional loan proceeds to fund green property improvements. Green Building Certification Pricing Break provides Refinance, Acquisition, and Supplemental Loans for owners of Green Building Certified properties prior to rate lock. Green Preservation Plus offers Refinance and Acquisition loans.

A green report can help to determine what opportunities there are to increase the energy efficiency of a property. This report will generally include the cost and the ‘payback’ period of each upgrade (i.e. the time it would take for the upgrade to pay for itself in the form of increased energy savings).

Going Green in Multifamily

Why Environmentally Friendly Assets Mean More Green For Your Portfolio

Frequently Asked Questions

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