Some of our recent projects have used Green Loans from either Freddie Mac or Fannie Mae; an excellent way for apartment investors to enjoy favorable lending terms while making improvements that reduce energy and water usage. In exchange, the lender offers a loan with a discounted interest rate.
For example, Fannie Mae offers three tiers of green financing, including:
Ideal for property owners investing in energy- and water-cost reducing property improvements at their existing multifamily property. The benefits start with better pricing than non-green loans that can include underwriting of 75% of owner’s projected cost savings, underwriting 25% of tenant’s projected cost, up to 5% additional loan proceeds, and disclosure of the loan as a “Green MBS” to the bond market.
Green Building Certification Pricing Break
This lower interest rate is the best fit if a property already has a green building certification such as LEED or ENERGY STAR®. See the complete list of eligible Green Building Certifications and offers better pricing than non-green loans and disclosure of the loan as a “Green MBS” to the bond market.
Green Preservation Plus
This tier is optimal for multifamily affordable property owners seeking to update equipment and reduce costs at their multifamily affordable property. Green Preservation Plus offers better pricing than non-green loans, up to 85% LTV, 1.15 DSC, and disclosure of the loan as a “Green MBS” to the bond market.
Freddie Mac offers similar financing options in a tiered approach based on energy efficiency results. While the changes made in order to be eligible for either Fannie Mae’s or Freddie Mac’s green loan programs are relatively inexpensive, they can have a significant impact on water and power consumption. As a result, our tenants experience lower utility bills, and our investors see better returns when you factor in the cost savings on the debt service and any owner paid utilities.
One of the more recent projects to use a Green Loan was Whispering Winds in Pearland, Texas. This 288-unit property still had original shower heads and external light fixtures when it hit the market in late 2016. It was less energy efficient than many other neighboring properties, which impacted both its renters and owners. When our lending team at Berkadia recommended we look at the Green Loan Program, we realized we could make a relatively modest capital investment in each unit in return for a significant break on the loan’s interest rate.
“When we evaluate the savings over the life of the loan versus the original investment needed to improve the property’s energy consumption; it makes economic sense and helps the environment,” said Dan Chamberlain, COO of 37th Parallel Properties.
“The Green Loan program is an excellent fit for B-Grade apartments,” added Chad Doty, CEO. “The build years of our apartments makes them excellent candidates for these types of improvements, and lenders understand that.”
The Green Loan Program has proven to be a successful addition to our tool set that will be featured in our future deals whenever possible.