2019 Updates to Multifamily Green Lending Requirements

Many of you may already be aware of the green-building financing incentives that are approved by the Federal Housing Finance Agency and are offered by Fannie Mae and Freddie Mac. However, you may not be aware of the changes to these programs in 2019.

Quick Facts

New Requirements for the New Year

The major change for 2019 will be regarding the percent reduction in energy and water use, properties must achieve if they are pursuing lending for above-code improvements. The 2018 reduction requirement was 25% which was a large increase from the 2017 requirement of 15%. This requirement is increasing yet again in 2019 to a bold, 30% reduction, with at least half of that required to come from energy savings.

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About Green Multifamily Loans

For those of you who need a light refresher or are not familiar with this financing option, we’ve outlined the basics on what you need to know about Green Multifamily Loans.

Green multifamily loans provide monetary incentives and discounts on interest rates for developers (borrowers) to build high performing buildings that use significantly less energy than a code built structure would. The FHA began green lending by offering Mortgage Insurance Premium (MIP) reductions in 2009 and Freddie and Fannie followed suit in 2012 with their own green loans.

Depending on what route you take and who your lender is, there will be substantial reductions in cost from a standard loan. Typically, these reductions come in the form of basis point reductions (one hundredth of one percent), on items such as closing costs and the direct loan. The FHA offers MIP (Mortgage Insurance Premium) reductions for these types of loans as well. We won’t deny there is more work up front, but a significant amount of money can be saved over the life of a 30 year multi-million dollar loan.

Benefits of Green Multifamily Loans

The most obvious benefit of a Green Multifamily Loan is the financial savings that can potentially accumulate to millions of dollars over the course of the loan. The impact of a Green Multifamily Loan is also far reaching and long-lasting, with other benefits extending beyond the owner/developer. A few examples of such benefits include decreased utility bills for tenants made possible through meeting efficiency requirements, increased marketability as an above code performing property, and increased adaptability and long term durability of the building. These properties also reduce the impact the new development will have on the local power grid by meeting the standards for a green certification.

Eligibility

Good news! Anyone who is applying for a residential multifamily loan is eligible for a Green Multifamily Loan!

Requirements to Earn Lower Interest Rates

Not all green multifamily financing is created equal. Different lenders offer a variety of financial incentives based on Green Building Certifications and smart property improvements. Here is a breakdown of a few Fannie Mae and Freddie Mac Green Financing options.

Fannie Mae

Under Fannie Mae, there are two avenues you can take when considering green financing — Green Rewards or Green Building Certification Pricing. Both of these pathways fall under the Fannie Mae Green MBS Financing.

If your project does not possess a green building certification, but is willing to increase the performance of the energy and water use systems, the Green Rewards program is the route you would qualify for. Fannie offers a free water and energy audit in addition to preferential pricing. To qualify, a property must reduce their energy and water usage by 30%, with at least half of this decrease stemming directly from energy use reduction.
If your property already has (or will be in pursuit of), a green building certification that is recognized by Fannie Mae, the Green Building Certification Pricing route is your best bet.

Freddie Mac

Freddie Mac offers similar options through their Green Up®, Green Up Plus®, and Green Certified programs.

The Green Up and Green Up Plus programs are very similar in that they both require the 30% reduction in projected energy use, and a third party data collector to monitor and record the energy and water use of the property after occupancy. The primary difference between the two is the third party reporting that is needed: Green Assessment and Green Assessment Plus, respectively.
If your property is already certified Green, and at least 20% of the residential units on the property are designated as affordable, you are eligible for the Green Certified loan.
Also offered by Freddie Mac are the Green Rebate and the C-PACE incentives. Properties that receive an Energy Star Score and submit this to Freddie Mac, are eligible for a $5,000 rebate. C-Pace financing is focused on commercial properties.

Don’t Get Left Behind in 2018

We are happy to see the progression of this program and its requirements, but also recognize the challenges that developers will face to economically meet these increasingly stringent requirements, all the while navigating increasing building costs. We are committed to providing our Clients project-specific solutions and facilitating the goals for the property.

Southern Energy Management has experience working on a variety of projects that are pursuing a green building loan. Regardless of the type of loan you may be applying for, we can offer consulting services surrounding:

Property energy modeling and utility estimates
Portfolio Manager Account creation & maintenance
SEDI and SEP report generation
Post-occupancy energy monitoring and data collection
Green Building certifications

If you have questions regarding how to get started, or need a hand deciding which green building program is most appropriate for your project, we are here to help map a route to meet all of your financing requirements.