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Catalyzing Efficiency in Apartment Buildings: Lenders and Investors

Published: Dec 13, 2016 Finance & Real Estate | Blog Post

This blog post is the final post in a series of three examining recent findings and recommendations in IMT’s report, Catalyzing Efficiency: Unlocking Energy Information and Value in Apartment Buildings. This post examines how lenders and investors can use building performance data to unlock vast savings through energy efficiency and gain a competitive market advantage. Click here to download the full report. In addition, please join IMT for a webinar on December 15, where the findings mentioned in this blog post will be further reviewed. Register here.

Today, 18.7 million U.S. households—over 38 million people—live in apartment buildings with five or more units. Many of these multifamily buildings are inefficient, wasting water, energy, and money. While building performance data has become increasingly available as 12 cities and the state of California implement benchmarking and transparency policies that require multifamily building owners to track and report their buildings’ energy use (and sometimes water use as well), the data is still in its infancy in catalyzing efficiency investments.

The good news is that there are numerous opportunities for multifamily stakeholders to use building performance data to uncover efficiency savings and gain market advantage. In putting together IMT’s new report, Catalyzing Efficiency: Unlocking Energy Information and Value in Apartment Buildings, we spoke to a few innovative financing entities that are requiring and encouraging owners to submit energy and water performance data and factoring it into underwriting, which is beginning to motivate owners and managers to invest in energy and water efficiency.

For example, Community Preservation Corporation (CPC) is a New York State Community Development Financial Institution that provides construction and permanent financing to multifamily owners. CPC tracks an asset’s energy performance throughout its mortgage life. First, CPC benchmarks all its properties, and borrowers must give CPC access to their energy and natural resource consumption data. When originating the loan, CPC’s originators talk with borrowers about incorporating efficiency to add value to the project, with borrowers choosing to pursue energy and water efficiency measures about 30 to 40 percent of the time. On their loan application, borrowers must disclose energy efficiency measures that the building is incorporating and list owner and tenant utility costs, metering configurations, fuel types, and systems information. For underwriting, CPC typically underwrites half of the projected energy savings into the first mortgage. By accounting for energy savings, CPC adjusts the utility expenses and increase income, which allows the owner to get a larger loan at attractive interest rates to pay for energy and water conservation measures. Finally, CPC tracks the maintenance and operations for all properties that it services and reviews actual energy and water performance datasets to verify the effects of efficiency measures, which helps CPC continuously improve its underwriting standards.'

Fannie Mae and Freddie Mac are also looking at how benchmarking data can inform their businesses. Through Fannie Mae’s Green Initiative, Fannie Mae launched two financing products that require energy and water consumption benchmarking and a high-performance building report, which includes an ASHRAE Level 2 energy audit. The Green Preservation Plus product is for affordable housing owners, while the Green Rewards product is available to both market-rate and affordable housing owners. Both loan products offer a lower all-in interest rate and additional proceeds to implement energy and water conservation measures, and Fannie Mae pays for the required high-performance building report. For the Green Rewards product, which requires borrowers to implement property improvements that are projected to achieve a 20 percent reduction in whole-property energy or water use, Fannie Mae allows for underwriting of 75 percent of the owner’s and 25 percent of the tenants’ projected energy and water cost savings in the net cash flow calculation.

Freddie Mac offers a $5,000 rebate on new property loans for properties of at least 20 units that have an ENERGY STAR score. Moreover, in August 2016 Freddie Mac launched the Freddie Mac Multifamily Green Advantage to promote energy and water efficiency investments. Under Green Advantage’s Green Up and Green Up Plus programs, borrowers can obtain better pricing and additional proceeds to finance efficiency improvements that will save 15 percent of energy or water usage. Both programs require energy and water benchmarking, and owners must provide Freddie Mac with access to the building’s ENERGY STAR profile. Green Up requires borrowers to complete a Green Assessment based on the ASHRAE Level 1 standard, while Green Up Plus requires a Green Assessment Plus that meets the ASHRAE Level 2 standard. Notably, Freddie Mac will underwrite for 50 percent and 75 percent of projected owner-paid energy and water savings for Green Up and Green Up Plus respectively and will reimburse owners for the cost of the assessments by up to $3,500.

Although CPC, Fannie Mae, and Freddie Mac, among others, are working to get building performance data into the market, most commercial lenders have yet to integrate the data into their standard business practices. Governments and efficiency program implementers should support innovative lenders and investors using energy and water performance data and encourage other lenders and investors to do the same. Some options for doing so include engaging lenders and investors to use energy and water performance data as well as encourage lenders and investors to improve product offerings to incentive efficiency.

To learn more about best practices underway, download our full report here. In addition, join us for our on-going webinar series:

December 15, 2 PM ET
Catalyzing Efficiency: Lenders and Investors
Presenters: IMT and Community Preservation Corporation

In this webinar intended for apartment lenders and investors, participants will learn about the benefits of using benchmarking data in their standard multifamily business practices and hear from industry leaders who are successfully doing so while promoting energy and water efficiency.
Register here: https://attendee.gotowebinar.com/register/2409124912828232450

Past Webinars (Click on link to access recording):

Catalyzing Efficiency: City Governments and Energy Efficiency Implementers
Presenters: IMT and City of Cambridge, Mass.
Participants will hear from efficiency program implementers who have capitalized on city benchmarking data to build and refine programs that better engage owners and managers to implement cost-effective efficiency actions in multifamily properties. You can also access some of these findings and topics covered at this blog post.

Catalyzing Efficiency: Market-Rate Multifamily Owners
Presenters: IMT, WegoWise, and Yardi

This webinar will focus on market-rate apartment owners and managers, and showcase how these audience members can capitalize on benchmarking data to uncover energy and water efficiency opportunities in their properties. In addition, attendees will learn about using performance data to build resident demand for efficient apartments. You can also access some of these findings and topics covered at this blog post.

Catalyzing Efficiency: Affordable Multifamily Owners
Presenters: IMT, Bright Power, and American Utility Management

This webinar is intended for affordable apartment owners and managers. Participants will learn how to capitalize on benchmarking data to uncover energy and water efficiency opportunities in their properties. You can also access some of these findings and topics covered at this blog post.