For Freddie Mac, Energy Data MattersPublished: Aug 24, 2016 Finance & Real Estate | Blog Post
With its new Green Advantage programs, the nation’s top multifamily lender recognizes the important role energy and water benchmarking data plays in managing building performance.
The multifamily building sector in the U.S. has an untapped potential energy savings of $9 billion. So it was welcome news when earlier this month Freddie Mac, the mortgage financier, launched the Freddie Mac Multifamily Green Advantage, a suite of financial offerings to encourage multifamily rental building owners to invest in energy and water efficiency. Its Green Up and Green Up Plus programs give preferential financing for borrowers making energy and water efficiency investments. In exchange, borrowers must provide their energy and water benchmarking data to Freddie Mac.
What Freddie Mac’s benchmarking requirement means for energy and water savings
These developments are significant because they demonstrate that one of the largest multifamily stakeholders in the country now recognizes the important role energy benchmarking data plays in managing their multifamily portfolio. With benchmarking, knowledge is literally power in that it will help Freddie Mac lay the foundation for identifying energy and water consumption trends and determine where to further invest resources to improve efficiency. By requiring benchmarking for certain financial incentives, Freddie Mac stands to gain a massive wealth of knowledge about how their multifamily portfolios are performing and they can adapt programs accordingly.
What this means for borrowers seeking efficiency financing
Freddie Mac was the top multifamily lender in 2015, with $47.3 billion in multifamily financing, supporting 650,000 units. Under its new Green Advantage programs, (which include Green Up and Green Up Plus), borrowers (i.e. the building owners) can get a better deal on their loan, in the form of better pricing and bigger loans, to finance efficiency improvements. Borrowers could use the financing to perform energy and water conservation measures that will save them money and improve quality—including replacing mechanical equipment, adding insulation, rebalancing heating systems, conducting air sealing, and fixing water leaks.
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—for a good primer on ASHRAE and other types of energy audits, read this guide by the Pacific Northwest National Laboratory.
Also of note, 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. While the cost of an audit will vary, depending on building size, building complexity, and whether it’s the Green Up or Green Up Plus audit, the $3,500 subsidy will help alleviate the first cost burdens that prevent many borrowers from integrating efficiency measures with loans. Freddie Mac expects about 200 properties per year will use Green Up or Green Up Plus, contributing to the projected $1 billion in Green Advantage business by the end of 2016 and up to $3.5 billion in 2017 business. Accordingly, such programs will help multifamily building owners pay for upgrades that lower rental housing utilities and make housing more comfortable for America’s hard-working workforce and family households.
We’ve only scratched the surface for greater multifamily efficiency
Freddie Mac’s new benchmarking requirement is another promising sign that the market is beginning to value energy data and act on it. Fannie Mae already requires benchmarking for properties subject to jurisdictional laws, while offering similar Green Financing Loans to borrowers to make efficiency improvements. The U.S. Department of Housing and Urban Development also supports energy benchmarking and access to utility data. Yet, challenges remain, as IMT has highlighted in its 2012 report "Energy Transparency in the Multifamily Housing Sector". Stay tuned, because this Fall IMT will publish its “Unlocking Multifamily Apartment Energy Information and Value” report, which examines why building performance data remains untapped in the multifamily sector and provides concrete recommendations on how to turn this growing wealth of marketplace information into action to better unlocked economic and environmental benefits.