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Green Multifamily Finance Options Gaining Traction

Published: Feb 22, 2017 Finance & Real Estate | Blog Post

When it comes to energy efficiency improvements, the multifamily sector is ripe with opportunity. 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. The American Council for an Energy Efficient Economy (ACEEE) estimates that increasing the energy efficiency of America’s multifamily buildings could generate $3.4 billion in annual savings.

The good news is that key stakeholders are increasingly recognizing this opportunity. This week, ACEEE released a new report showing that spending on energy efficiency programs in the multifamily realm has nearly tripled since 2013. This increased investment is happening in part because public policies such as benchmarking and transparency laws being passed across the country are bringing a growing wealth of information to the market that owners, tenants, cities, utilities, service providers, and lenders can turn into action and tangible savings.

To date, 24 U.S. cities have adopted these policies, which require building owners to monitor and report their buildings’ energy and water use. Of these 24 laws, 12 apply to multifamily buildings, as does a law in the state of California. The Institute for Market Transformation (IMT) has been a leader in helping cities to adopt and implement these policies. However, while this useful building performance data is becoming increasingly available, the data impact is still in its infancy in facilitating efficiency investments. IMT’s recent report, “Catalyzing Efficiency: Unlocking Energy Information and Value in Apartment Buildings,” offers in-depth information on the potential impact of this data, and highlights numerous opportunities for multifamily stakeholders to use building performance data to uncover efficiency savings and gain market advantage.

While having the ability to identify ways to improve efficiency is crucial, we also need options to finance the upfront costs of investment. So on the finance side of the equation, lenders are taking note of these multifamily efficiency opportunities. They are beginning to explore how building performance data—critical information on how buildings use energy and water—can help unlock vast savings through energy efficiency and offer lenders a competitive market advantage. It’s a situation that is beginning to show progress, as IMT learned last month while moderating a panel at the National Multifamily Housing Council’s annual meeting.

Consider Fannie Mae and Freddie Mac, financial leaders who now offer preferential financing to multifamily borrowers who undertake energy and water efficiency investments. Fannie Mae offers Fannie Mae’s Green Financing Business, which includes Green Preservation Plus financing for affordable housing owners and Green Rewards financing for market-rate and affordable housing owners. Green Preservation Plus and Green Rewards offer a lower all-in interest rate and additional proceeds to do energy and water conservation measures. Similarly, in August 2016, Freddie Mac launched the Freddie Mac Multifamily Green Advantage. 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.

These programs are gaining tremendous traction, as discussed during NMHC’s panel, which included Fannie Mae’s Bob Simpson, Freddie Mac’s David Leopold, and the Environmental Protection Agency’s (EPA) Mike Zatz. In the first part of 2016 through July, Fannie Mae conducted $1.2 billion in green financing deals but finished the year with $3.5 billion in green financing deals, showing that interest is growing. Moreover, Freddie Mac closed on almost $3.3 billion in its Multifamily Green Advantage loans in 2016. As borrowers must provide their energy and water benchmarking data via tools such as EPA’s ENERGY STAR Portfolio Manager to take advantage of these offerings, both the borrower and the financier stand to gain a massive wealth of knowledge about how their multifamily portfolios are performing.

To learn more about energy efficiency financing in the multifamily sector and more best practices underway, download IMT’s full report here.