A Blog From Angel Flores:
Specializing in B and C class Multifamily, we run into a lot of properties where there is an opportunity for utility savings. Many of these properties were built in the 60’s and 70’s when appliances and fixtures used a lot more energy and water. Freddy Mac and Fannie Mae have also taken notice. They now offer incentives for property owners to implement “green” strategies. These strategies will help these older properties become more efficient on utility usage.
This program is specific to agency debt through Fannie and Freddie and not offered by local or regional banks. Freddy Calls it the Multifamily Green Advantage Program. Fannie Mae calls it the Green Rewards Program. The names are different, but the programs are very similar. If the property has potential for lower utility usage, the interest rate can be lowered up to 33 basis points on a new loan. Additionally, the agency will allow the borrower to underwrite additional loan dollars to implement these savings.
So how does one apply and what is the process to securing this type of loan? When you apply for the loan to buy an apartment building, you can ask to apply for the Green Program. This is an additional application and the upfront cost for the application is $7K to $10K. This is in addition to the cost of the loan application of about $25K to $30K.
After loan application, the lender will require third party reports to verify the strength of the collateral. Most people are used to the first three reports: Appraisal, Phase 1 Environmental Report, and the Engineering Inspection Report. Fannie and Freddy require one more Engineering Report to verify the potential savings on the property.
Fannie Mae refers to this as the High-Performance Building Module Report. In this report, the engineer identifies the existing energy and water usage on the property. Based on these findings, they recommend energy and water saving improvements. This could be changing to high efficiency shower heads, energy efficient HVAC’s, or low flow toilets, etc. The program targets a minimum 20% reduction from the past historical cost of these utilities. If the program is implemented, the cost of the High-Performance Building Report ($7K – $10K) can be refunded. If a previous ownership group has already implemented the green program and the engineer cannot find additional savings, the program may not be allowed.
In Summary, the benefits to the business are: lower interest rate on loan (improved NOI), increased leverage dollars (improves ROI), lower utility costs to improve expenses and improve cash flow (improved NOI), and lowering the environmental footprint of the property (improved peace of mind). Wow, what an incentive!
Angel Flores (BIO) is an advisor with Greystone Investment Sales Group in Dallas, TX. If you want to learn more about our Multi-Family Listings, Single-Family Rental Portfolios, Land Sale Listings, or Property Valuations with Greystone Investment Sales Group, contact our office: