This Issue

Major Leap Forward in Green Financing

green-economy
amajorleap

By Alexandra DeLuca

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Multifamily housing such as the Station House shown here are benefitting from Fannie Mae’s Green Initiative program.

Fannie Mae rewards sustainable buildings with lower interest rates.

 

The site of an old police station in Maplewood, New Jersey, has been transformed into a shining example of adaptive reuse and the real financial benefits of achieving a green building certification. Built on a once environmentally contaminated site, The Station House is a 50-unit, mid-rise, multifamily rental property that earned the U.S. Green Building Council’s (USGBC) Leadership in Energy and Environmental Design (LEED) Certification for its use of recycled materials, efficient water management, and green power.

In April of this year, Prudential Real Estate Investors (PREI) acquired the Station House property using Fannie Mae’s new lower interest rate on loans for properties with green building certifications, including LEED, ENERGY STAR®, Enterprise’s Green Communities Criteria, and five others. Multifamily owners may receive a reduction in the all-in interest rate of 10 basis points (for example 4.0 percent to 3.9 percent) for refinance, acquisition, or on a supplemental loan if the green building certification is awarded and current at the time of loan close. In the case of the Station House, this reduction will translate to a savings of more than $100,000 over the life of the nearly $10.2 million loan originated by Wells Fargo.

“For the first time, Fannie Mae multifamily lenders will be able to reward owners for investing in high-performing properties,” explains Chrissa Pagitsas, director of the Fannie Mae Multifamily Green Initiative. “Our reduced interest rate for properties with a green building certification is the only one of its kind for multifamily properties in the US. It shows Fannie Mae’s commitment to making the triple bottom line tangible. The Station House is a great example: It is a financially stable property, provides quality housing that is more affordable, and has a lower impact on the environment. It’s a clear win-win-win for Fannie Mae, our lenders, our borrowers, their tenants, and the bond investor market.” As of September 2014, Fannie Mae has securitized more than $140 million in Green MBS backed by Fannie Mae’s Green Financing loans.

The Station House property’s former use and key location adjacent to the Maplewood train station are an important part of the revitalization of the community. “These types of projects invest in the local community while providing quality housing. These projects make our mission and purpose tangible,” adds Pagitsas.

Wells Fargo, one of Fannie Mae’s 25 Multifamily lenders, recommended its borrower, PREI, take advantage of the new Green Building Certification Pricing Break. “Our lender network plays an important role in communicating our Green Financing options to the thousands of multifamily borrowers in the United States,” says Bob Simpson, vice president of the Fannie Mae Multifamily Affordable, Green and Small Loans Business. “We are thrilled that Wells Fargo recognized the availability of our Green Financing option to benefit PREI.”

In addition to providing loans to multifamily owners with incentives for the owner to reduce the property’s energy and water consumption, the Green Initiative delivers analytical tools for multifamily owners, and conducts research centering on the relationship between financial performance and sustainability. “We provide innovative thinking beyond just financing,” Pagitsas adds, “to create real long-term value for our borrowers.” She cites Fannie Mae’s multiyear collaboration with the Environmental Protection Agency (EPA) on something previously missing in the market—an ENERGY STAR® score for existing multifamily properties.

To further the relationship between financial performance and sustainability, Fannie Mae has its multifamily borrowers report their property’s ENERGY STAR® score to their lender and Fannie Mae annually if the property is located in a city with an energy benchmarking law or if the property was financed with one of Fannie Mae’s Green Financing loans.

“We are looking at how the financial performance of a property relates to its energy performance over time,” says Pagitsas. “With this data, tracked over time, we can share with the industry the value of energy efficiency.” With this information, Fannie Mae aims to provide both the real estate and green building industries the answers to some key questions about the relationship between financial performance, energy performance, and green building certified properties.

“That is the big picture,” she adds. “We provide financing, we hit the triple bottom line, but the end goal is to have the financial and energy metrics that tell the story in a language that finance professionals, green building professionals, and policy professionals understand to make smart business decisions around real estate and green building.”

The interest rate reduction for Green Building Certified properties is just one option in Fannie Mae’s growing Green Financing offerings. While the pricing break for a Green Building Certification benefits owners who have already made an investment in greening the property—and don’t need additional dollars going forward—a new mortgage loan product feature called Green Rewards just launched this spring assists owners wanting to make a green investment. Green Rewards offers the same 10 basis point pricing break, as well as additional loan dollars to finance needed energy- and water-saving property improvements at an existing property.

Since their launch, Fannie Mae’s Green Financing pipeline has grown, says Pagitsas. “We are looking forward to announcing the next deal soon.”

The growing interest, she adds, is noteworthy for its diversity. There is demand from all types and sizes of borrowers and multifamily property owners located from the coasts to the Midwest. “It tells me that this is a growing market,” Pagitsas says. “And the end result is better quality housing for all.”