Magazine article American Banker

Fannie, Freddie Helping Older Apartment Buildings Go Green

Magazine article American Banker

Fannie, Freddie Helping Older Apartment Buildings Go Green

Article excerpt

Byline: Allison Bisbey

Fannie Mae and Freddie Mac want to make it easier for owners of older apartment buildings to make energy efficient upgrades.

Both government sponsored enterprises discount the interest rates on loans for buildings with one of several "green" certifications, such as LEED, or Leadership in Energy and Environmental Design.

They are also offering to underwrite some of the projected savings from upgrades on buildings of a certain age, allowing owners to take out bigger loans.

The new products have the potential to unleash large amounts of capital, reducing the carbon footprint of some of the biggest users of energy, residential buildings. A significant portion of the nation's multifamily housing stock dates back to a construction boom in the 1960s and 1970s, and has yet to benefit from efficiency gains over the past few decades in refrigeration, clothes washing, heating, ventilation, air conditioning equipment, windows and insulation.

Landlords, lenders, and even mortgage bond investors stand to benefit as well, since lower utility bills and more comfortable apartment units tend to reduce tenant turnover.

"This is a no brainer," said Buzz Roberts, president and chief executive of the National Association of Affordable Housing Lenders.

"It's a good thing for borrowers, it's good for Fannie and Freddie and lenders, because it makes them more competitive," he said. "And energy improvements make for a safer asset, insulating a property against increases in energy costs."

Fannie and Freddie are not required to finance energy retrofits, but this kind of lending is consistent with Obama Administration initiatives to promote energy efficiency in low- and moderate-income communities.

It also discourages borrowers from turning to other lenders to finance retrofits, creating a separate lien on the property.

"We want to make our financing a one-stop shop, so borrowers aren't going to a third party," said Chrissa Pagitsas, director of Fannie Mae's multifamily green initiative.

Another potential benefit: Fannie and Freddie may attract new investors to their commercial mortgage bonds, which can be marketed as green, or at least greener.

Fannie Mae recently increased the discount on interest rates for loans on green-certified buildings, to up to 39 basis points from 10 basis points originally.

For owners of older vintage buildings, there are two products: Green Rewards for conventional and affordable rental housing, and Green Preservation Plus, which is only available for affordable rental housing. To qualify, borrowers need to demonstrate a capital plan to reduce energy usage or water usage by at least 20%. Fannie now reimburses the cost of the audit. If approved, borrowers also receive a pricing discount. For Green Rewards loans, the loan can be upsized by underwriting up to 75% of the owner's projected energy and water cost savings and 25% of the tenant's projected energy and water cost savings.

"We want to help owners fix the leaks, get a better dishwasher, put in a more energy-efficient heating and cooling system," Pagitsas said. "A better quality unit means lower turnover. And turnover is a huge expense, and not just because the unit sits vacant; the landlord has to paint and clean the carpets."

Fannie Mae puts the additional loan proceeds in escrow. The owner cannot access them until they have made the improvement. …

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