October 03, 2016

Rental Housing Needs a Green Advantage

David Leopold
David Leopold, VP Multifamily Affordable Housing Production

The 21st century has been hard on utility bills. Average water rate hikes surged annually at twice the inflation rate between 2000 and 2012. Lower-income renters were spending 15-to-21 percent of their incomes on energy by 2011, says the Joint Center for Housing Studies. And this was before 2013, when severe droughts, winters and scorching summer heatwaves began rolling regularly across the country.

Utility bills, in turn, have been hard on multifamily owners and tenants, who, by 2009, were spending $22 billion a year on utilities, according to the latest data from Energy Star.

These trends are important from an affordability perspective for two reasons. For tenants, rising utility costs are regressive and have a bigger impact on lower-income renters. Second, for owners and developers, rising energy and water costs can put pressure on net operating incomes, profitability and marketability.

Which is why Freddie Mac launched a fresh path to affordable, resource-efficient multifamily rental housing called the Green Advantage. Freddie Mac’s Green Advantage gives borrowers a choice of options to qualify for more proceeds and better pricing with a broad range of Freddie Mac Multifamily’s current loan offerings in order to finance energy and water efficiency improvements. (See table below)

For example, owners who commit to property improvements that will reduce energy or water use by at least 15 percent can choose Green Up or Green Up Plus. To identify the water and energy savings opportunities, borrowers will need to complete a Green Assessment.

The Green Assessment for Green Up is simple, takes about a day on the property and can be turned around in two weeks. It also can enable borrowers to increase the size of their loan based upon 50 percent of the projected savings.

For Green Up Plus, the Green Assessment is a more in-depth ASHRAE Level 2 analysis, which involves multi-day site visits, deeper analysis, and may require several weeks to produce a report. But, the higher level of detail in the analysis enables Green Up Plus borrowers to increase loan size based upon 75 percent of the projected energy savings.

Freddie Mac will reimburse all or part of the cost of the Green Assessment, and borrowers will have as long as two years to complete the improvements, under either option.

Secondly, Green Advantage offers a separate route to better loan pricing for owners of eligible affordable properties that are certified under one of the eight industry green building standards, such as US Green Building Council’s LEED.

Modern windows, low-flow water appliances and similar improvements Green Advantage supports were unknown in the 1970s, when a majority of the nation’s affordable rental housing was built. Such improvements can generate potential economic savings of 28-to-38 percent and reduce tenant utility costs as much as 40 percent, according to recent analyses.

Resource efficiency can also help make affordable rental housing affordable to more renters. Using data from 2015 loans, we determined that a 10 percent drop in utility costs to all units would increase the number of rentals very low-income families can afford by about 10 percent.

Which means, even though energy costs may fluctuate, energy and water efficiency has the potential to provide lasting value to owners, renters, and the environment.

Find out how Freddie Mac promotes energy efficiency in single-family properties in the previous article in this two-part series.

Green Advantage: Green Up or Green Up Plus
  Freddie Mac Green Up Freddie Mac Green Up Plus Green Certified
Assessment Green Assessment = Straightforward assessment, 1-day site visit and data analysis Green Assessment Plus = ASHRAE Level 2 analysis (multi-day site visits, deeper analysis and equipment testing) Building certified prior to loan submission under one of the following industry standards:

  • EarthCraft, Greater Atlanta Home Builders Association & South Face
  • ENERGY STAR for Multifamily
  • ENERGY STAR for Qualified Multifamily High-Rise, EPA
  • Green Communities, Enterprise Community Partners
  • Green Globes, Green Building Initiative
  • GreenPoint Rated, Build It Green
  • LEED, US Green Building Council
  • National Green Building Standard (NGBS), Home Innovation Research Labs
Minimum Required Projected Energy Savings 15% based on Green Assessment 15% based on Green Assessment Plus N/A
Underwriting Credit for Projected Savings 50% 75% N/A
Pricing Preferential Pricing Preferential Pricing Preferential Pricing
Time to Complete Improvements 2 years 2 years N/A