By Duke Dennis

What if I told you I could get you more loan proceeds and a lower interest rate on your multifamily mortgage?  Is that something that might interest you?

Fannie Mae (FNMA) is the nation’s largest source of multifamily mortgage capital. During the last quarter of 2011 research indicated that more than 13,000 FNMA loans, equating to $75 billion, would mature between 2012 and 2016.  Realizing these maturities were coming, along with its position to influence the market, FNMA took steps to incorporate goals and programs to advance what is known as the “Multifamily Green Initiative” (MGI).  The following are FNMA’s goals with respect to the initiative:

  • Serve as a catalyst to accelerate multifamily property improvements based on green principles;
  • Address the financial and housing industries’ need for energy and water performance data for multifamily properties; and
  • Raise awareness and advance public discourse on energy efficiency.

Since 2011 FNMA has launched three (3) different programs, all of which fall under the MGI, which will encourage borrowers to make “green-friendly” changes in return for advantageous financing.  The three programs in the MGI are the Green Rewards Program, the Green Preservation Plus and the Green Buildings Certification Pricing Break.

The first of these programs to be rolled out was the Green Preservation Plus program in 2011.  In order to qualify for the program the property must be a Multifamily Affordable Housing (MAH) property, be at least 10-years of age, meet MAH income & rent restrictions during the loan term, be an acquisition or refinance and energy/water-saving improvement expenditures must equal at least 5% of the original mortgage loan amount.  If these conditions are met this program will allow for loan proceeds up to 85% of “as stabilized” value, feature as much as 5 basis points lower interest rate spread and a lower than normal minimum Debt Service Coverage Ratio of 1.15x on an “as stabilized” basis.

In 2015 the Green Rewards program was launched.  This program applies to conventional and affordable multifamily properties including cooperatives, seniors, military, and student housing properties.  In order to qualify for the program, Borrowers must commit to installing capital improvements that target a 20% or more reduction in the whole property’s annual energy or water use.  Additionally, the improvements must be installed within 12 months of loan origination, or 36 months if part of a larger rehab.  Advantages of this program include up to 5% more loan proceeds than a conventional (non-green) DUS loan and a lower interest rate.

The last program under the MGI is the Green Building Certification Pricing Break. The Green Building Certification Pricing Break provides as much as a 39 basis point pricing break to any acquisition or refinances loan on a conventional or affordable property that has a current, eligible Green Building Certification. Per FNMA’s website, “A Green Building Certification indicates that a multifamily property has met pre-defined energy efficiency, water efficiency or other environmental sustainability criteria. Depending on the certification, properties may be newly constructed or retrofitted to meet the criteria. In a green certified building, renters may have lower monthly energy and water costs and live in an apartment that is more comfortable in the heat of summers and the cold of winters. Owners may see a reduction in their energy and water costs, higher occupancy rates, and increased property sales prices.” With all of those benefits and the pricing break, this is definitely an option worth pursuing.

To give property owner’s an idea of products & features commonly incorporated to meet Green Initiative standards see below:

Electricity

  • Parking Lot Lighting Retrofits
  • Tenant/Common area energy efficient lighting
  • ENERGY STAR refrigerators
  • Programmable thermostats
  • Tank-less water heaters

Water

  • Low-flow faucets
  • High-efficiency toilets
  • Timers on irrigation systems
  • ENERGY STAR clothes washers and dish washers
  • Climate-appropriate landscaping

Oil & Natural Gas

  • High-efficiency furnaces
  • ENERGY STAR boilers
  • Indoor temperature feedback to central heating control
  • Energy efficient windows
  • Air sealing and insulation
  • Cool roofs

Over the course of time FNMA has changed their position and offerings in the market via the DUS program, Pre-Review Designation and the most recent Multifamily Green Initiative.  Despite these changes, policies and new programs Metropolitan Capital Advisors has been able to successfully navigate the world of FNMA Agency Lending for our borrowers.  Through acquisitions, refinances and supplemental loans you can count on our valuable knowledge and insight with respect to multifamily financing. To prove we are practitioners of what we preach, MCA recently closed a $10.5MM refinance loan for a 250-unit multifamily property in Dallas utilizing FNMA’s Green Rewards program.

The author, Duke Dennis, is a Senior Analyst in the Dallas office of Metropolitan Capital Advisors.  To learn more about FNMA’s Multifamily Green Initiative and how your multifamily project can be financed Duke can be reached at ddennis@metcapital.com (972) 267-0600.