BH Management's retrofit of 936 bathrooms at Silverbrook Apartments in Grand Prairie, Texas, has resulted in a 65% savings in water consumption at the property.
Courtesy BH Management BH Management's retrofit of 936 bathrooms at Silverbrook Apartments in Grand Prairie, Texas, has resulted in a 65% savings in water consumption at the property.

Call it a crash course in multifamily energy conservation.

In 2016, the acquisition team at Des Moines, Iowa–based BH Management was alerted to a new Freddie Mac Multifamily financing program providing rate discounts to properties demonstrating successful energy-efficiency improvements. Already engaged in significant value-add renovations across its 290-property portfolio, the firm quickly moved to qualify assets for the interest-rate reduction provided under the initiative, Green Up.

“BH is primarily known for buying good suburban properties and renovating them, so we were already involved with Freddie Mac in terms of being an active borrower,” says BH president Joanna Zabriskie. “Our acquisition team was pretty aggressive about signing up deals to [Green Up], and we woke up one morning with inspectors at 25 properties giving us lists of what to do to meet the efficiency requirements. We had to get serious pretty quickly with efforts that have since led us to becoming quite passionate about the water and utility savings we can achieve through the program.”

Rolled out in August 2016, Green Up generated $2.6 billion in loans by year’s end and expanded to $18.6 billion in loan volume during 2017. This year, the initiative is on pace to exceed its 2017 volume and is providing borrowers with significant return on investment through direct energy-cost savings, soft marketing benefits, and resident goodwill in addition to the pricing discount extended by Freddie Mac.

“Green Up has really taken off, and we’re really trying to drive all of our business to the program,” says Freddie Mac vice president of production and sales Peter Giles. “Before we came into the market in 2016, there were a handful of borrowers who had sustainability incorporated into their mission statement, and by 2017 we had 670 loans go green. Of course, there’s the interest-rate savings, but there’s also the marketability of demonstrated energy efficiency to renters who increasingly care about utility costs and the environment, so borrowers have found value beyond just the pencil-out.”

New Thresholds
To qualify for the financing, borrowers must conduct a Green Assessment property analysis to show how an asset can realize energy and/or water savings via property improvements. The two-week property assessment doesn’t add to the loan processing time, and Freddie Mac reimburses up to $3,500 for the assessment when the borrower closes a loan in the program. Borrowers then commit to making improvements based on the Green Assessment report and need to show a 25% decrease to whole building energy or water consumption over a period of four years.

In addition to gaining a preferred interest rate, borrowers can then also increase the amount of their eligible Freddie Mac Multifamily loan by up to 50% of projected energy and water savings. (A companion, Green Up Plus program enables borrowers to increase the loan amount by up to 75% of the projected savings.)

Initially, when Green Up was launched two years ago, borrowers could qualify for the program by demonstrating 15% consumption reductions, but in 2017 the FHFA increased the threshold to 25%. “That’s made Green Up largely a water-based program this year, as it is less expensive for the borrower to do those kinds of capital improvements,” says Giles. “New showerheads and aerators and low-flow toilet upgrades average around $315 per unit. To reach the 25% reduction in energy, that average cost approaches $780 per unit, so borrowers have mostly chosen to do water improvements.”

For BH Management, that’s meant replacing a lot of leaky toilets. At Silverbrook Apartments, the firm’s 642-unit community in Grand Prairie, Texas, the retrofit of 936 bathrooms has resulted in a 65% savings in water consumption. The property has achieved $365,000 in recouped costs, and residents are saving an average of $438 per year on water bills.

“The savings per unit amounts to 55,000 gallons over the course of a year, and we’re letting residents know that’s equivalent to two large swimming pools,” says Zabriskie. “The cost-savings message has been very well received and has opened our eyes to the wow factor that we can market.”

Potential for ‘Systemic Change’
Because borrowers across the Green Up program track energy consumption via EPA Portfolio Manager software, participants and Freddie Mac leaders are anticipating an eventual big-data payoff that could help inform cost and ROI expectations for future energy-efficiency capital improvements.

“We’re totally interested in beginning to understand the year-over-year performance data across 1,300-plus loans,” says Giles. “We’re particularly interested in discovering opportunities to pull more borrowers over to the energy side of the program, and I think we’ll see that in 2019.”

With 82 properties currently engaged in green repairs, BH Management is certainly among the Green Up program participants eager to explore the boundaries of what the financing might help to achieve.

“We’ve invested $5.3 million in water-conservation devices, including 17,844 toilets, 23,647 showerheads, and 38,011 aerators for an annualized water and sewer savings of $1.5 million and 193 million gallons in water savings. And that number grows with each new acquisition,” says Zabriskie, who recommends partnering with a third-party vendor to do equipment installs so as not to overburden maintenance teams.

As the firm evaluates energy-retrofit initiatives with LED lighting, energy-efficient appliances, window retrofits, and even solar, Zabriskie gives props to Freddie Mac for both the interest-rate savings and a newly heightened awareness of what can be done to successfully upgrade older assets.

“The hard thing to think about is what’s next,” Zabriskie says, “but we do think that if Freddie remains willing to discount interest rates, they have the opportunity to drive systemic change toward these types of energy-efficiency enhancements.”