A decade ago, multifamily green financing as we know it didn’t exist. But clearly there was a need for it nonetheless.
One study found that multifamily homes had 34% fewer energy-efficiency features than other types of housing. Given that the average age of multifamily buildings is 38 years old, many of their air-conditioning systems, lighting products, showerheads, and household appliances were installed long before modern energy-savings guidelines were written.
This disparity not only leads to social and environmental costs—efficient energy and water consumption is widely considered beneficial for the health of our communities and our planet—it also leads to financial expenses for building owners and apartment renters. As a result, finding competitive, viable ways to pay for practical, environmentally friendly upgrades to existing multifamily dwellings has taken on a new urgency.
Encouragingly, many multifamily lenders have embraced innovative green-financing techniques that not only monetarily benefit apartment owners, but make life better for renters and improve the health of local communities. Green financing makes this triple bottom line (TBL) of financial, social, and environmental returns possible.
How We Got Here
In 2010, Fannie Mae began exploring how to (1) help owners of apartments and co-operatives make improvements to their developments that would reduce energy and water consumption; and (2) recognize investments being made in green building certifications. It was through piloting different products in the market, obtaining feedback from multifamily owners and lenders, and creating new solutions that Fannie’s green financing business was built. This effort reflected our commitment to making the TBL real, not just an idea, concept, or wish. The results have manifested in positive, measurable savings that add up financially, socially, and environmentally.
Green multifamily mortgage loans can fund improvements to common areas or individual units. Large projects might include replacing single-pane windows with double-paned, replacing energy-inefficient appliances with efficient Energy Star–rated ones, or installing solar panels. Smaller projects might be installing low-flow faucets, showerheads, and toilets or replacing incandescent lighting with high-efficiency LED lighting.
Capturing Potential Savings
Whether a property was built 10 or 100 years ago, most have the potential to save 20% to 40% in water or energy consumption annually. This largely holds true regardless of the amount invested or the age of the property.
Many Reasons to Go Green
The TBL is an accounting framework that’s been around since the 1990s. TBL recognizes that businesses make money. Studies show that green buildings have higher property values and higher cash flows than conventional buildings.
But we can go beyond the traditional profit measures of return on investment and shareholder value to include environmental and social dimensions. In other words, you can do good by doing well. You can make money while positively and measurably impacting the social bottom line (people) and the environment (planet).
Energy costs account for a substantial share of the cost of living in rental housing, especially among low-income tenants. Over 80% of our financed units are affordable for working families, and helping those buildings become more water and energy efficient can mean lowering their utility bills.
These cost savings mean that tenants can spend more of their hard-earned money on other daily expenses, like education, transportation, health care, and child care.Plus, residents will be living in housing that’s more resilient to natural disasters or breaks in utility services.
For example, these homes may still draw power from solar panels during widespread power outages. And the people living there could see increased health benefits. They can enjoy living in a healthy home environment.
Green building even creates jobs. As noted by the U.S. Green Building Council, the industry’s direct contribution to U.S. gross domestic product (GDP) is expected to reach $303.5 billion from 2015 to 2018.
Helping Our Planet
Buildings take up a tremendous amount of the earth’s resources. According to the EPA, buildings account for:
· 39% of total energy usage from fuel oil, coal, and other energy types;
· 68% of total electricity consumption;
· 12% of total water consumption; and
· 38% of carbon dioxide emissions.
Green buildings are helping to conserve these resources through better siting, design, construction, operation, maintenance, and removal—the complete building life cycle.
Incorporating green building principles into property improvements enhances the overall quality of the existing multifamily housing stock and provides impact, including TBL benefits to property owners, tenants, lenders, and investors.
Sure, the green multifamily market is still young in comparison to other real estate sectors, but we’re seeing more interest, commitment, and growth now than ever before, underscoring the need and desire to do good by doing well.