Developers and investors will be able to cash in when financing multifamily properties that have a green building certification. In February, Fannie Mae announced that it will give discounts on interest rates if the buildings have an energy stamp of approval.
A 10-basis-point reduction in the interest rate of a multifamily refinance, acquisition or supplemental mortgage loan will be automatic for an energy efficient-certified property, according to Fannie Mae. That means, for example, that interest on a market rate loan of 4 percent will drop to 3.9 percent. On a $10 million loan amortized over 30 years, that’s a savings of $95,000, says Fannie Mae.
Buildings that are ENERGY STAR certified, LEED-rated or meet Enterprise’s Green Communities Criteria qualify for the savings.
In the past, an energy-efficient apartment building has meant good marketability and also added up to some healthy savings for the resident or property owner. Now, it can mean savings before the first light switch is flicked or the faucet turned on.
“It’s a very real indication that having this certification is worth it, to give you a lower-priced loan,” said Michael Zatz, Chief of the Market Sectors Group in the ENERGY STAR Commercial Buildings Program. “It’s an indication of the value of the certification.”
More multifamily properties achieving ENERGY STAR certification
The announcement follows recent movement by the apartment industry to get more energy efficient. Participation in the Environmental Protection Agency’s (EPA) new ENERGY STAR certification program for existing multifamily properties, no matter the age or size, is healthy, says Zatz.
Within two months of the program’s launch, 17 properties received their ENERGY STAR certification. Through the end of February, the number had more than doubled. In addition, more multifamily properties are using EPA’s Portfolio Manager® to benchmark energy and water usage.
“We’re quite happy with that,” said Zatz who has spoken to the multifamily industry about the ENERGY STAR program at National Apartment Association conferences. “The response so far has been really outstanding. We’re very happy with the response both in terms of energy benchmarking with Portfolio Manager and also with buildings pursuing ENERGY STAR certification.”
Zatz said participation has included a well-rounded mix of buildings types, sizes and ages, which is proof the program is working. Previously, ENERGY STAR certification was limited to new high-rise apartment buildings.
Two properties in New York City operated by one of the largest multifamily companies in the U.S. plus high-rises in Seattle and garden-style properties in other locations are among the first to be certified. Most, Zatz said, are in areas where apartments are required by law to benchmark energy usage.
Older buildings competing side-by-side with newer ones
Interestingly, some older master metered properties have gotten their certifications while competing head-to-head with newer buildings. One of the first to be certified is a 1950s-era multi-building property in Arlington, Va., not far from EPA’s Washington headquarters.
“Older buildings are just as likely to be energy efficient and be among the top performers and attain an ENERGY STAR certification as newer buildings are,” Zatz said. “In fact, a number of cities that have benchmarking laws have done their own studies of all the buildings reporting data. Pretty much across the board what they’ve found is that the age of the building is not correlated with their energy performance at all, meaning older buildings are just as likely to be good performers.”
Zatz suspects that one reason older buildings can compete with newer buildings is because of the more traditional construction standards. Older buildings tend to be built from brick and other materials that are better insulators. A lot of new construction, Zatz says, includes glass exteriors
As for benchmarking, more properties are signing up for EPA’s Portfolio Manager, which is a repository where energy and water usage can be documented. The program has been around for more than 15 years and is gaining momentum with mandatory benchmarking in some cities. But properties in areas where benchmarking isn’t a requirement are opening accounts.
By the end of 2014, Portfolio Manager had 24,000 multifamily properties representing about three billion square feet of space on board. Prior to the rollout of the new ENERGY STAR program, the data bank had about 18,000 properties.
“We’re very happy that these numbers are growing in other areas as a voluntary tool,” Zatz said.
EPA hopes to work with properties on energy efficiency engagement
Next, Zatz hopes EPA can work with properties who sign up for Portfolio Manager and show them how to save energy and water. He said EPA is already working with some organizations to roll out programs possibly as early as this year to encourage managers and residents to be more energy focused.
“Something that is going to be critical to the performance of multifamily buildings is engaging with the resident,” he said. “The resident drives so much of the energy performance of the building that I think it’s going to be absolutely essential for a manager and an owner to get the residents engaged in the process of saving energy.”
And that can lead to some savings at the loan office.