Multifamily Investors Warm to "Green Financing"

Fannie, Freddie Expected to Write Billions of Dollars in Green Loans

Apartment investors are expected to increase their efforts to “go green” this year, in part to take advantage of a growing financing program.

Fannie Mae and Freddie Mac both dramatically ramped up their green financing program last year. The programs offer lower interest rates on loans and added funding for buildings that save water, energy or both. Fannie increased its allocated green financing from $3.6 billion in 2016 to $27 billion last year. Freddie wrote another $18 billion in green financing loans last year.

Experts think the agencies will match or exceed that total this year, too.

The program may be particularly attractive to investors pursuing value-added strategies. In addition to the savings on debt, the improvements themselves reduce energy costs and boost net operating income. That double benefit will likely become more important as pricing for value-added plays increases as the economic recovery enters the late stages.

“Margins are getting compressed,” says Jeff Patton, a managing director at JLL who specializes in agency financing. “Anything owners can do to drive the bottom line, to lower expenses, they should do. If you’re not making these improvements, you’re leaving money on the table.”

The Federal Housing Finance Agency, which oversees Fannie and Freddie, allows the agencies to exclude a portion of the green financing from their annual lending caps. The FHFA has increased the amount of water or energy savings owners must achieve to qualify for the green rewards program. Older properties that reduce water or energy use by 25 percent qualify for the program - that is up from the 15 percent and 20 percent Fannie and Freddie required in the past.

“We’ve been surprised,” says Patton. “We’ve seen owners achieve these savings on properties built as late as 2010.”

John Doherty, Multifamily Reporter  CoStar Group