Lenders are beginning to notice ‘green’ multifamily building

December 28, 2016 | By

Over the past several years, there has been a lot of interest in making multifamily buildings green, says Francisco Nicco-Annan, an economist in Fannie Mae’s Multifamily Business and co-author of Fannie Mae’s Multifamily Market Commentary for November.

Participants span all sectors and industries in the economy with the goal of reducing the consumption of natural resources by buildings, transportation, and people in general. The trick is keeping everyone on board – maintaining profitability while cultivating happy customers.

Fannie Mae’s multifamily business provides financial incentives for going green. A webpage focusing exclusively on green multifamily provides all of the particulars and a good sense of where the company is moving on this key issue – with its links to improving both housing affordability and the environment.

Read more: ‘Green’ rentals can save money and preserve affordability

“The great thing about being green is that it’s a win-win for everyone,” says Nicco-Annan. “When owners save money, it reduces the pressure to raise rents. That helps tenants save while at the same time extending the useful life of the property.”

“And there’s also a positive outcome for the environment because you’re conserving water and energy,” he adds. “Multifamily lenders have taken notice.”

Affordability Crunch

Pursuing ways to moderate housing rental costs makes good sense at a time when observers such as Harvard University’s Joint Center for Housing Studies are tracking affordability trends.

A Joint Center rental housing report published at the end of 2015 found an “unprecedented surge” in rental demand. Some 43 million families and individuals in mid-2015 were renting their homes. (Roughly 40 percent of those homes were single-family – including mobile homes – and 60 percent were multifamily.)

There were nearly 9 million more renters in 2015 than in 2005, the report said. That was the largest gain in any 10-year span in the history of the country.

The number of “cost-burdened” renters last year was also a record setter. Renters paying more than 30 percent of their income on housing climbed from 14.8 million in 2001 to 21.3 million in 2014. Those stretching to more than half of their income rose from 7.5 million to 11.4 million.

The Joint Center will publish a new America’s Rental Housing report in January. Kerry Donahue, the associate communications director, says statistics for 2016 don’t look promising. They will show the downward trend in rental affordability continuing.

Green Benefits

Helping to enlist green building to lower housing costs for renters also holds significance for Fannie Mae’s Multifamily Business. The lion’s share – more than 80 percent – of the units the company finances are for working families. Lower utility bills for these tenants will help further Fannie Mae’s support for affordable housing.

In addition to improving the satisfaction of tenants, green building can enhance financial performance and property condition.

“If you’re a developer or a multifamily building owner, then you’re always on the lookout for ways to save money” on construction or maintenance, says Nicco-Annan.

“If you’re a property manager, then you want to figure out the best way to reduce tenant turnover and keep your tenants happy and paying their rent by keeping the property in good condition,” he says.

Fannie Mae Multifamily green building products provide borrowers with an array of benefits – including preferential pricing and additional loan proceeds for energy and water efficiency retrofits.

Read more: Green Streets: How sustainability is transforming the housing market

What is Green Housing?

Nicco-Annan adds that it is fairly easy to identify what’s green. Fannie Mae is looking for at least one of three things:

  • The property has energy- and/or water-efficient systems and equipment.
  • It has a renewable energy system.
  • It has official green building certification. This includes certification from Leadership in Energy and Environmental Design (LEED), Energy Star, and local and regional programs such as Earthcraft (used mainly in the Southeast states) and Build It Green (primarily found in California).

“This is not as complicated as it might sound,” Nicco-Annan says. “For example, a multifamily building would be considered green if it has solar panels. But it would also qualify if it has something as simple as additional insulation, a heat-reflecting roof, or Energy Star-certified appliances in the units.”

Future Looks Green

Because they have come to see the benefits of green building, “lenders are now offering programs to incentivize an investment in making green improvements in multifamily properties,” he says.

November’s Multifamily Market Commentary adds that sustainability and green are relatively new concepts for the apartment sector. Buildings – especially those that are older – have not fully absorbed the benefits.

But “the future of green and sustainability in multifamily is very bright,” the report says. “With more awareness about the benefits of savings and effectiveness, we expect that green will become more widespread in the multifamily housing sector.”

 

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae’s Multifamily Economics and Market Research Group (MRG) included in these materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the MRG bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the MRG represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

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