Green Updates Can Mean Serious Savings On Loans From Fannie Mae, Freddie Mac
Landlords that go green can also save some green.
Fannie Mae and Freddie Mac now offer incentive programs that reward landlords who make energy-efficiency updates to their buildings after they refinance with the agencies’ loans. While these savings can cover the entire cost of green upgrades, many property owners currently overlook them.
“The green updates essentially pay for themselves,” KeyBank Real Estate Capital Vice President Paul Angle said. “We always try to make sure landlords are aware of all their financing options and advise them on what improvements they can make to take advantage of the green programs.”
Both agencies’ programs offer landlords interest reductions of about five to 10 basis points on long-term loans if they commit to reducing their energy and water consumption. Fannie’s program, known as Green Rewards, and Green Advantage, the Freddie Mac program, both offer preferential pricing if landlords reduce their energy consumption by at least 15% and their combined water and energy consumption by at least 30%.
In one sense, hitting those benchmarks should be a reward in itself, Angle said. Installing more efficient infrastructure means saving on operational costs, which drives up a property’s net operating income.
“For every dollar saved in energy costs, your building receives a $20 boost in value, assuming a 5% cap rate,” Angle said.
Angle added that he has helped many clients build out road maps to make their buildings greener. The first step he always suggests is to upgrade lighting. Especially in common areas like lobbies and lounges, where lights often stay on day and night — and where landlords are always covering the utility bill — switching to LED lights can save 80% in energy costs over incandescent lighting, and significant amounts over fluorescents.
LEDs can also make a big difference inside tenant apartments. By providing efficient and variable LED lighting, Angle said, owners can help keep tenants from relying on their own incandescent lamps.
Installing low-flow showerheads and faucets is another simple way to save energy. These improvements work ideally for Fannie and Freddie’s programs, Angle said, because they save both water and the energy required to heat the water. Landlords can also add thermal window film or multi-pane glass to lower indoor heating costs.
Replacing outdated appliances, like top-loading washing machines or old air conditioning units and refrigerators can also go a long way toward cutting properties’ energy bills.
“Those are really the low-hanging fruit, and are what all borrowers should be doing, no matter what year their property was built,” Angle said.
But for property owners that want to go above and beyond — and for buildings that might already have some green advancements but need to cut more of their energy consumption to qualify for the agency incentives — new energy-saving technologies abound.
Smart thermostats, like those from Nest, can help building owners optimize their buildings’ energy usage throughout the day and as the seasons change. These thermostats also offer a perk for tenants, who are increasingly interested in tech-enabled and energy-efficient homes.
Plus, when they install these systems, Angle said, owners can invest in other technologies like smart doorbells that can mean greater satisfaction and a willingness to pay higher rents among tenants.
“Tenants really are starting to do these comparisons between different buildings,” Angle said. “They’re coming to understand not just the size of their utility bills, but also how where they live fits into a greener lifestyle.”
Some building-wide energy improvements Angle has seen include installing solar panels on rooftops and over parking lots, offering electric vehicle charging stations and installing a battery backup system that can store solar energy and power the building in case of a blackout or emergency.
For these more serious updates, lower-interest financing can really help defray the upfront cost, Angle said. Though many landlords know that Fannie and Freddie offer incentives for green updates, many more owners could be taking advantage of them.
“Part of my job is just to spread the word about these programs,” Angle said. “But I’m also there to help landlords figure out when and how to refinance with one of these agency loans, and help them create a path toward a more efficient future.”
This feature was produced in collaboration between Bisnow Branded Content and KeyBank Real Estate Capital. Bisnow news staff was not involved in the production of this content.