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Why 2017 Is Already The Year Of Green Multifamily Financing

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Habitat's South Commons residential apartments, Chicago

Last year, Bisnow and Hunt Mortgage Group explored Fannie Mae’s new Green Financing initiative as it unfolded to the public eye. Shortly thereafter, HUD and Freddie Mac followed Fannie’s lead by launching their own green financing programs. Now Fannie, Freddie and HUD all offer financial incentives to multifamily apartment owners to encourage the development and ownership of sustainable multifamily housing.

HUD’s program is relatively simple: If HUD deems the development to be green/energy-efficient housing, the agency will reduce the mortgage insurance premium by 25 to 35 basis points.

Fannie and Freddie essentially offer two types of programs for sustainable developments: a green rehabilitation product, which provides for preferential pricing and additional loan proceeds by accounting for future energy savings in the underwritten net cash flow, and a green certification program that offers preferential pricing.

Fort Capital began construction on its new 17k SF sustainable headquarters building at 105 Nursery Lane in Fort Worth, slated for completion in February 2017.

The green rehab programs are perfect for developers focusing on value-add opportunities. These programs reward developers who propose capital plans that reduce energy or water usage by 15% to 20%. Lenders are able to underwrite up to 75% of anticipated utility cost savings resulting in additional proceeds for the borrower.

The green rehab program does require the forecast reduction in utility usage and cost be confirmed by a third-party energy audit, but both GSEs will refund the entire cost of this audit under most circumstances.

Multifamily developments that have obtained one of the eight industry standard green building certifications (determined by the FHFA, which include LEED, Green Globes and Energy Star) are eligible to receive preferential pricing from both Fannie and Freddie.

The green programs have been a big hit with multifamily owners. Fannie closed $3.6M of mortgages under its green programs in 2016.

“This could be $3B to $3.5B in business in 2017,” said Peter Giles, the vice president of multifamily production and sales at Freddie Mac, in an interview with Multifamily Executive in 2016. “We’re hopeful to do maybe $1B by the end of this year.”

Hunt’s own deal closures from this past week speak to the power of green lending. The company financed three multifamily properties totaling $62.5M under Fannie’s Green Rewards program.

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