1. Leveraging Green Incentives to Increase NOI
Moderator:
Ravi Malhotra, ICAST
Panelists:
Scott Hays, ICAST
Aniko Chu, Churchill Stateside Group
Rachel Davis, Petros PACE Finance

2. Contact Information
601 Cleveland Street, Suite 850
Clearwater, FL 33755
(P) | (F)
Experience & Integrity

3. Green Financing Programs Overview
Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) want to make it easier, and more cost effective, for multifamily owners to go green
All three lending programs designed to recognize green building measures
Owners can get additional loan proceeds, and better pricing, to make energy- and water-efficiency improvements on their properties.

4. Green Financing Programs Overview
FHA took the first step when it began offering mortgage insurance premium (MIP) reductions on green multifamily loans
Fannie Mae implemented its own green financing program, which has significantly expanded ever since
Freddie Mac came out with its own, rival program
Each updated existing programs and/or introduced new programs that were significantly more attractive than previous iterations.

5. Why are these green financing programs so attractive?
Higher underwritten NOI & Value – depending on the program, Lenders are able to underwrite up to 75% of
anticipated utility cost savings
resulting in additional proceeds
for the borrower.
Additional loan proceeds – the
borrower can utilize proceeds for
energy or water efficiency
improvements

6. Why are these green financing programs so attractive?
No spending caps – green lending programs are not subject to the annual FHFA lending cap, allowing agency seller/ servicers more capacity for more green loans
Audits are paid for (Freddie and Fannie) – Freddie Mac will reimburse the borrower $3,500 for their required energy study and Fannie Mae will reimburse in full for their required energy / water efficiency study.
Preferential pricing - 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

7. Fannie Mae Green Initiative
Green Rewards: Requires minimum projected reduction of 20% energy or 20% water consumption.
Reimbursement for 100% of the cost of a High Performance Building (HPB) report (equivalent to ASHRAE Level 2 energy and water audit), subject to loan closing
Better pricing on refinance, acquisition, supplemental, and 2nd supplemental loans.
Up to 5% additional loan proceeds. Underwriting of 75% of owner’s and 25% of tenant’s projected energy and water cost savings.
Disclosure of the loan as a "Green MBS" to the bond market.
Green Certification Pricing Break:
Better pricing on acquisition, refinance, or supplemental loans for properties that are ENERGY STAR certified.

8. Fannie Mae Green Initiative
Green Preservation Plus
Reimbursement for 100% of the cost of a High Performance Building (HPB) report (equivalent to ASHRAE Level 2 energy and water audit), subject to loan closing under Green Preservation Plus.
Better pricing on refinance and acquisition loans
Up to 85% LTV.
1.15 DSC.
Up to 5% more loan proceeds.
Disclosure of the loan as a “Green MBS”
to the bond market.

9. Freddie Mac Multifamily Green Advantage
Green Up - Property energy and water usage must be recorded in EPA Portfolio Manager before closing and annually until 2 years after project completion.
$3,500 toward energy audit (Green Assessment).
For properties with projected savings of 15% or more in energy and/or water consumption based on Green Assessment, Freddie Mac will underwrite up to 50% of projected energy savings.
Better pricing.
Up to 5% additional loan proceeds.

10. Freddie Mac Multifamily Green Advantage
Green Up Plus - Property energy and water usage must be recorded before closing and annually until 2 years after project completion.
$3,500 toward ASHRAE Level 2-compliant energy audit (Green Assessment Plus).
For properties with projected savings of 15% or more in energy and/or water consumption based on Green Assessment Plus, Freddie Mac will underwrite up to 75% of projected energy savings.
Better pricing.
Up to 5% additional loan proceeds.

11. Freddie Mac Multifamily Green Advantage
Green Certified
Discounted loan pricing for properties that have affordable rental units and that are ENERGY STAR certified as a multifamily property.
Green Rebate
Up to $5,000 cash rebate at time of loan purchase on new property loans to borrowers on their first mortgages, for benchmarking their property in Portfolio Manager and submitting a valid ENERGY STAR score -- no minimum score required.

12. FHA Mortgage Insurance Premium Reduction
As of April 2016, HUD offers mortgage insurance premium (MIP) rate reductions for FHA insured multifamily loans secured by buildings that attain Green certification.
Annual MIP rates are reduced to 25 basis points from current rates, which are typically between 45 and 70 basis points, for multifamily FHA-insured loan types that meet two conditions:
The building must be Green Certified, or the building owner must attest that s/he is seeking Green certification for the building.
The owner must attest that the building has achieved or will pursue an Energy Score of 75 or better using EPA’s Portfolio Manager. The score must be verified by a qualified assessor in preparing the physical condition assessment report.
MIP rate reductions are available for multifamily new construction, renovation, refinance, purchase, or seniors’ housing. Green offers flexible and affordable certification for either new construction or renovation and, consequently, is a great path for builders seeking to qualify for MIP reductions.

13. FHA Mortgage Insurance Premium Reduction
Why are MIP rate cuts important for YOU?
Reduced MIPs will provide savings in the development budget as well as in operating costs.
Ongoing operational costs will be reduced in the long term allowing more cash flow to you.
For example: $15 million refinance loan will save $112,500 in upfront and $30,000 in annual MIPs
Tenants also benefit. The green units can be 20% more energy efficient systems, keeping utility cost down.

14. Mortgage Insurance Premium Reduction

15. ICAST Qualifications 14+ Years of practical experience:
Staff with over 100 years of combined experience
Certified Technical Assistance Provider to HUD, USDA, Enterprise Community Partners, TDA Inc., ICF…
Green Property Needs Assessment (GPNA) provider in compliance with HUD, USDA, Fannie and Freddie requirements
ASHRAE Level 1, 2 and 3 Energy Audit provider
EPA-certified ENERGY STAR rating provider
ENERGY STAR score maintained for 70 MF properties

16. Benefits of Going Green
DECREASE
Financing Options
NOI
Property Value
Occupancy Rates
Health & Safety
Energy & Water Use
Resident Turnover
Carbon emissions
O&M costs
Mortgage Costs
INCREASE

17. FHA MIP Reduction – New Construction
Case Study: 222 unit market rate new construction
Built to 2015 IBC standards
Building model to determine usage
SEDI score of 83
Itemized ECM’s allowed for cost effective prioritization and value engineering

18. FHA MIP Reduction - Existing
Enter minimum 1 year utility data in EPM for ES “Score”
Electric, Natural Gas, and Water
Minimum 25% sample of tenant metered data
If >75, pursue Energy Star “Certification”
If <75, model energy savings for SEDI
LED’s and low flow’s sufficient?
Are more invasive measures required?

20. Energy Modeling Tenant vs. Common Area Lighting Fans Appliances
Faucets
Toilets
Misc.

21. Energy Modeling
HVAC
Infiltration

22. Energy Modeling
Insulation
HVAC
Windows
Infiltration

23. Energy Modeling
Insulation
HVAC
Windows
Boiler
DHW
Infiltration

24. Energy Savings = Increased NOI
15-25%
Savings
30-50%
Savings
HVAC
MATH
MODEL
In this business as usual example…

25. Green Capital Stack Options
Off-Balance-Sheet Financing
EPC
PACE
PPA
EaaS
Green Lending Incentives
FHA – MIP Reduction
Fannie – Green Rewards
Freddie – Green Advantage
EQUITY
LIHTC
HOME FUNDS
Bridging the Gap in Financing
DEBT
BONDS
SOFT LOANS

26. Off-Balance-Sheet Financing
Energy Savings:
EPC - Energy Performance Contract
For PHA, USDA, Market Rate
PACE - Property Assessed Clean Energy
For all MF in eligible counties
Energy Production:
PPA - Power Purchase Agreement
Leveraging solar for reduced utility rates

27. Off-Balance-Sheet Financing
Energy As A Services:
3rd Party Capital for Energy and Water Investments
Repayment via Utility Bill Payments
UA transfer to Utility Payments
For Subsidized and Market Rate

28. Rental Assistance Demonstration (RAD)
For tenant-paid utilities:
75% of Energy Cost Savings moved from Utility Allowance to Rent Increase
E.g. If green upgrades save $40 in UA, then $30/month is rent increase
For owner-paid utilities:
Energy Cost Savings = Greater NOI = Access to additional capital
E.g. If energy savings = $50,000/year, then NOI is greater by $50,000
If you do it wrong it can cost you!

29. Green Lending Incentives

30. Timeline: ECM’s Payback
Time (Years)
2-4
5-8 20
10-12
HVAC
<1
Solar

31. Timeline: ECMs in an EPC
Time (Years) 15
HVAC
Solar

32. Off-Balance-Sheet Financing

33. ICAST is Your One-Stop-Shop!

34. Thank you! Ravi Malhotra Founder and President ravi@icastusa.org