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Green Financing: Four Steps to Secure Funding and Better ROI

green financing loans
October 2017

On top of lowering energy and water usage by as much as 50 percent, owners who implement green financing programs will save on their mortgages.

The green financing niche began in 2009 with the Federal Housing Administration’s mortgage insurance premium (MIP) reductions on green apartment loans. Today, green financing continues to evolve and expand, with the Federal Housing Finance Agency (FHFA) excluding green-focused lending programs from the current cap of $36.5 billion, as well as apartment industry lenders Freddie Mac and Fannie Mae offering programs that provide access to better interest rates and increased funding on loans to finance energy and water improvements.

However, with multiple options available, property owners can find it difficult to navigate the process of securing green financing. Where do you begin to understand if you are eligible? What’s the ROI potential, and how can you implement the changes with minimal impact to residents?

The process is similar for most programs, however, for consistency, here are four steps to get on the green path using Freddie Mac’s Green Advantage program:

1. Eligibility

Green financing options are available to three main groups: Conventional Apartments, Targeted Affordable and Senior Housing. Borrowers need to commit to installing capital improvements that will achieve a minimum 15 percent reduction in the whole property’s annual water and energy use. This includes the following requirements:

  • A minimum green improvement budget of $350 per unit
  • Work must commence within 180 days
  • Improvements must be installed within two years

2. The Report

Once it is determined that a community is eligible, an energy audit report must be conducted to qualify for the Freddie Mac Green Advantage program. Be sure to choose a qualified Green AssessmentSM partner to meet the two-week deadline required by Freddie Mac. Property owners can receive a $3,500 credit for an energy and water audit, which identifies opportunities for reducing utility costs. Typically, the more rigorous the energy audit, the better the financing terms.

When reviewing the report, pay close attention to the summary of priority recommendations that often are included. In this section, recommendations such as toilet replacements, showerhead replacements, programmable thermostats, LED lighting and more will be recommended. That said, when considering how to implement a green savings program, it is important to understand that not all solutions are created equal.

3. Implementation

By far the greatest opportunity to affect the bottom line and exceed the 15 percent savings target is through water conservation. The Environmental Protection Agency estimates that 20 percent of all toilets in the United States are leaking and that U.S. homes waste more than 1 trillion gallons of water yearly. Apply these statistics to a property and imagine what kind of savings, in addition to increased efficiency, can be achieved.

To implement a water conservation effort, partner with a water-efficiency company that is experienced in green financing projects with lenders like Freddie Mac. For example, EcoSystems’ WaterWise program is specifically designed to maximize the impact of federal apartment rebate incentives. It includes affordable solutions such as high-efficiency toilet, shower and sink replacements that achieve savings that often exceed the 15 percent target and require minimal implementation time. As a result, residents experience very little interruption.

4. The Benefits

Beyond the environmental impact of lowering energy and water usage by 35 percent to 50 percent, property owners who implement green financing programs will save on their mortgage, achieve a rapid ROI and increase property profitability and property value through the resulting increase in NOI.

As apartment lenders continue to expand green financing benefits, there is no better time to take advantage of green property investments. By familiarizing yourself with the process, and securing the right assessment and implementation partners, a community will likely begin to reap the benefits — financially and environmentally — within a year. 

Richard Lamondin, EcoSystems