Value-add multifamily investors benefit from green financing
Apartment investors have taken advantage of low-interest loans through green financing programs offered by Fannie Mae and Freddie Mac, with about 40 percent of the organizations’ business being green.
The loans have proven so useful to value-add investors – those who typically renovate properties to improve the income produced by the apartments – scores who qualified for the green incentives in 2017 are now finding that federal regulators raised the requirements for new loans in 2018, reports National Real Estate Investor.
But that move doesn’t appear to have deterred those seeking funding, largely because green lending programs often are a third of a percentage point in interest lower than loans offered by government-sponsored entities (GSEs).
Freddie Mac financed $18.7 billion in loans for energy or water improvements in 2017. That was up from $3.3 billion in 2016. Freddie Mac’s green lending in 2017 was also more than a quarter (26 percent) of its $73 billion in overall multifamily financing activity.
Fannie Mae financed $21.5 billion in green loans, nearly a third (32 percent) of the agency’s total $67 billion in multifamily financing activity last year.
Renovations that save energy and water have become much less expensive over the last few years and that has made these improvements much more attractive as investments, officials say.
The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, set a new, higher standard for 2018. To get the discount, properties now must have a credible plan to reduce to use of energy or water at the property by at least 25 percent. In 2017, borrowers had to meet a lower standard set by either Fannie Mae (20 percent improvement) or Freddie Mac (15 percent improvement).
Energy and water improvements incentivized by Fannie Mae and Freddie Mac financing provide a clear route to improve the income from an apartment property.
That’s a big benefit for value-added investors, who buy buildings and renovate them to improve the operating income produced by property, typically with a plan to sell within a few years.
Fannie Mae and Freddie Mac offer the discount on all of their loans to qualifying properties, from short-term rehab loans to permanent financing.