NATIONAL CITY, CA—Walker & Dunlop Inc.'s recent structuring of Fannie Mae's first Green Rewards loan backed by a senior-housing property paves the way for more loans of this type, managing director Jeff Ringwald and SVP Bill Jackson tell GlobeSt.com.

The pair recently led a team that structured an $82-million loan for Paradise Village, a class-A, independent-living, assisted-living and memory-care community located in National City. The transaction represents Fannie Mae's first Green Rewards loan backed by a seniors housing property.

The ten-year loan provided a two-year period of interest-only payments and a 30-year amortization schedule for Generations Senior Living, a long-standing repeat Walker & Dunlop borrower. The financing replaced a previous construction loan and provided cash-out to enable the financing of an adjacent, newly developed memory-care facility when stabilized.

In addition to lower interest rates, the Green Rewards program provides up to 5% in additional loan proceeds and free energy and water audit reports to finance green improvements. As part of the Green Rewards program the sponsor is in the process of installing a solar and battery-pack system to enhance energy efficiency and yield substantial future utility savings at the property.

Built in 2009, Paradise Village consists of seven four-story buildings and 394 units. Community amenities include a pool, clubhouse, performance stage, meeting and banquet rooms, a library, hobby shop, art studio, and several shops and services. The property is adjacent to Paradise Valley Hospital and within walking distance to several restaurant, entertainment, and grocery options. It was developed through a partnership between an affiliate entity of Generations Senior Living and a faith-based, non-profit hospital that has nearly 20 hospitals and 280 clinics under its management.

We spoke with Ringwald and Jackson about lenders' willingness to finance green transactions for senior-living properties and where they think green financing is heading.

GlobeSt.com: What are you noticing in terms of lenders' willingness to finance green transactions for senior-living properties?

Ringwald: This was Fannie Mae's first seniors Green Rewards deal, and incidentally it was Bill's and my first Green Rewards deal as well; we focus mainly on seniors properties. As the number-one Fannie Mae DUS® Green lender in 2017, however, Walker & Dunlop does a lot of green volume, and we have a deep bench of experts who know this product well. In this case, we knew our client was implementing a significant solar and battery-pack system, so we simply asked Fannie if we could do a Green Rewards financing on the property. They were amenable, and it worked out well for all parties—providing savings for our client and allowing us to expand our team's expertise with knowledge of more Fannie Mae products.

Jackson: In terms of general lender willingness, obviously the Green Rewards program on the conventional multifamily side has been used quite extensively over the last couple of years. It's not so much a matter of lender willingness as it is educating borrowers on the program. As green becomes more well known to lenders, they will feel more comfortable talking about the benefits.

GlobeSt.com: What criteria do the lenders look at for in seniors' transactions when deciding whether or not to finance them?

Ringwald: The underwriting criteria for seniors-housing permanent loans is much more stringent, with higher debt-service-coverage ratios and lower LTVs as compared to multifamily. Due to higher valuations in Southern California, we were fine on the LTV side of the equation, but were more DSCR constrained. The borrower's plan to install the solar and battery-pack project yielded projected utility savings around $275,000 annually. Through the Green Rewards program we were allowed to add back a significant portion of these savings to the NOI and achieve higher loan proceeds. The improved terms and structure afforded with the Green Rewards proved to be a win-win for all involved as well as addressing the expensive utility costs.

Jackson: In terms of the Green Rewards program and this deal, the actual closing was late last year, and at that time utilities savings needed to be 20% on an annual basis, but both Fannie and Freddie have inched that up to 25% for 2018, whether it's via water (faucets, toilets) or energy (windows, solar, HVAC, etc.). The green requirements were the same for this seniors property as they would be for any multifamily asset, and that also is true today with the updated 2018 requirements.

GlobeSt.com: How has lenders' view of green financing changed over the years, and where it is heading?

Ringwald: We will definitely start providing more education on the green product to our borrowers. From a seniors-housing standpoint, we foresee these types of loans increasing. As you can see, the multifamily side has continued to increase over the past few years. Education and getting the word out are important.

Jackson: It has become a more well-known loan option over the last few years. If a property is eligible and the green report shows that the property qualifies, it makes all the sense in the world to the client.

GlobeSt.com: What else should our readers know about this trend?

Ringwald: We will see more green transactions in the seniors category. Fannie Mae now has a dedicated WebEx information session for DUS® seniors housing lenders to promote the product, so we think we will see an uptick.

Jackson: Green financing is a box that more and more clients and lenders will try to tick on every deal they do. Being such a large producer of Fannie Mae, Freddie Mac and green loans, Walker & Dunlop has a proven platform to support our clients throughout their journey—from educating them at the beginning of the transaction to delivering results through our strong underwriting and closing teams.

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