Green lending is back, thanks to record-low interest rates and other factors that allow borrowers to retain more loan proceeds and enjoy lower payments. In addition, the early response to COVID-19 interrupted the flow of commercial loans, leaving Fannie Mae and Freddie Mac behind on their respective $100 billion lending caps for 2020. The combination of ample funds available at low rates has created a hot multifamily market, particularly for affordable housing projects, which often have a green component. Together, these factors create the perfect environment for borrowers to take advantage of the benefits of green lending programs.
As the market leader in multifamily financing and green financing, Fannie Mae has made great strides to incentivize borrowers and owners to invest in strategic, green, and sustainable property improvements via its Green Rewards Program. Although their Green Rewards program isn’t new, in the past the focus was primarily on energy and water efficiency improvements. However, one of the most effective ways to reach full energy efficiency as required is to install a solar system on the property. Although these systems can be expensive, they can turn great rewards into savings to ownership and potentially tenants – and the low interest rates along with the green lending programs help make solar a reality. As an added bonus, Fannie Mae recently created a new incentive to their program to help with their push to invest in solar, which is starting to attract interest.
What is Fannie Mae Multifamily Green Rewards?
Fannie Mae’s Multifamily Green Rewards is a mortgage loan financing program available to borrowers who have elected to reduce energy and water usage of their property by a combined 30% in an effort improve both the cash flow and quality of their property. Of the 30% minimum reduction required, at least 15% of the savings must be attributed to energy savings.
The Green Rewards program already offers several benefits to the borrower, such as lower interest rates, up to 5% more loan proceeds, and free Energy and Water Audit Reports. Now, Fannie Mae has expanded the program to include a free Technical Solar Assessment of the property for those who are interested and approved to go Solar.
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Although financing multifamily properties can seem daunting due to program requirements, that should not be a deterrent to borrowers or lenders from taking advantage of the many benefits they have to offer. Working with consultants familiar with navigating all of Fannie Mae’s due diligence reporting requirements is key to an efficient and smooth approval process.
What is the Purpose of a Technical Solar Assessment?
A Technical Solar Assessment (TSA) is conducted to determine a property’s renewable energy potential and is documented in a Technical Solar Report. The report is a new form of due diligence Fannie Mae requires that identifies a practical and achievable solar system design and specifications for a building using calculations and models that reasonably project consumption and cost reduction.
Beyond detailing the potential for solar, the TSA also provides the parties involved with a confirmation that the recommended system can be built. Through a thorough analysis of the local permitting process and communication with the local utility, the TSA reduces the potential for roadblocks during the development phase of the installation. Since the TSA is the last form of due diligence conducted prior to the closing of the loan, an analysis of the system’s feasibility is a critical part of the project.
When Would a Technical Solar Assessment be Conducted?
Typically, the TSA is triggered and conducted after a Pre-Qualified HPB Consultant has performed a High-Performance Building (HPB) Report and has determined that the property is suitable for a solar PV system as an efficiency measure. The HPB report makes this determination based on an analysis of utility data and potential system sizing. However, in some circumstances due to limitations on time (usually for acquisition projects), the TSA and HPB report will need to be conducted concurrently. In this case, the parties completing the reports will ensure that the recommendations match up prior to submission.
Both the TSA and HPB reports are eligible to be 100% reimbursed by Fannie Mae and are prerequisite components to being qualified for the Green Rewards Program. The TSA cost is reimbursed by Fannie Mae as long as (1) the proposed solar system is selected and implemented and (2) the loan closes as a Fannie Mae Green Rewards Mortgage Loan. The HPB Report (aka Energy and Water Audit Report) cost is also reimbursed if the loan closes as Green Rewards and complies with its eligibility requirements and reimbursement submission deadlines.
What Does a Technical Solar Assessment Consist of?
Once the HPB report has concluded the property is capable of meeting the required energy savings goal and has determined the appropriate size of the solar system needed, a TSA can then be performed.
The TSA is broken into three phases. Phase 1 consists of a review of the property’s utility account(s) and meters; kWh consumption and overall kW capacity; and the associated rates paid for generation, transmission, and distribution. During Phase 2, the Technical Solar Consultant conducts a site visit to the property to assess the potential for the solar PV system. Phase 3 incorporates all the information gathered in prior phases with structural and electrical engineering calculations, location specific historical weather data, specific solar system component selections, interconnection feasibility and permitting considerations which together provide a comprehensive renewable energy analysis. The final analysis is submitted in the form of a Technical Solar Report which includes a financial analysis of the proposed project, technical specifications and configurations for the solar array along with an energy generation simulation for the proposed design.
The Technical Solar Report and the associated form 4099.I, which documents the recommended renewable energy measures identified for the property, are then submitted to the lender and Fannie Mae as part of the Green Rewards Mortgage Loan. If the borrower elects to install the system, 75% of owner-paid savings and 25% of tenant projected cost savings may be included in the Underwritten Net Cash Flow. At the end of the analysis, the TSA must clearly show with a strong confidence that the system can be built, connected, and designed with accurate costs and the report must be completed within 10 days of closing of the loan.
Who Can Conduct a Technical Solar Assessment?
Only Technical Solar Consultants that hold one of the following three professional designations may conduct the TSA:
- PV Installation Professional (PVIP) certification, certified by North American Board of Certified Energy Practitioners® (NABCEP®);
- PV Design Specialist (PVDS) certification, certified by NABCEP®; or
- PV Installer Specialist (PVIS) certification, certified by NABCEP®.
In addition, the Technical Solar Consultant must have completed at least 5 multifamily solar assessments in the past 2 years for PV systems greater than 20kW.
Fannie Mae, as well as Freddie Mac and HUD, offer increasingly competitive green lending products for borrowers, lenders, and anyone involved in the acquisition or re-financing of multifamily properties. The market for green lending is only going to grow; as it does, the proliferation of solar and the shift to more sustainable and renewable energy systems are not far behind. Qualified solar consultants can help you learn more about the potential for solar at your property.