A new green rating system for multifamily housing will be available in the fall of 2014. The Environmental Protection Agency (EPA) announced yesterday that the multifamily score will be a part of its ENERGY STAR Portfolio Manager Tool, and will enable owners and managers to benchmark the energy performance of their multifamily buildings.
The ENERGY STAR rating system was developed in collaboration with Fannie Mae, which also administers the Green Refinance Plus Program.  It has been said that if Fannie Mae ever got into supporting energy efficiency in multifamily properties, that sector would be changed to the core.  After all, Fannie Mae is the secondary market for over 15% of all of multifamily projects. With EPA’s latest announcement, it appears the multifamily sector is well and truly on its way to a greener future.  
Encouraging Energy Efficiency in Multifamily Buildings
There is concern across the industry about the nation’s aging building stock.  Agency lenders are increasingly looking for ways to encourage borrowers to invest in upgrades that improve the energy efficiency of their buildings.  One way to incentivize this is to provide attractive loan terms for borrowers who are looking to invest in poor performing buildings.  Implementing a building rating program that places value on energy efficiency may also encourage building owners to improve the energy performance of their stock.  
Green rating programs allow a building’s energy performance to be scored and compared, and agency lenders are increasingly using this information to influence their multi-family deals.  The scores allow lenders to identify poor-performing buildings and potentially offer more attractive loans with increased loan limits and reduced interest rates to borrowers who are looking to improve the energy efficiency of these buildings.
In addition, lenders may also be able to offer more attractive loans on buildings with high energy efficiency scores –  based on the assumption that green buildings yield improved returns and have lower risk (thanks to increased asset value and reduced operational cost).  All this can only be possible if there is an objective and easy way to rate the energy performance of buildings.  
Like Fannie’s development of the ENERGY STAR Benchmarking system, Freddie Mac recently announced its own plans to develop a rating system to benchmark and score multifamily buildings.  By demonstrating the financial value of energy and water efficiency to lenders and borrowers, Freddie said it hopes to be able to influence lending  practices in ways that encourage investments in energy efficiency and make multifamily housing units more affordable. 
EPA’s ENERGY STAR Multifamily Score
The EPA ENERGY STAR for Multifamily Program aims to offer a nationally recognized metric to track a multifamily property’s energy performance against similar properties.  This will provide owners and operators valuable information to help them prioritize energy efficiency efforts and track improvements.   My colleagues Kelsey Namara and Natalia Blackburn recently attended a webcast sponsored by the EPA and they offer the following progress report on the development of a multifamily ENERGY STAR initiative.  
Fannie has compiled a detailed Multifamily Energy and Water Market Research Survey receiving data from over 1000 multifamily buildings.  These surveys have formed the basis of extensive analysis by EPA to begin building a nationally recognized ENERGY STAR score for multifamily properties.   
Currently multifamily properties can be tracked in the EPA’s Portfolio Manager, but multifamily properties cannot yet be benchmarked against other properties of similar type, nor can they receive an ENERGY STAR certification and plaque to show that a building is in the 75th percentile or above in energy efficiency.
Analysis by the EPA, though not complete, uses a least square regression to correlate multifamily energy usage with multiple variables.  The list of data needed to be inputted by the property owner appears to be straightforward, as illustrated in the Working Model image. 
Several factors that one might expect in this model were not found to be statistically significant, including the number of buildings in a complex, the resident population, or the number of floors.  Factors which were not in the working model due to insufficient data included presence of laundry hook-ups, presence of dishwasher hook-ups, % of common areas , % occupied, presence of fitness center, among others.  Nevertheless, the EPA’s statistical work has led to a model that is robust and suitable for the ENERGY STAR protocol development. 
EPA has announced that it will share details of the technical methodology and requirements, as well as opportunities for new construction and existing buildings in the coming months.  We will keep you informed as we learn more to help you prepare for the ENERGY STAR score for multifamily buildings.   In the meantime, please feel free to contact me if you would like more information on the EPA ENERGY STAR Multifamily score, Portfolio Manager, or other multifamily energy programs.