Fannie Mae, on February 6, 2015, announced it will offer lower interest rates on loans made on certified energy efficient multifamily buildings. In an effort to further incentivize property owners to improve the energy performance, and therefore the quality and affordability of multifamily housing, Fannie will grant a 10 basis point reduction in the interest rate of a multifamily refinance, acquisition or supplemental mortgage loans. To qualify, properties must be certified under LEED, EPA’s Energy Star or Enterprise’s Green Communities criteria. Fannie Mae will securitize all loans financed under this lower interest rate as Green Bonds, which will be an attractive option for socially responsible investors to expand their portfolios.
This new program would cut a 4% market interest rate to 3.9%. The savings are significant: interest payments for a qualifying 30-year $10m loan would be reduced by $95,0000 over a 10 year term. The incentive applies to new and existing buildings, and is a part of Fannie’s Multifamily Green Initiative that “provides financing to invest in energy and water-cost saving improvements that lower utility costs, improve the quality of housing and lower risk.” The new mortgage discount is expected to encourage a huge number of multifamily owners to not only build green, but to invest in retro-commissioning of existing buildings in order to qualify for the price cut.
Building Green Is Getting Easier and Cheaper Fannie’s new program is just one more financial motivation for multifamily owners to pursue energy efficiency and green certifications for their buildings. There are an increasing number of green building and energy disclosure regulations, market forces are starting to reward sustainability and numerous funding and rebates programs are available that offset the costs associated with implementing energy efficiency measures to the extent that they often pay for themselves. As a result, more and more commercial property owners are opting to invest in measures to obtain LEED, Energy Star or other certifications that recognize buildings that are designed, maintained and operated to be highly energy efficient and promote renewable energy.
The financial argument for improving the energy efficiency of a building continues to gain strength: these buildings typically have reduced operational and maintenance costs, improved tenant attraction and retention, and greater asset value. Increasingly, tax and interest breaks like Fannie Mae’s new program provide an additional incentive to commit to green building improvements and/or systems.
In announcing Fannie Mae’s commitment to the lowered interest rates, Jeffery Hayward – Fannie Mae’s Executive VP for Multifamily said the organization, which is the nation’s biggest provider of multifamily loans, is leading the way in providing financial rewards for energy efficiency in buildings. “We clearly see the value in the triple bottom line of ‘certified green buildings’: financial benefits of lower operating costs for owners and tenants, social benefits of better-quality housing for renters, and environmental benefits for everyone.”
The USGBC agreed, stating that: “LEED buildings have been proven to have lower monthly energy and water costs, leaving more disposable income for families and creating healthier and more comfortable indoor environments for occupants.”