Pairing Sustainability and Affordable Housing With Sadie McKeown
CPC Executive Vice President & Head of Construction Lending Sadie McKeown on energy efficiency and green initiatives in the affordable housing sector.
In the early 1970s, New York City was losing between 20,000 to 30,000 rental units each year in abandonment, fire or demolition. With a clear goal to address these issues, the Community Preservation Corp. was founded in 1974 and stands today as a Community Development Financial Institution solely committed to investing in multifamily housing. So far, the company has invested more than $11 billion to finance the creation and preservation of 196,000 units across New York State and beyond.
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Earlier this year, CPC announced plans to attain carbon-neutral operations during the 2020 calendar year. The initiative is in line with New York’s goal to reduce carbon emissions by 80 percent by 2050. To find out what steps the company is taking to fulfill this commitment and to learn how this bodes with the company’s investment focus on affordable housing, Multi-Housing News talked to CPC Executive Vice President & Head of Construction Lending Sadie McKeown. She heads the company’s construction lending and sustainability initiatives and leads CPC’s “underwriting efficiency” practice that incorporates energy and water efficiency features into the financing of first mortgages for multifamily building owners.
CPC’s sustainability plan includes purchasing electricity from renewable sources. Where are you acquiring it from and to what extent do your operations rely on clean energy?
McKeown: Our ultimate goal is to minimize our overall footprint as much as possible, but there are necessary functions, like literally keeping the lights on, that still require energy consumption. For these, we are making every conscious choice possible to be responsible and sustainable consumers, like using renewable energy suppliers for our office electricity when we have the option to do so. For buildings that we can’t choose our own supplier and for additional necessary usages, CPC will be purchasing Green-e Certified Renewable Energy Credits (RECs) to offset the greenhouse gas emissions and our Scope 2 emissions.
Has the company implemented energy and water conservation measures?
McKeown: Our offices in New York City and Westchester County were retrofitted with low-flow water fixtures and motion- sensor LED lighting to reduce water and energy consumption. But installing hardware for energy and water conservation is just a start. We put a big focus on educating our staff around reduction strategies that are easy to adopt, and developed sustainability guidelines to engage employees around ways to reduce our total carbon footprint both at the office and in their own homes.
We believe buy-in from our staff will make the biggest impact on our everyday behaviors, which will, in turn, lower our collective output. We found that many on our teams had the intention to make conscious decisions and develop sustainable habits but didn’t know how to do it on their own, or maybe didn’t feel like their individual efforts were impactful. When the opportunities were encouraged and made accessible, our staff was very excited to contribute.
What waste reduction strategies are considered/implemented at the company’s offices?
McKeown: Sustainability best practices are a priority and part of the conversation for all company activities, events and procurement strategies. Our sustainability guidelines also help employees implement waste reduction and recycling. We added composting services at our New York City headquarters and are looking to roll out similar programs at other CPC offices. We have also introduced companywide efforts to reduce paper usage and hold centralized e-waste drives to help employees properly dispose of electronics.
Are the technologies you use or plan to use for your operations also suitable for your multifamily portfolio?
McKeown: As a company and tenant of a large property, we are taking very specific and intentional steps toward more sustainable practices. Although CPC-financed projects are not part of our company’s own carbon footprint, promoting energy efficiency is central to our mission and we actively work with our borrowers and partners to pursue energy conservation and low-carbon measures.
As a lender, we cannot impose specific practices on our borrowers, however, we encourage and help finance certain measures for new construction and retrofits that increase efficiency and sustainability. These are methods that borrowers can integrate into their buildings and major systems such as heating and cooling. Since 2013, when we started measuring specific sustainability metrics, CPC has financed nearly 7,000 units of environmentally sustainable housing, which maximizes the economic benefits of cost savings and efficiency. The sustainable projects that CPC finances reduce whole property annual energy and/or water usage by at least 20 percent.
How does the company ensure a low-carbon commute and how do you approach business travel?
McKeown: We track employee commuting and business travel to include in Scope 3 of our annual carbon footprint calculation. The vast majority of employees at CPC, about 80 percent, are based out of the New York City office and use public transportation to commute to and from work, which is considered a best practice. Whenever possible, we replace business travel with teleconferencing and look to use the most environmental travel methods available, such as trains instead of airplanes.
Tell us more about the recent inaugural public debt offering, which raised $150 million in sustainability bonds. How will CPC use that capital?
McKeown: The capital that was raised supports our nonprofit mission of investing in affordable and sustainable multifamily housing in New York State. CPC’s construction lending is concentrated in New York State, and overall, one of the company’s main strategies is to expand its impact within the communities it serves, supported by its continued strong financial position. We applied the proceeds to refinance a portion of our existing debt on our syndicated line of credit that funds our sustainable and affordable multifamily housing projects, of which 75 percent meets the criteria of the 2018 sustainability bond guidelines.
What projects does CPC currently handle in the energy field?
McKeown: In line with CPC’s mission and in an effort to move the entire industry forward in sustainability, we have created several free resources and tools to educate the multifamily ecosystem about the benefits of energy and water conservation methods on their balance sheets, financing options and building operations. These can be used by our clients as well as anyone in the field.
CPC and energy services provider Bright Power developed CPC VeriFi, a free online software application that calculates potential utility savings and helps owners explore financing options for sustainable multifamily building upgrades. In 2017, CPC developed the Underwriting Efficiency guide to provide lenders, public partners and owners with a resource to finance energy and water efficiency measures as part of a first mortgage. We are currently developing a supplement to the guide with a focus on high-performance energy-efficiency practices for new-construction multifamily projects such as Passive House and Net Zero standards that will be published in the summer of 2020.
CPC and lead partner New York State Energy Research and Development Authority (NYSERDA) are working on convening a Carbon Neutral Summit later this year in a format conducive to the recommended social distancing guidelines at the time or as a virtual event. The goal of the Summit is to bring together a broad group of stakeholders in the real estate sector to discuss what is needed to achieve decarbonization in the built environment and exchange best practices.
What about investment properties? What measures is CPC taking to lower their carbon footprint?
McKeown: Currently, energy efficiency is a key consideration that we weigh when determining whether to make an equity investment. We also actively encourage our equity partners to consider energy-efficiency upgrades at their existing buildings. CPC is exploring a variety of strategies to reduce emissions at our investment properties, including a combination of tenant engagement, energy-efficiency upgrades and renewable energy generation and/or purchasing.
How advanced is sustainability in today’s affordable housing sector?
McKeown: Overall, sustainability is not integrated enough in the affordable housing space. Subsidies cannot be extended to cover the upfront cost increases associated with high-performance energy efficiency, making it difficult to obtain. More needs to be done to reinforce and expand the financing infrastructure for affordable projects that are also sustainable.
There are different considerations and resources available based on whether the project is affordable housing per a regulatory agreement with the city or state or naturally affordable based on local market factors. The mortgage market has tremendous power to drive demand through programs such as Fannie Mae and Freddie Mac’s green lending programs and the NYSERDA Multifamily Performance Program. And subsidy sources require standards such as the Enterprise Green Communities Criteria currently used for New York City’s projects funded by the Department of Housing Preservation and Development.
How do you see the affordable housing sector unfolding in the foreseeable future?
McKeown: The good news is that U.S. states and cities are rapidly adopting clean energy goals, leading to more stringent energy codes and requiring participation from the real estate and building sectors. Therefore, there is a growing interest in energy-efficient, low-carbon buildings, in addition to their improved durability and comfort.
There are certain regulations in New York City and State that are meant to significantly reduce emissions from real estate in the coming decades. In New York City, the Climate Mobilization Act & Local Law 97 is a suite of legislation pieces aimed at reducing greenhouse gas emissions from the city’s building stock 40 percent by 2030 and 80 percent by 2050. Current buildings with one or more rent-regulated units are exempt from Local Law 97 to make the preservation of affordable housing stock more viable and attractive.
However, these buildings will likely be included eventually as well, perhaps with longer timelines or less stringent caps. In New York State, the Climate Law and Community Protection Act is a historic climate law that puts New York on a path to reaching net zero greenhouse gas emissions by 2050. The question that remains is will the fines and penalties be enough to drive demand?