An Inside Look at Fannie Mae’s New Plan to Reward Green Communities
- Mar 13, 2015
Washington, D.C.—Fannie Mae intends to reward multifamily properties with green building certifications, such as LEED, with lower interest rates, according to a recent announcement by the Washington, D.C.-based U.S. Green Building Council (USGBC). With a portfolio valued at more than $200 billion, Fannie Mae is the nation’s leading provider of multifamily financing.
Fannie Mae will now grant a 10-basis-point reduction in the interest rate of the refinance, acquisition or supplemental loan of a multifamily property. All loans financed under the lower interest rate will also be securitized as a Green MBS.
That will increase the total volume of Green Bonds in the market for socially responsible investors to include in their portfolios.
There has been confirmation that LEED buildings have reduced monthly energy and water expenses. A U.S. Department of Energy study found that LEED buildings consume approximately 25 percent less energy and 11 percent less water, and incur 19 percent lower maintenance costs.
The result of these cost efficiencies is greater disposable income for families and more comfortable, healthier indoor environments for residents.
“We have a strong relationship with Fannie Mae and recently worked with them on the development of the new Energy Star tool for multifamily,” USGBC spokeswoman Marisa Long told MHN.
“Fannie Mae is leading the way in the financial industry to support green building, as is showcased in the new ways they are acknowledging the benefits, cost savings and qualities of green properties. Fannie Mae understands that green certification equates to better quality buildings.”
As an example of how the lower interest rate would benefit the industry, imagine a four percent market interest rate on a multifamily loan. With this pricing break applied, the new rate would be 3.9 percent. On a $10 million loan amortizing over 30 years, the owner would save $95,000 in interest payments over a 10-year term.
The pledge by the multifamily financing provider is a demonstration of leadership from Fannie Mae, and a statement on the partnership between the multifamily finance industry and the green building industry, said Rick Fedrizzi, CEO and founding chair, USGBC. “This is real money and an incentive to not only build green but also for existing buildings to achieve certification,” he said.
“For the first time, Fannie Mae multifamily lenders will be able to reward building owners for their better buildings.”
Added Fannie Mae’s executive vice president for multifamily Jeffery Hayward: “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. Our lenders are ready with financing solutions to help multifamily owners make their properties more energy and water efficient for today and for the future.”
It’s expected the initiative will spark additional green building development. Said Long: “We do see the steps that Fannie Mae is taking–including the Energy Star tool and lower interest rate–leading more developers and building owners to pursue the LEED green building system as the best option for making their buildings save money and be healthier and more efficient.”