- Oct 03, 2017
Diverse Programs Dial Up Rewards for Efficiency
The financial and environmental rewards of improving energy efficiency are well known, yet even as upgrades become common practice, it’s fair to say that plenty of untapped opportunities await. Implementing efficiency measures in multifamily communities could yield $3.4 billion in annual savings, according to a 2016 estimate by the American Council for an Energy-Efficient Economy (ACEEE).
The multifamily market offers a host of energy-saving programs from utilities, government agencies and private lenders, but expanded incentives would almost certainly boost participation significantly. On the other side of the coin, getting buy-in from landlords and managers can be challenging. Some industry stakeholders believe that retrofitting costs, payback periods or both are still too risky. Yet another issue is the learning curve about the plethora of available incentives.
Despite these roadblocks, the case for energy-saving investment remains compelling, asserts Cliff Majersik, executive director of the Institute for Market Transformation (IMT), a nonprofit research and advocacy organization. “There are more opportunities in older buildings, but everyone can benefit—large and small, old and new.”
Upping the ante
The first stop for most landlords looking to finance energy-efficiency improvements should be their local utility, experts agree. In addition to incentives, many utilities also offer energy audits to help owners assess potential cost savings.
According to a February 2017 report by the ACEEE, utilities and related program administrators increased annual spending on multifamily programs by at least $180 million nationwide from 2011 to 2015. In 15 states, energy incentive investment for all building categories increased at least 65 percent. Florida, Indiana, Louisiana, Maryland, North Carolina and Washington, D.C., more than doubled their investment. And in eight other states, energy-saving investment increased at least 33 percent.
Expanded local incentives account for a good share of these increases. Eight metro areas introduced dedicated multifamily incentive programs during the same stretch, bringing the national total to 38 out of 51 metros surveyed. New programs have emerged in 22 metros, and several others have expanded their services.
Also gaining ground are property assessed clean energy (PACE) programs. New York City is considering a comprehensive package of legislation that would establish long-term, low-interest PACE loans that could yield $100 million annually for efficiency financing programs. Besides carrots, the proposal includes sticks for inefficient properties in the form of penalties that would take effect in 2030.
In March, Utah’s state legislature authorized an expanded commercial PACE program that creates a statewide district, draws on private sources to cover upfront costs of retrofitting projects and enables owners to repay loans through a 30-year property tax assessment. And in July, Greenworks Lending and the Washington DC Economic Partnership jointly announced plans to provide PACE funding in the nation’s capital.
Playing a small but important role in efficiency financing are green banks, the public and quasi-public institutions that leverage private capital to fill funding gaps. The nation’s first institution of its kind, the six-year-old Connecticut Green Bank, finances energy upgrades statewide, using revenue from a charge on electric bills to leverage capital from private sources. Eligible upgrades include heating, cooling and hot water elements; lighting; appliances; and systems that improve water efficiency and employ renewable energy.
In April, Connecticut Green Bank financed a solar installation at Fair Street Apartments, a 57-unit affordable community in Norwalk, Conn. GRID Alternatives, which installed the panels, estimates that the project will save $360,000 for New Neighborhoods Inc., sponsor of the community, over the life of the property.
States of energy
Early multifamily incentive leaders like New York and California continue to expand the envelope. In August, the New York State Energy Research and Development Authority (NYSERDA) unveiled a $10 million program to promote the installation of air source heat pumps. Part of the state’s $5.3 billion Clean Energy Fund, the initiative is targeting expansion of technology that can provide up to three times as much heat as the energy it consumes.
Builders that construct to high energy-efficiency standards can participate in NYSERDA’s Multifamily New Construction Program. A total of $8 million is available. To be eligible, new construction or gut rehabilitation multifamily buildings must have at least 10 units and four stories. There is a separate program for low-rise buildings.
In June, NYSERDA and New York State Homes and Community Renewal announced the completion of a $190 million refinancing and renovation designed to improve energy efficiency at Marcus Garvey Apartments, a 625-unit affordable-housing community in Brooklyn. The project brought 80 vacant apartments back into service and included a new solar power system, boiler and window replacement, lighting upgrades, additional insulation and a new heating system.
Both major government-sponsored enterprises offer incentives, but Fannie Mae is making an especially big splash with its new green energy financing incentives. Last year, the government-sponsored enterprise provided $3.6 billion in financing; by the end of the second quarter, that figure had already rocketed to $10.8 billion.
Multifamily properties could achieve savings of more than 30 percent on energy usage and 27 percent on water through Fannie Mae’s programs, estimated Chrissa Pagitsas, director of green financing. “Demand hasn’t slowed down,” she reported. “We have the right incentives, the right partners, and we keep it simple.”
Fannie Mae offers two efficiency financing programs. Green Rewards provides as much as 5 percent in additional proceeds; net cash-flow underwriting that reflects 75 percent of the owner’s cost savings and 25 percent of resident savings; and a free energy and water audit.
To qualify, the owner must commit to a 20 percent reduction in the property’s energy and water use. Eligible improvements include new Energy Star appliances, energy-efficient HVAC, low-flow toilets, solar energy systems and more. The GSE offers similar perks for properties that have earned certification through programs like LEED and Energy Star.
Moreover, the GSE’s Green Preservation Plus program provides owners of qualified affordable communities financing that supports energy and water efficiency improvements, with a maximum 85 percent loan-to-value and 1.15 debt service coverage ratio. For Green Rewards-eligible properties, that translates to $52,000 in average annual savings as well as an energy reduction of 58 million kilowatt-hours per year.
For those who want to explore energy improvements, a helpful resource is the Database of State Incentives for Renewables and Efficiency (DSIRE).
“The bottom line is energy efficiency is a good investment,” IMT’s Majersik said. “Every time you get a mortgage, think of that as a great opportunity to get a good return by improving the efficiency of the building. With the mortgage products available today, it’s really a no-brainer.”
Originally appearing in the October 2017 issue of MHN.