Last year, Fannie Mae made $3.6 billion in green loans to multifamily property owners. That growth is nothing short of remarkable, considering its pilot program was tested in 2012 starting with $55 million. EMG was the only consulting firm asked to participate in the pilot, and we have grown right along with the green financing movement. With green reaching a fever pitch in 2017, I sat down to talk with Kaustubh Chabukswar, EMG’s multifamily green financing and energy expert. I wanted to better understand what’s happening in the market and if the shift towards profitable sustainability is here to stay.
Question: Everyone in commercial real estate is talking about green financing this year. What are the drivers behind this trend?
Kaustubh: The value proposition of green financing has always been strong. It’s a win-win because it helps owners get a low-cost loan to make their property more energy efficient. These efficiencies lower their operating costs, which can be passed on to tenants in the form of lower rent.
The perceived cumbersome green financing process has deterred some borrowers over the years. However, with strong incentives and less stringent energy audit requirements, the industry seems ready to embrace green. Fannie Mae offers up to a 39-basis-point loan discount to borrowers who are able to achieve a 20% water or energy savings. Freddie Mac provides loan discounts that vary from deal to deal for a 15% water or energy savings.
Fannie Mae is further trying to make this attractive by assuring full reimbursement of the initial energy audit fees while also simplifying the level of effort required.
Question: What is “Greenwashing” and how does it impact the green movement in negative ways?
Kaustubh: Some consider “greenwashing” a bad thing, but I look at any movement towards profitability through sustainability as a positive step forward. Many property owners look at the initial investment of going green and feel that it’s too big. At the same time, they are seeing a new demographic of tenants who are more passionate about energy conservation and realize change is needed.
The result is that some borrowers will cherry pick energy audit recommendations to find the ones – such as plumbing – that give a big bang for the buck. EMG knows this happens and so does Fannie Mae, Freddie Mac, and HUD. Instead of dismissing this as greenwashing, it’s better to embrace it and move the process forward (albeit a little more slowly). In fact, Fannie Mae has just made calculating plumbing savings easier with Form 4099.H, which has a built-in water savings tool. EMG understands that moving towards green can be a big investment, so we work with clients to identify areas of immediate and substantial energy savings to build momentum.
Question: EMG is a Fannie Mae Pre-Qualified High Performance Building Consultant. How long have we been one? What are the requirements to become one and more importantly stay one?
Kaustubh: EMG has worked with Fannie Mae since the inception of its green program in 2012. However, under its new Form 4099.H guidelines, all consultants including EMG must be pre-screened to requalify. The screening process involving submitting five reports under Form 4099.H that achieve a score of 1, which means “No questions. Approved as-is.” All contracts signed after 5/22/17 should follow the new protocol. Currently, all lenders and consultants are trying to familiarize themselves with the new format. EMG’s Green Financing Team has been studying it, and we’re well-prepared for the change.
Question: Are you seeing any trends in the types of properties that are applying for Green Financing?
Kaustubh: Any property built before 1980 applies for green financing because their windows, mechanical systems, light fixtures and other infrastructure are dated and more than likely energy inefficient.
Be sure to subscribe to our blog to receive The Top Multifamily Green Financing Questions Asked by Borrowers and Lenders (and Answered by EMG) – Part II right in your inbox.
Have more questions about green financing? Feel free to contact Kaustubh Chabukswar directly at firstname.lastname@example.org with your questions and download our free Checklist to gain an understanding of how to prepare for an energy audit.
About Kaustubh Chabukswar:
Program Manager / Technical Reviewer
Kaustubh joined EMG in 2009 at a time when the global economic downturn had pressed governments and property owners toward spending reduction and a greater concern for energy efficiency. His welcome energy expertise has been deployed throughout EMG’s Asset Management Division. He was instrumental in creating EMG’s Energy Conservation Workbook, a comprehensive proprietary guide used to analyze existing systems and suggest energy efficient alternatives. Currently, he manages all of EMG’s energy efficiency programs, assists other managers with programs and projects that have a “green” component, and trains field assessors and reviewers in energy assessment.