Taking Advantage of Finance Incentives that Accompany Apartment Sustainability Improvements

By Jason Scott

Apartment renters care about the environment. Recent research indicates two-thirds of renters believe efforts to optimize living spaces for sustainability and energy efficiency are important. Moreover, 40% won’t rent an apartment that is part of a property without sustainability practices.[i]

Gen Z and Millennials are some of the biggest supporters of sustainability, and about 80% of apartment residents believe living in green multifamily communities is good for their health. Additionally, 61% of renters say they are willing to pay more in monthly rent to live in an eco-friendly apartment.[ii]

All of these statistics imply apartment owners who equip and retrofit their properties and units for greater sustainability will gain a competitive edge in attracting and retaining residents.

In addition to improved property marketability, owners looking to either finance or refinance their sustainable multifamily properties may be eligible for meaningful finance incentives. Let’s explore those here.

Financing Sustainable Apartments Through Fannie Mae and Freddie Mac

As mission-driven Government Sponsored Entities (GSEs), Fannie Mae and Freddie Mac support affordable and workforce apartment properties nationwide with competitive loan programs. And, despite current economic conditions, both agencies are actively financing properties today. They also offer loans for sustainable multifamily properties at lower-than-market rates, which can help offset costs for owners.

Fannie Mae’s Green Financing Loan offerings are accessible to eligible borrowers who are optimizing energy and water efficiencies within their properties. Benefits to borrowers include preferential loan pricing, additional loan proceeds to cover the costs associated with energy and water efficiency retrofits, as well as full reimbursement of the High Performance Building Report if the loan is delivered as a Green Rewards loan. If a borrower’s property has Green Building Certifications, or if the borrower has invested in Active Design and/or Resident Services, they may also qualify for a lower financing rate.

Like Fannie Mae, Freddie Mac’s offerings are ideal for owners who are reducing the consumption of energy and water by 30% or more within workforce apartment communities. The Freddie Mac Multifamily Green Advantage? program provides two paths to finance, Green Up? and Green Up Plus?. Both offer qualifying borrowers better loan pricing and increased funding for their efficiency enhancements. Freddie Mac borrowers are required to complete a Green Assessment? property analysis demonstrating how their property retrofits will enable energy and water savings. The agency reimburses up to $4,000 for the assessment cost, when Freddie acquires the loan, and borrowers must engage a third-party data collection firm. Notably, Freddie Mac indicates the tenants living in qualifying properties save approximately $129 per year in utility bills.

Sustainability Enhancement Options

Freddie Mac has provided insights into which improvements are popular with its borrowers. Showerheads, along with kitchen and bath aerators, are common because they are inexpensive and provide dual energy- and water-saving potential. The agency notes the top four energy improvements include exterior and common area LED lighting, unit interior LED lighting, HVAC thermostats and insulation.[iii] Fannie Mae provides borrowers with Green Rewards Guidance[iv], and its program’s High Performance Building Report offers suggestions for energy and water efficiency measures that are tailored to meet the needs of the property in question.

The crux of it all is that making efficiency-related improvements within affordable and workforce apartment properties gives borrowers access to valuable finance incentives. To explore these agency-based sustainable financing options for multifamily properties, contact our team today https://www.regions.com/commercial-banking/real-estate-banking/real-estate-capital-markets/contact.

This is a partial summary and is not an offer or contract for any product or service. It does not replace the legal terms and conditions and is subject to change without notice. Please refer to your agreement and related disclosures for the legal terms and conditions of your account. Loans and Lines of credit are subject to documentation requirements and credit approval.

About the Author

Jason Scott is Managing Director, Head of Conventional Production with Regions Real Estate Capital Markets, a national multifamily and commercial real estate lender. Regions Real Estate Capital Markets is a lender partner to both Freddie Mac and Fannie Mae in the two agencies’ small balance multifamily loan programs, which each offer finance incentives to borrowers for water and energy efficiency improvements. Visithttps://www.regions.com/commercial-banking/real-estate-banking/real-estate-capital-markets

[i] MRI Survey Reveals What Renters Want: Green Practices, Digital Interactions, Luxury Amenities, and Future Homeownership, MRI Software, February 7, 2023, https://www.prnewswire.com/news-releases/mri-survey-reveals-what-renters-want-green-practices-digital-interactions-luxury-amenities-and-future-homeownership-301740368.html

[ii] Multifamily Data Research: Renters Want Sustainability, ApartmentData.com, February 5, 2021, https://apartmentdata.com/blog/multifamily-data-research-sustainability/#:~:text=About%2080%25%20of%20apartment%20residents,is%20good%20for%20their%20health.&text=In%20fact%2C%2061%25%20of%20renters,the%20desire%20for%20sustainable%20apartments

[iii] Freddie Mac Multifamily, Green Improvements in Workforce Housing, December 2021, https://mf.freddiemac.com/docs/2021_freddie_mac_multifamily_duty_to_serve_green_report.pdf

[iv] Fannie Mae, Green Rewards Guidance, https://multifamily.fanniemae.com/media/12436/display