Multifamily investors are seeing green for eco-friendly buildings

JLL expects more growth in green financing after record 2017 year

CHICAGO, March 27, 2018  Green financing experienced a big uptick in 2017 as multifamily owners and investors took advantage of rewards programs offered by Fannie Mae and Freddie Mac. Last year, Fannie Mae invested over $27 billion in green financing, compared to the $3.6 billion it invested in 2016.

New research from NMHC revealed that multifamily investors think green financing will continue to play a key role in the lending space in 2018  55 percent of survey respondents predicted that volumes will mirror 2017 levels or even increase this year.

"I expect that green financing will become more prevalent throughout 2018," explains Karen Shea, Managing Director at JLL. "For assets built to green standards with industry certification and assets that 'go green,' both GSE's offer interest rate pricing incentives of anywhere between 5-35 basis points."

For an older asset where the sponsor commits to making post-loan closing improvements that will reduce the property's annual energy or water use by 25 percent, lower pricing and additional loan proceeds are available.

"We're seeing a lot of investors go into value-add projects with a focus on sustainability," said Shea. "By enhancing the asset with modern, eco-friendly utilities, owners can save on bottom line costs and pass savings along to the tenants as well."

For example, one of JLL's largest clients implemented water efficiencies and upgraded existing lighting in three of its multifamily properties encompassing more than 1,000 units in Maryland, Georgia and Texas. Using Fannie Mae's Green Rewards program, JLL helped its client obtain financing at a lower interest rate for significantly reducing its water and energy consumption.

In 2018, The FHFA will allow certain green loans to be excluded from Fannie Mae and Freddie Mac's $70 billion total lending cap if energy or water use is cut by 25 percent, giving owners and investors even more reason to go green.

Going green can also provide owners looking to build or improve their assets to recognized green standards added benefit through the U.S. Department of Housing and Urban Development (HUD) programs.

"In addition to the inherent incentives of owning and operating a green and energy efficient building, borrowers can earn a reduction in its mortgage insurance premiums (MIP) through HUD when an asset meets certain criteria," said Adam Roberts, Deputy Chief Underwriter, JLL Capital Markets, Multifamily.

That extra MIP savings can typically be as much as 75 basis points in initial MIP, and up to 40 basis points in annually, which makes a big difference. For example, a market-rate $10 million refinance with a 35-year term and a 3.5 percent interest rate could save over $750,000 in MIP payments when it qualifies for HUD's green MIP reductions.

"There is no question that owners and developers need to be thinking about green buildings and energy efficiency, not only to support HUD's mission, but if they do not, then they risk leaving money on the table" said Roberts.

JLL delivers multifamily investors a full range of solutions through one diverse, integrated platform. The division employs over 200 professionals who provide comprehensive investment sales and disposition services with access to thousands of domestic and foreign investors. JLL is also one of the nation's largest affordable and conventional multifamily and seniors housing lenders with comprehensive loan underwriting, asset management and loan servicing capabilities.

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About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2017, JLL had revenue of $7.9 billion; managed 4.6 billion square feet, or 423 million square meters; and completed investment sales, acquisitions and finance transactions of approximately $170 billion. At the end of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of 82,000. As of December 31, 2017, LaSalle had $58.1 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.