Financing Energy Efficiency: Opportunities for Commercial Building Owners
Research shows that buildings whose mortgages include underwriting for energy efficiency see increased net operating income, reduced energy consumption, or increased energy savings. (IMT.org)
Last fall, we participated in providing data to Emily McLaughlin, Senior Associate with Institute for Market Transformation (IMT) for a property condition assessment case study.
As you read through the analysis you will find that IMT’s examination found some fairly significant market gaps and barriers. IMT incorporates discussion about tried and tested multifamily financing (i.e. Fannie Mae Green Rewards) as a means to demonstrate how this type of financing could work more effectively in the commercial sector.
"In leaving energy efficiency out of property assessments
and mortgage underwriting, lenders are missing the
opportunity to grow their loan portfolios, reduce risk of
default, and lower environmental impact."
(IMT Case Study, Financing Energy Efficiency Through Mortgage Loans)
From the IMT Case Study:
Securing a Fannie Mae Green Rewards loan is not complicated, but it does require
coordination between multiple actors. Below are two properties that have undergone
ASHRAE Level 2 audits as the initial step in their goals to receive financing via the Fannie Mae Green Rewards program. Both of these properties entered into multi-million dollar loans financed by Fannie Mae. Table 1 outlines each building’s profile and energy consumption prior to completing any energy conservation measures (ECMs).
Typically, technical energy assessments by PCA firms generate a large number of
easily implemented ECMs, such as swapping out inefficient lights (i.e. incandescent
or fluorescent for LED varieties), as well as a number of more complex and expensive
measures, such as installing new HVAC systems and controls. Under the Green Rewards program, participants must make improvements that target a 20 percent reduction in energy or water consumption. The improvements must be installed within 12 months of loan origination. Borrowers are also required to report on annual energy metrics, including an ENERGY STAR score.
Table 2 outlines how many ECMs were recommended for both profiled buildings. In the case of Building #1, the following specific ECM recommendations included:
Replace all incandescent/halogen/CFLs in all apartments. Projected initial investment of $61,320 for a total estimated annual cost savings of $50,590 (representing a 1.2 year simple payback).
Reduce HVAC hours of operation in most apartments (one apartment model excluded). Projected initial investment of $57,235 for a total estimated annual cost savings of $15,885 (representing a 2.8 year simple payback).
Replace existing air conditioners with ENERGY STAR air conditioners in most apartments (one apartment model excluded). Projected initial investment of $785,575 for a total estimated annual cost savings of $49,485 (representing a 15.9 year simple payback).
While Building #2 had fewer ECMs, they still spanned a variety of prices and equipment types. The following are some examples of recommended ECMs:
Replace existing linear fluorescent lamps in common areas. Projected initial investment of $4,613 for a total estimated annual cost savings of $2,188 (representing a 2.1 year simple payback).
Replace existing communal washing machines with ENERGY STAR certified washing machines. Projected initial investment of $59,562 for a total estimated annual cost savings of $4,886 (representing a 12.2 year simple payback).
Replace inefficient heating plant in mechanical room. Projected initial investment of $274,776 for a total estimated annual cost savings of $18,294 (representing a 15 year simple payback).
Given the scope of possible retrofits under the Fannie Mae Green Rewards program, it leads the market in versatile multifamily energy efficiency savings. Its proven track record in the sector makes it the best model for a commercial and retail equivalent. Fannie Mae continues to track performance data as the program grows in order to compare default rates for green loans to standard loans.
Download the IMT Case Study
OPPORTUNITIES FOR BUILDING OWNERS
Ask mortgage lenders about financing energy efficiency in loans. Without both
parties taking an active role in underwriting energy efficiency, retrofits are far less likely to happen.
Seek out PCA firms that incorporate energy efficiency, or ask existing firms to
include an energy audit during building assessment.
WE MEAN GREEN
With over 12 years of energy study experience, we are an approved vendor to perform Green Assessments® under Freddie Mac’s Multifamily Green Advantage program and a Pre-Qualified High Performance Building (HPB) Consultant under Fannie Mae’s Multifamily Green Financing program. These credentials enable our clients to bypass additional review processes by Fannie and Freddie which can lengthen a transaction’s timeline.
We are doing our part to work toward integrating energy efficiency as a core component of PCAs.