- Commercial real estate investors who want to help the environment may wish to consider Fannie Mae’s Green Financing programs. These are designed to fit the needs of a multifamily development. There are three specific lending options available, each with incentives and benefits to offer investors.
Advantages of Fannie Mae Green Loans
- Interest Rate: The 0.10 percent interest rate discount can be substantial on large properties over the life of the loan.
- Loan Size: The Green Rewards and Green Preservation Plus loans provide larger loan sizes than normally expected.
Interest rates are overall competitive and comparable to other loan offers.
- Day Rate Lock: There is a 30-to-180-day rate lock available for investors who need time to get properties in order.
- Non-Recourse: Most loans are non-recourse opportunities.
Disadvantages of Fannie Mae Green Loans
- Third Parties: Programs all require third-party reports, including an appraisal and a property condition assessment. This includes a Phase I Environment Assessment and a High Performance Building report (this is necessary for the Fannie Mae Green Rewards as well as the Green Preservation Plus program).
- Non-Refundable Fee: There is a $3,000 non-refundable processing fee required to use the program.
- Application Deposit: A $12,500 application deposit is required of all investors.
- Good Faith Deposit: A 2 percent Good Faith deposit is due at the time of the rate lock, though this is refunded during the closing.
A 1 percent loan origination fee is required.
- Approval: It is necessary to seek approval for subordinate financing.
- Replacement Reserves: $250 per unit per year are required for all projects.
What Is Fannie Mae Green Financing?
Fannie Mae Green Financing offers three specific programs:
Fannie May Green Rewards
Fannie Mae Green Building Certification Pricing Break
Fannie May Green Preservation Plus
Each one provides a 0.10% interest rate discount for qualified borrowers. This may create significant reductions in the cost of purchasing these buildings over the lifetime of the loan.
The Fannie May Green Rewards program lets borrowers take out 5 percent more in loan proceeds based on the amount of savings in water and energy they properly will likely see in the future. Investors have to show that they will save at least 20 percent on their water or energy costs. This program began in 2015.
The Green Preservation Plus program is specific to developers of multifamily affordable housing properties (MAH). It allows for an increase in LTV allowances by up to 85 percent. It also lowers DSCR ratios, making it easier for properties to qualify for lending. In this program, the upgrades developers make must be at least equal to 5 percent of the original loan amount.
The third program, the Green Building Certification Pricing Break, provides a 0.10% interest rate discount on properties that have an up-to-date Green Building Certification. This discount is available for both the purchase and the refinancing of loans.
Fannie Mae green loans aim to be competitive and readily available to qualified investors for qualified properties.
What Are the Benefits of the Green Rewards Program?
The Green Rewards program provides investors with a lower interest rate on their project as well as the ability to secure additional loan proceeds. In addition to this, a free energy and water audit report is provided.
What Are the Benefits of the Green Building Certifications?
This program provides a lower interest rate on eligible properties that have a Green Building Certificate in place, saving the commercial real estate investor money.
When Is Green Financing a Good Choice?
There are various times when pursuing green financing options like this program is potentially beneficial to investors. This includes when the investor is looking for value-added repositioning of properties. It is also a good option when it is possible to reduce water and energy consumption by at least 30 percent, as this may not always be an option.
In addition to this, the programs are beneficial to those property owners that already have an existing green building certification and who wish to reduce costs. It is also beneficial to investors who have existing C-PACE financing.
Who Pays for Assessments?
Fannie Mae will cover the full cost of the High Performance Building Report. In addition to this, it will cover the cost of a technical solar assessment to determine if the property is suitable for a solar PV system in some situations.
When Do Improvements Need to Be Made?
Fannie Mae requires that the property improvements be made within 12 months of the origination date of the mortgage loans. Lenders will verify that the improvements have been made to ensure the investor fulfilled their obligations.