The Institutional Real Estate Inc Sponsorship brochure, Connected-Investor Focused, We connect people, data and insights, sponsorship, events, IREI Products
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NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT MANAGERS 28 I nstitutional investors are increasingly being asked by those in their capital stack to actively support sustainability through their CRE investments. Fiduciary advisors that acquire high quality, but aging, core and core-plus assets face tough decisions when attempting to underwrite capital to implement sustainability measures, due to economic pressure from cap rate compression inherent with acquiring institutional-quality assets in a very competitive environment. However, new multifamily loan programs launched in 2016 are beginning to make sustainability improvements a financial no brainer. Many institutional investors are still unaware of these programs, but a small and growing number are beginning to take advantage of Green Loans offered by Fannie Mae, Freddie Mac, and HUD. These programs provide substantial pricing discounts – up to 39 basis points – in return for implementing projects that improve asset value and reduce energy and water costs or for projects that are certified green. WHAT ARE THE BENEFITS? These programs offer several financial incentives that include: • Lower interest rates – discounts of 10-39 basis points are available in return for meeting sustainability and/or energy efficiency targets. • Higher underwritten NOI & Value – depending on the program, up to 75% of owner-paid utility cost savings may count toward the net operating income calculation • Additional loan proceeds – the borrower can utilize these for energy or water efficiency improvements. • No spending caps – green lending programs are not subject to the annual FHFA lending cap, allowing agency seller/ servicers an avenue to do substantially more deals than before. Q4 2016, normally quiet for agency lenders whose annual budget has been spent, saw a tremendous volume of deals go through. • Audits are paid for (Freddie and Fannie) – Freddie Mac will reimburse the borrower $3,500 for their required energy study and Fannie Mae will reimburse in full for their required ASHRAE Level II energy / water efficiency study. The caveat: to receive this reimbursement, one must follow through and close the green loan with the associated agency lender. Flexibility is another key to the success of these programs. Both Freddie and Fannie offer multiple versions of programs with different requirements and benefits, so borrowers can "choose their own adventure" that makes the most sense for their asset and business plans. FOR INVESTING IN YOUR MULTIFAMILY ASSETS? ARE YOU MISSING OUT ON PRICING DI$COUNTS By Tony Liou, President, Partner Energy