Property Owners Reduce Financial Risk, Raise Property Value with Energy Upgrades

December 1, 2014 By Chrissa Pagitsas

Chrissa Pagitsas

Did you know that the least energy efficient multifamily property may spend $165,000 more annually than the most energy efficient? When a property uses more energy and water, it means lower net operating income for owners and higher housing costs for tenants. How much energy is your property using in comparison to comparable properties? Up until September 2014, multifamily owners did not have a way to make this comparison.

Now, a partnership between Fannie Mae and the EPA lets multifamily property owners use the ENERGY STAR Score for multifamily to measure current energy performance and to quantify the value of energy and water efficiency upgrades. By using the ENERGY STAR Score and making energy and water efficiency upgrades, owners can reduce their financial risk, raise the quality of their property while improving the property’s comfort and affordability for tenants.

To deliver this score, the EPA needed comprehensive, statistically relevant national data on the energy performance of multifamily properties. Fannie Mae surveyed more than 1,000 multifamily properties across the United States, including market rate, affordable, and seniors housing properties. With this information, the EPA developed the ENERGY STAR 1-100 score for multifamily properties. Owners can now rate multifamily properties with 20 or more units on a 1 to 100 scale. Properties that achieve a score of 75 or higher can be certified and recognized for their superior energy performance.

Of the first 17 multifamily properties to achieve the ENERGY STAR certification, two received financing from Fannie Mae. Among them, Jeffery Parkway Apartments in Chicago and ECO Modern Flats in Fayetteville, Arkansas, are leading the way in demonstrating that their owners understand that “green” improvements not only can help them achieve better financial performance but also enhance the property’s quality and affordability for residents.

Built in 1928, Jeffery Parkway Apartments at 6731 South Jeffery Boulevard in Chicago currently is owned by Nautilus Investments. With Elevate Energy, Nautilus identified opportunities for energy upgrades that included pipe insulation, a new high-efficiency steam boiler with advanced controls and temperature sensors, high-efficiency hot water heaters, and high-efficiency LED lighting. Since making these improvements, Nautilus has reduced natural gas consumption at the property by more than half, with cumulative cost savings at more than $200,000. This year Nautilus used the new ENERGY STAR 1-100 score to quantify the property’s higher energy performance as a result of the energy efficiency improvements.

The ECO Modern Flats complex was first developed more than 40 years ago, and completely redeveloped in 2010 by Specialized Real Estate Group.To reduce operating costs, the development group installed energy and water efficiency measures such as low-flow showerheads and faucets, dual flush toilets, ENERGY STAR certified appliances, efficient lighting, closed-cell insulation, white roofing, solar hot water, and low-e windows. Compared to pre-renovation performance, ECO Modern Flats achieved 45 percent reduction in water consumption, 23 percent in annual electricity use, and 50 percent in summer electricity consumption, all while increasing the number of in-unit amenities and boosting overall occupancy by 30 percent. In addition to ENERGY STAR certification, the property also has achieved LEED Platinum certification. Because ECO Modern Flats was LEED-certified at the time of closing its loan with Fannie Mae, Fannie Mae securitized the loan as a “Green Mortgage Backed Security.”

Since 2012, Fannie Mae has financed more than $130 million in Green Financing loans or loans backed by properties with a Green Building certification. Fannie Mae’s newest Green Financing product, the Multifamily Property Improvement to Reduce Energy (M-PIRE) loan available for properties in New York, underwrites a portion of a property’s projected energy and water cost savings, providing additional funding for upgrades to common areas and tenant units.

Chrissa Pagitsas is Director of Fannie Mae’s Multifamily Green Initiative. For more information on the Green Financing Loans offered by Fannie Mae and the ENERGY STAR Score for Multifamily, see www.FannieMaeGreenInitiative.com

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