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    How Freddie Mac’s Green Advantage Program Impacts Affordability

    Water and energy improvements help cut utility bills for low- and middle-income households.

    By Christine Serlin

    Since Freddie Mac launched its Green Advantage program in August 2016, the government-sponsored enterprise (GSE) has discovered the program has more advantages than originally anticipated.

    Peter Giles, vice president of production and sales, Freddie Mac Multifamily
    Jon Wade; Jon WadePeter Giles, vice president of production and sales, Freddie Mac Multifamily

    Since the program’s inception, it has financed over $36 billion in loans to multifamily borrowers to make capital improvements to nearly 367,000 units across the nation. Water improvements are projected to save 3.6 billion gallons per year, the equivalent water usage for over 119 millions loads of laundry. Energy savings are projected to save 1.4 billion kBtu per year, or enough energy to power 40,000 homes. The majority of the Green Advantage loans are for workforce housing, mostly garden-style apartments with an average age of 33 and 89% of the units affordable to households at or below 100% of the area median income.

    However, in addition to making water and energy consumption reductions and preserving critical workforce housing stock, the program is making a difference for those hundreds of thousands of low- and middle-income households by cutting their utility bills.

    “At our inception, we were really environmentally focused. We felt great about being green and sustainable. What we learned is how much we can save on the affordability side for the tenant. It’s an unexpected savings,” says Peter Giles, vice president of production and sales for Freddie Mac Multifamily. “Freddie Mac is really focused on affordable and workforce housing. We are now driving this for cost reductions for actual tenants in this housing. It’s become a real part of our focus.”

    In 2016, the Green Advantage program financed $2.7 billion in loans requiring a 15% reduction in water and energy costs. Since then, the program has continued to evolve. In 2018, it provided nearly $23.1 billion in loans for energy- and water-saving improvements to workforce housing and increased the energy and water consumption reduction to 25%.

    Giles credits the Federal Housing Finance Agency (FHFA), the regulator of both Freddie Mac and Fannie Mae, for the recent requirement changes to an even higher reduction percentage for 2019. In November, the FHFA announced that for Green Advantage loans to be excluded from the multifamily cap, there must be 30% energy and water consumption reduction, with a minimum of 15% of the reduction on the energy side.

    “What we have found in working with the regulator, the change to a 30% reduction, half being energy, most benefits the tenant,” Giles adds. “If we can find a way to save money on the tenants’ bills, it’s a great way to make rental housing more affordable. That’s the shift we’re seeing this year. We compliment the regulator on that focus.”

    The Green Advantage program also can be beneficial to borrowers with more favorable loan terms. When a multifamily borrower comes to Freddie Mac for a typical quote, the GSE offers one for the original request as well as a separate green quote. If the borrower is interested in the green quote, a third-party assessor would go on site to assess the property and provide a menu of what green updates could be done. By committing to the 30% reduction after undergoing the green assessment, multifamily borrowers often can take advantage of better pricing and more funding. According to Freddie Mac, loans average about $61,500 of savings per year, or $220 per unit.

    To get to the 30% consumption reduction today, Giles says the cost is about $467 per unit. Many of the improvements can be cobbled together with low-hanging fruit, such as LED lighting, smart thermostats, and increased insulation for energy savings and showerheads, toilets, and aerators in sink faucets to reduce water consumption.

    Joanna Zabriskie, president, BH Management Services
    Joanna Zabriskie, president, BH Management Services

    BH Management, a multifamily owner and manager based in Des Moines, Iowa, has completed 60 projects spanning 21,920 units through Freddie Mac’s Green Advantage program. According to Joanna Zabriskie, president of BH Management Services, the company has installed 79,502 fixtures that have conserved more than 221 million gallons of water and saved $1.6 million in water costs and have another 26 projects with 8,499 units scheduled for completion.

    In partnership with EcoSystems, BH Management recently completed the most extensive continuous water conservation retrofit, spanning 23 properties and 12,668 bathrooms in 8,615 units. Its water conservation efforts include replacing old and wasteful toilets, showerheads, aerators, and appliances with high-efficiency toilets and water-saving fixtures and appliances.

    The firm also began implementing energy upgrades in October 2017, since installing LED lighting, energy-efficient refrigerators and air-conditioning units, pool covers, solar screens, and energy-efficient windows as well as adding insulation and sealing leaks in their properties.

    “We are committed to reducing our carbon footprint. We believe in creating ecologically sustainable communities that conserve the Earth’s resources while, at the same time, are financially advantageous to our company, our partners, and our residents,” Zabriskie says.

    She adds that through these upgrades, which average about $316 per unit, the properties have seen a 35% reduction in water and energy costs, and BH Management has reduced its interest rate by an average of 11 basis points, bringing total savings to 37%.

    “Through the upgrades that we have made, we have assisted with lowering our residents’ water and energy costs,” Zabriskie adds. “Units with high-efficiency upgrades save, on average $173 per year. In our southern regions, some communities have seen savings of more than $250 per unit, annually.”

    For Giles, who also leads the team a team supporting the Green Advantage program,being in the green space is a win-win-win situation.

    “We’re preserving workforce housing, we’re doing good for the environment, and we’re making living more affordable for the residents,” he says.

    However, he adds that there’s one additional win to be found, with the FHFA’s data collection requirement to assess the efficacy of the GSEs’ green programs on an ongoing basis.

    “What we have found is there is a lack of data in tracking these deals from pre-capital improvements to post and to learn the savings that are really happening. Now Freddie Mac and counterpart Fannie Mae are capturing that data,” says Giles. “The next couple of years will really tell an extraordinary story. We think we’ll help the industry tremendously down the road.”