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Freddie Mac Green Advantage
The Freddie Mac Green Advantage Program allows higher LTVs and lower DSCRs for borrowers who can demonstrate a 25% reduction in water/sewer consumption.
Freddie Mac Loan Incentives for Resource-Efficient Multifamily Developments
Today, many multifamily investors are finding that by reducing their resource use, they can also save money, and, with Freddie Mac's Green Advantage program also offering significant financial incentives, it's never been a better time to go green.
Freddie Mac's main Green Advantage incentive programs include Green Up and Green Up Plus, each of which offers increased LTV allowances and reduced DSCR requirements to properties that can demonstrate a 30% reduction in water/sewer and energy consumption (at least 15% of which must come from energy consumption).
In order to demonstrate that reduction, Freddie Mac borrowers will need to get a Green Assessment, the cost of which (up to $3,500) is reimbursed by Freddie Mac at loan closing. However, properties that have gotten other kinds of green certifications, including certain ENERGY STAR, Green Globes, and EarthCraft certifications, and have at least 20% affordable units are also eligible for the Green Advantage program.
Keep reading below to learn more, or click here to download our easy-to-understand Freddie Mac Green Advantage Loan term sheet.
Sample Freddie Mac Terms for Green Advantage Financing in 2023
Minimum Projected Consumption Reduction: 30% of energy or water/sewer consumption based on Green Assessment or Green Assessment Plus, with a minimum of 15% from energy
As Is: -0.05x DSCR reduction, subject to 1.20x or product limit. +5% LTV subject to greater of 85% or project limit.
As-Improved: "Must meet policy compliant DSCR/LTV." Amounts based on as-improved NOI/appraised value.
EarthCraft, Greater Atlanta Home Builders Association & South Face
ENERGY STAR® for Multifamily, EPA
ENERGY STAR® for Qualified Multifamily High-Rise, EPA
Green Communities, Enterprise Community Partners
Green Globes, Green Building Initiative
GreenPoint Rated, Build It Green
LEED, US Green Building Council
National Green Building Standard (NGBS), Home Innovation Research Labs
Allows for increased LTVs and decreased DSCR requirements
Eligible mixed-use properties supported
Green Assessment required
Property energy and water usage need to be recorded in an EPA Portfolio Manager for the calendar years up to the fourth year of the loan
Timeline: Borrowers have two years to complete improvements
Escrow: Funds for energy/water efficiency work will be escrowed at 125% of cost and released as work is completed
Benchmarking Data Requirement: Green Advantage loans require borrowers to hire a third-party data collection consultant, before loan origination, to collect, input and monitor actual energy and water usage through the loan’s term.
Other Eligible Green Certifications:
If your property has at least 20% affordable units and is already certified under one off the below programs, it may also qualify for discounted loan pricing:
Green Rebate: Even without using any of the Green Advantage options mentioned above, eligible borrowers (those with properties with 20+ units) can still get a $5000 green rebate from Freddie Mac for getting an EPA ENERGY STAR Score®
C-PACE: Commercial PACE financing may be available upon request
Advantages
Disadvantages
Case Study: Going Green in Boise
In the vibrant city of Boise, Idaho, an environmentally conscious real estate investor, GreenHaven Properties LLC, identified an opportunity to breathe new life into a mid-sized multifamily property. This property, a 150-unit building valued at $18 million, was already somewhat energy-efficient. However, GreenHaven Properties saw potential for significant enhancements that could not only improve the property's sustainability but also unlock financial incentives through Freddie Mac's Green Advantage program.
Committed to achieving a 30% reduction in energy and water usage, with at least 15% reduction coming solely from energy, GreenHaven Properties sought to tap into the Green Advantage incentives. They planned energy-saving upgrades including a new HVAC system, solar panels, and water-saving fixtures throughout the property.
By undertaking these improvements, GreenHaven Properties aimed to reduce operating costs, enhance property value, and make a positive impact on the environment, while simultaneously benefiting from the increased LTV and decreased DSCR offered by the Green Advantage program.
In addition, GreenHaven Properties planned to leverage the $3,500 reimbursement for the Green Assessment at loan closing, further reducing their upfront costs. By carefully planning and executing their energy-saving improvements, GreenHaven Properties was poised to transform an already decent property into an environmentally-friendly, cost-efficient investment.
This is an example of how the Freddie Mac Green Advantage program can be effectively leveraged outside major primary markets, highlighting the program's flexibility and the growing importance of sustainability in the real estate sector across all types of markets.
This is a fictional case study provided for illustrated purposes.