There are 3 types of individuals that will invest in sustainability:
1- The people who know climate change is effected by their actions and are willing to contribute to reversing it
2- The people who think climate change might be effected by human activities, but need to see the payback
3- The people for whom climate change does not enter into the conversation and are only interested in ROI
Today, they all get to go to the same party and enjoy themselves. The party is hosted by Fannie Mae and Freddie Mac, and the theme is Green Financing.
We have written before about “Doing Good and Doing Well”. Today we take it further to “Doing Good to Do Well”. The game changer is financing. Over the past few years more and more investors have made social responsibility a criterion in their portfolios. Those investors range from individuals to gigantic institutions such as pension funds. In response to that dedication, Fannie Mae introduced three programs for multi-family housing. They are:
Green Rewards -for properties that will make improvements and implement greening measures after closing. This program can be used for primary, secondary and supplemental financing.
Green Building Certification Pricing Break – Properties awarded a Green Building Certification prior to rate lock. This program can be used for refinance, acquisition and supplemental funding.
Standard DUS – for standard properties’ acquisition, refinance and supplemental funding.
The common denominator on all three programs is the opportunity to receive a reduced loan rate in recognition of achieving a Green Certification. The reductions range from 19 to 39 basis points.
Fannie Mae identifies 8 programs. The three big ones are LEED (Leadership in Energy and Environmental Design), Green Globes, and Energy Star.
Of the three programs, two were started by the US federal government, LEED and Energy Star. Energy Star is still under the department of energy while LEED and the USGBC have been privatized. Green Globes was started in the UK and has migrated west to the USA after establishing itself in Canada.
Energy Star is best suited to existing multi-family properties. The starting point is more than 20 units/apartments, and at least the past 12 months’ energy bills. In order to be certified a score of 75 or more must be achieved. A contributing factor to that score is an energy efficiency of 30% or more above the benchmark. Unlike the other two programs highlighted, Energy Star does not require a licensed professional (engineer or architect) to complete the accreditation process and seal the application.
Green Globes has taken an approach which blends statistical objectivity with empirical data. It differs from Energy Star in that the energy savings can be calculated, and therefore Green Globes can be applied towards new construction. Green Globes places a high weighting on energy efficiency. Green Globes differs from LEED in the amount of paperwork, duration for accreditation, and the absence of prerequisites which can disqualify buildings from LEED consideration. Green Globes will certify a building, a unit, or an entire complex under one application.
LEED is the best known program that can be applied to new buildings. The USGBC has recently moved to V4, which like prior new releases, raised the bar. LEED has a number or tracks designed to make accreditation available to all building types. In the context of the Fannie Mae program, multi-family housing can be accredited under LEED for Homes or LEED Building Design and Construction.
In the world of development, Time and Money are hard to separate. On the scale of time and money, while Energy Star is the least expensive, it can be very difficult and time consuming to accumulate and distill the requisite data, as the property owner is dependent on their tenants to share their monthly energy bills for a full year. Since accreditation is awarded by the federal government, the time factor is understood to be lengthy. In addition, while the “Designed for Energy Star” program starts in the building design phase, the Energy Star certification cannot be awarded until after the 12 months of occupancy, and proof of energy efficiency.
LEED certification starts in the pre-design phase and continues through occupancy and operation. LEED takes a holistic approach and takes into account things like neighborhood connectivity and access to basic services such as grocery stores and banks. There are baseline efficiencies for water and energy conservation that must be met to be considered. LEED includes a great deal of paperwork and certification, and can take 6-9 months after final paperwork is filed. The cost of LEED certification can be 400% that of Green Globes.
Green Globes is a sweet spot. It appeals to all three groups invited to the party and rewards the guests on day one. There are no prerequisites so nearly any location is qualified. Like LEED there are different levels of certification. The process can be started after building design, giving the property owner greater flexibility when arriving late to the party. Certification can be applied for up to 12 months after occupancy. The paperwork is substantially less than LEED. Those who want to achieve the highest standards and comply with the strictest guidelines of LEED can do so without the cost associated with LEED fees. A single Green Globes certification can be applied to multiple buildings so long as they are constructed at the same time and are the same use. Certification can be completed in 3-6 months following completion of the submission. For those in a hurry, The GBI has a fast-track option that is not available with LEED or Energy Star.
Looking at the numbers, on a $10 million loan, amortized over 20 years with a term of 5 years, a reduction of 25 basis points (0.25%) results in a $83,000 in total payments and increasing the equity at the end of the 5-year term by nearly $37,000. That is a bottom line benefit of $111,000 for the investment. That is in addition to the reduction in operating costs for energy efficiencies and a reduction in repairs due to better building practices. The bottom line improvement can be obtained for less than half of that sum through either the Green Globes or Energy Star programs.
JLA is committed to sustainability. We believe that it is simply too important to be wrong on the question of what is causing climate change. We have put our money to work in the use of locally sourced materials, living and working in the same community, working to preserve buildings or parts of buildings, and investing in alternate energy generation technologies.
JL Architects can not only design your buildings, but we can also help you “Do Good To Do Well” with buildings we don’t design. As licensed architects, we can drive the Energy Star process. We are LEED Accredited professionals. We are Green Globes Professionals and Accreditors. Can we help you?
-John Lister, AIA, LEED AP, Green Globes Professional
John Lister is principal at JL Architects in West Chester, PA, a boutique firm that services clients on a national basis. You may contact John at 610-429-4470, or firstname.lastname@example.org
Photo Credit: http://tomorrowisgreener.com/2014/04/21/green-financing-an-important-way-of-funding-energy-efficient-projects/