Real Estate Journal — 2018 Forecast — January 12 - 25, 2018 — 13A
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2018 F orecast
By Matthew Hodson, M&T Realty Capital Corporation Going Green with Freddie Mac and Fannie Mae in 2018
T he Federal Hous - ing Finance Agency (FHFA) is the regulat-
wishing to obtain ‘green’ financing will be required to achieve a 25% savings in ei- ther energy or water within the first year of the loan closing. (Prior to 2018, Fred- die Mac had a 15% savings requirement, while Fannie Mae required 20% savings.) Industry concerns with the new FHFA requirements are two-fold. First, given that green business has been such a large part of each Agency’s uncapped volume, howmuch will this affect the Agencies’ annual volumes? Second, now that the re-
quirements for cost-savings are higher, how much more will it cost borrowers to reach the 25% savings, and will fewer properties qualify for these savings? In speaking with repre- sentatives from each Agen- cy, both are confident that the increase to 25% should yield similar loan volumes to 2017. The author surveyed a reputable engineering firm that provides green assess- ment reports, and asked about discrepancies between the numbers of properties that qualified in 2017 that
wouldn’t qualify in 2018. The firm estimated that approxi- mately 15% of the reports would fall into that category. Although the increase to a 25% savings threshold may limit the number of properties that can qualify for green financing, both Agencies remain commit- ted to funding properties in this category. Borrowers will have to increase expen- ditures on ‘green’ improve- ments in order to meet the new threshold, but the ben- efits of green financing are still attainable and should
outweigh the higher costs. Opportunities still remain to reap the benefits of upgrad- ing energy and water usage in the New Year. The views and opinions expressed in this article are those of the author, and do not necessarily represent those of M&T Realty Capital Corporation. Matthew Hodson is a managing director for M&T Realty Capital Cor- poration in the South- east, and has worked on more than $3 billion in transactions. n
ing author- ity for Fan- nie Mae and Freddie Mac (the “Agen- c i e s ” ) . I n 2017, each A g e n c y ’ s origination was ‘capped’
Matthew Hodson
at $36.5 billion. Excluded from the caps are affordable housing loans, small loans (for properties with less than 50 units), and loans to finance manufactured housing rental communi- ties. There is a fourth exclu- sion, as well, which seems to be the topic du jour in the Agency finance world these days: “green” properties, or properties that implement renovations resulting in significant energy or water savings. These cap exemp- tions currently make up nearly half of each Agency’s annual loan volume, with green exemptions accounting for roughly 40% of uncapped volume. Year-end numbers have not yet been released, but each Agency is expected to have originated a total of $65-70 billion in 2017. To obtain green financing, a separate green report is ordered from an engineer during the underwriting pro- cess, and the upgrades and cost-savings are determined prior to loan closing. The funds for the improvements are escrowed with the lender, and, in return, the borrower receives multiple benefits: a lower interest rate; a portion of the projected savings in- cluded in underwritten NOI; lower energy and/or water costs to tenants; and the social benefit of an environ- mentally-friendly property. Examples of energy or water cost savings include upgrad- ing showerheads, installing sink aerators in kitchens and bathrooms, updating exterior and unit lighting, replacing major systems or appliances, installing low- flow toilets, and upgrad- ing thermostats. Generally speaking, properties that would benefit the most tend to be class B or C, and built before 2005 with little-to-no recent upgrades. In late November, FHFA announced that properties
Delivering the deal.
Understandingwhat’s important.
At M&T Realty Capital Corporation, we understand that speed and certainty of closing complicated transactions is important for commercial real estate clients. We have more than 160 years of experience building relationships, providing seamless execution, and tailoring financing solutions to meet your unique needs. With $3.2 billion in commercial and multifamily loans closed in 2017 alone, M&T Realty Capital Corporation offers the know-how and experience you need to close deals with confidence. To find out how we can deliver for you, call 1-800-737-2344 or visit learnmore.mandtrcc.com.
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