Now imagine cutting your energy costs by at least 20 percent. That would be a savings of over $4,300 a year. What would your co-op do with that money? Sound enticing?
Well, there’s a new mortgage program that was recently launched by the Community Preservation Corporation (CPC), a nonprofit lender, aimed at helping owners of multi-family housing make energy- efficient upgrades as well as green retrofits. The $1 billion program—a public and private partnership between CPC, Freddie Mac, public employee pension funds, several public agencies, private investors, and Deutsche Bank—can also be applied to new green construction and is specifically targeted to low- to moderate- and middle-income multi-family buildings, including cooperatives.
The overarching goal of the program is to reduce greenhouse gas, but for owners of multi-family housing the bottom line means reduced operating costs and improved cash flow. From an industry perspective, the program also involves collecting empirical data to show how much a green retrofit can save an owner on a per-unit basis. This information will be used in a database that can be tapped by industry lenders. This would be an evolutionary step for the lending sector, which has faced difficulties in creating standardized lending models for green projects due to an appraisal process that doesn’t recognize the financial benefits of green retrofits.
Michael Lappin, president and CEO of CPC, says the mortgage program’s “realistic goal is to increase energy efficiency of existing apartment buildings by 20 percent or more while reducing greenhouse gas emissions.” Lappin expects to finance “retrofits for up to 15,000 apartments over the next few years. But to change the urban landscape we will also need to adjust the financing landscape.”
Lappin describes the program as unique—especially “in regard to its scope, potential, and importance.” Lappin explains that there’s a broad offering of funding vehicles for new green development, but not for green retrofits of existing buildings, which makes up the bulk of the market. In New York City, for example, 60 percent of the residential properties are circa pre-World War II and in dire need of renovation and energy efficient upgrades. “This program is designed to tighten up these buildings,” Lappin says. “It is simple in concept and simple in execution.”
The green retrofits include installing more efficient boilers, water heaters, windows, insulation, and lighting, as well as insulating exterior walls and roofs. Lappin says there’s a variety of management expertise in the market, and many building owners and operators don’t have the experience to deal with new green technologies and financing. This project addresses this weakness. “We also want the process to be easy and sensible,” he adds. “We want it to be a one-stop shop for a building owner, in particular the smaller operators.”
The program’s first step involves an energy audit, which is followed by the normal appraisal and environmental review audits. In the energy audit, the focus is on where energy is lost. The retrofit addresses the inefficiencies via new boilers, added or replaced insulation, Energy Star windows and appliances, and CFL lighting fixtures, including motion sensors. What helps finance the green improvements is the refinancing aspect of the program. A lower overall rate on the financing facility allows for funding the retrofit.
The mechanics of the financing involve renovation and refinancing costs per apartment unit of between $80,000 and $100,000, according to CPC officials. This price tag includes $5,000 to $50,000 for the energy retrofit and “other improvements.” To make this work, the private funding portion is augmented by subsidies that include tax exemptions, abatements, grants, low-cost secondary loans, and other financing vehicles.
Michael Sturmer, partner of Bronx-based real estate management firm Lemle & Wolff, said the CPC program offers a “great opportunity” for building owners and managers who face rising operating costs due to inefficient boilers, drafty windows, and poorly insulated roofs. “The benefits of an energy audit, creating a baseline, and making changes such as installing new [energy efficient] boilers and windows as well as adding insulation to roofs and exterior walls are enormous,” Sturmer says. “Replacing bulbs with CFLs and installing motion-sensing lighting fixtures can also make for huge energy savings. And the benefits are realized in the short- and long-term.”
Lemle & Wolff manages 300 buildings with about 9,000 units. Sturmer says energy retrofits can result in “double-digit energy savings.” The company already has one of its buildings participating in the CPC program and Sturmer says more buildings are in the pipeline for retrofits. Lemle & Wolff is also building new, green buildings under the program.
Sturmer praised CPC and this program, describing it as groundbreaking in regard to offering building owners and managers the chance to make energy-efficient improvements. He says this is the first time lending programs have been infused with a green purpose for improving multi-family housing.
Sadie McKeown, senior vice president of the Hudson Valley and Connecticut Regions of CPC, says even though the overarching goal of this program is to reduce green house gases, it is a challenging sell to many building owners. Instead, the focus for owners and operators is on how the retrofit can help them see at least a 20 percent drop in energy costs. “Building owners care about saving money and they will see a decline in operating costs and an increase in cash flow as a result of the retrofit,” McKeown says.
McKeown says CPC is working with community development corporations, municipalities, and other players to “bring all of the funding incentives to the table” while making the process for the owner as simple as possible.
It’s important to note that the funding vehicles for this work are already in place, but the CPC program connects it together in a seamless way from the point of view of the borrower.
For the funding partners involved in the program, the green aspect is appealing. New York State Comptroller Thomas P. DiNapoli praised the program, saying in a statement that it was “an important evolution in the New York State Common Retirement Fund’s long-standing partnership with the CPC. It is encouraging to see the CPC carrying its vital lending programs into sustainable green construction and rehabilitation. These investments are helping to make affordable housing projects more energy efficient. They also make good sense as pension fund investments.”
Regarding the database, the work involves longer-term monitoring of the retrofits to quantify energy efficient improvements. The database will grow, and in time can be used in other markets in the U.S. This aspect of the program is where vendors and other green real estate stakeholders can benefit. Companies that supply green products and services as well as energy auditors who create the baseline documentation can take advantage of the business opportunities presented by this program.
In the end, Lappin concludes: “It generates green jobs.”