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NYU Schack Associate Dean Sam Chandan speaks with Chrissa Pagitsas of Fannie Mae at the NYU Schack 7th Annual Conference on Sustainable Real Estate<\/p><\/div>\n
The pursuit of energy efficiency investments can be a complex one, but \u201cfollowing the dollars\u201d can be an effective way to understand the nuances of sustainable building<\/a>. This was the theme of the day at the NYU School of Professional Studies Schack Institute of Real Estate 7th Annual Conference on Sustainable Real Estate, as panelists explored the process of obtaining green financing<\/a> from loan origination to capital investment.<\/p>\n The conference kicked off with a view from where it all begins: the agencies that create green loan products. NYU Schack Associate Dean Sam Chandan had a one-on-one session with Chrissa Pagitsas, director of Fannie Mae\u2019s multifamily green financing<\/a> business, which issued $28 billion in green bonds in 2017. She noted that while multifamily is a small part of Fannie Mae\u2019s portfolio\u2014the agency works with 25 multifamily lenders\u2014it\u2019s a significant one, especially as part of the agency\u2019s goal to increase the energy efficiency and sustainability of the nation\u2019s apartment stock.<\/p>\n “When we talk about green financing, we need to design a mortgage loan product that our lenders can use, that borrowers want,<\/em>\u201d Pagitsas noted, adding that the challenge is incorporating energy efficiency, water efficiency and other aspects of green financing into the standard mortgage process.<\/p>\n To tackle this challenge, Fannie Mae has focused on four Ps: Product, Process, Protocols and People.<\/p>\n \u201cYou really have to understand what motivates those people to even bother going through a green product, a green audit and a green mortgage. Those are very critical<\/em>,\u201d she proclaimed.<\/p>\n What motivates multifamily owners to pursue green investments varies greatly, she added. While some investors might already be focused on sustainability initiatives, others might solely \u201cgo green\u201d to take advantage of the incentives<\/a> Fannie Mae’s green loans offer, like a lower interest rate and higher loan proceeds.<\/p>\n \u201cWe have to recognize that going green isn\u2019t everybody\u2019s goal, but having a better-performing property is everybody\u2019s goal,\u201d<\/em> she noted. \u201cSo how do we motivate these people to invest in energy efficiency without it being more work?\u201d<\/em><\/p>\n Fannie Mae\u2019s green loan offerings<\/a> have evolved since it launched its first product in 2011 and closed its first green loan for $19 million in 2012. After a lot of trial and error, as well as partnering with organizations like the New York City Energy Efficiency Corp. (NYCEEC), Fannie Mae is now the largest issuer of green bonds globally, with three loan products. Its latest product, Green Rewards, was launched in 2015, and is largely responsible for Fannie Mae\u2019s volume growth, Pagitsas noted.<\/p>\n \u201cWe figured out the products, we figured out the partnerships and we figured out the protocols that would really make this work for the standard mortgage marke<\/em>t,\u201d she added.<\/p>\n Session Two, left to right: Carolyn Kissane, NYU SPS; Brendan Coleman, Walker & Dunlop; Vincent Toye, Wells Fargo Multifamily Capital; Fred Lee, NYCEEC; Ivan Frishberg, Amalgamated Bank; and Bruce Schlein, Citigroup<\/p><\/div>\n Contrary to what many might think, the markets with the highest number of green loans are Dallas, Atlanta and Washington, D.C., Pagitsas said. She added that while \u201cgreen\u201d is often thought of as the Class A, high-end buildings in gateway cities, that\u2019s only a tiny percent of the housing stock in the U.S. It\u2019s actually garden-style, 1970s-era apartments that offer the greatest opportunities.<\/p>\n Pagitsas and other panelists throughout the day noted that a key way to convince owners to pursue green upgrades is to show how they impact the triple bottom line. At Fannie Mae, loans done through 2017 are projected to save annually $53 million in energy and water expenses; on a per-property basis, that\u2019s $49,000 annually. On the resident side, families are expected to save $131 annually on their utility bills.<\/p>\n With these figures in mind, Pagitsas said the next challenge will be to grow the market for green financing<\/a>. She expects interest in Fannie Mae\u2019s green program to continue, and that there will be\u00a0a need for more products, including those around solar and Passive House.<\/p>\n To tackle this challenge, it will be up to multifamily lenders to do the majority of the legwork to convince borrowers to consider green financing, Pagitsas said. On the second panel of the day, execs from Walker & Dunlop, Amalgamated Bank, Citigroup and Wells Fargo discussed their strategies.<\/p>\n As the No.1 Fannie Mae lender, Walker & Dunlop focuses on demonstrating to borrowers that they can not only get more loan proceeds but also raise the value of their properties by pursuing energy-efficient upgrades, said panelist Brendan Coleman, managing director of the firm\u2019s debt and structured finance group. He added that the firm is motivated to sell green loans<\/a> in particular because there\u2019s no cap on production like there is with traditional mortgages.<\/p>\n Fellow panelist Vincent Toye, managing director & head of production at Wells Fargo Multifamily Capital, agreed, adding that it\u2019s about understanding clients’ \u201cpain points\u201d and explaining how energy-efficient upgrades will improve their bottom line.<\/p>\n He did note, however, that challenges to scaling green financing remain. In cities like New York, retrofitting older properties<\/a> is more expensive than in other markets and may not fit into the Fannie Mae or Freddie Mac green financing programs.<\/p>\n On a larger scale, panelist Ivan Frishberg, first vice president of sustainability banking at Amalgamated Bank, said the biggest challenge is time.<\/p>\n \u201cWe\u2019re sort of losing the race against the clock from a climate perspective,\u201d<\/em> he proclaimed, adding that while the Paris Climate Agreement calls for a reduction in greenhouse gas emissions, levels have remained largely flat.<\/p>\n The solution to reducing emissions will have to come from existing buildings, Toye said. Buildings developed today tend to be greener and more efficient because building codes have gotten stricter and technology has improved, so it\u2019s largely the properties built decades ago that will need to be upgraded.<\/p>\n \u201cUntil we figure out a way to solve the existing stock, the older stock, it\u2019s going to be really hard to reduce (emissions),<\/em>\u201d he concluded.<\/p>\n Property owners, both private and public, later discussed their financing strategies for making energy efficiency upgrades. In addition to accessing green loans through Fannie Mae and Freddie Mac, PACE<\/a> is emerging as an increasingly popular financing vehicle among property owners.<\/p>\n Session Three, left to right: Stuart Brodsky, NYU Schack; Bomee Jung, NYCHA; David Gabrielson, PACENation; Richard Yancey, Building Energy Exchange; and Timon Malloy, Fred F. French Investing Co.<\/p><\/div>\n On a later panel, David Gabrielson, executive director of nonprofit PACENation, discussed the various advantages the financing provides to owners and tenants. Property owners like that the financing can be long-term and is more easily shared with residents as a tax assessment, which can solve the split incentive problem, he noted.<\/p>\n Fellow panelist Timon Malloy, president of real estate investment management company Fred F. French Investing Co., discussed a recent green renovation project his firm completed that used a $1 million CPACE loan. The firm transformed a 1970s-era office building in Westport, Conn., completely replacing the building envelope and installing new mechanical systems, insulation and solar panels.<\/p>\n Gabrielson noted that it will take time for PACE to gain ground in the industry, especially as many large real estate companies finance their transactions in cash and hold properties for the short term.<\/p>\n \u201cLike with anything new to the industry, it will take time to raise awareness that this is a viable financing option. It\u2019s been a slow ramping up,\u201d<\/em> he said.<\/p>\n As far as the actual upgrades being made, the size and type of owners\u2019 portfolios makes all the difference.<\/p>\n For private asset manager Invesco Real Estate, making sustainability upgrades is largely \u201cfinancial driven,\u201d meaning that any improvements must increase returns or cost savings, noted Lesley Lisser, the Northeast regional head of the firm\u2019s national multifamily platform. Owners can justify charging more rent by showing residents or tenants how their energy costs will be lower.<\/p>\n She added that younger generations’ preference for green and sustainable features means they are likely to come at a premium, incentivizing developers and owners to go green.<\/p>\n The New York City Housing Authority (NYCHA), which owns some 176,000 apartments, is using its scale to help promote green upgrades. Bomee Jung, NYCHA\u2019s vice president of energy and sustainability, noted that a major barrier for developers to installing solar panels is a lack of space, so NYCHA offers community solar programs allowing solar developers to lease its roof space. The revenue from the panels goes back into the development to help pay for other expenses. Jung added that since many of NYCHA\u2019s properties<\/a> are century-old buildings, the upgrades it can pursue are largely limited to \u201clow-hanging fruit\u201d like switching to LED lights or improving HVAC controls. But she noted that these upgrades still benefit owners and residents by lowering energy costs.<\/p>\n National nonprofit owner and developer The NHP Foundation is pursuing similar green upgrades. Since its portfolio is largely affordable housing, the organization focuses on reducing energy costs<\/a> since there is often a cap on raising rents.<\/p>\nOpportunities for Green Building<\/strong><\/h2>\n
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Deploying Capital <\/strong><\/h2>\n
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