Maximizing Green Lending and Affordable Housing Opportunities in Greater NYC

Approximately 80% of my client base is comprised of agency sector deals, including Fannie Mae and Freddie Mac multifamily lending, a burgeoning market for affordable housing that has exploded this past year. As the largest metro area in the United States, and with affordable housing declared as priority to the current City Administration, the NYC housing market is ripe for agency deals and for green financing programs.

The multifamily green financing programs within both Freddie Mac and Fannie Mae have been extremely successful, with Fannie Mae closing on 500 green multi-family transactions through October 2017. Implementing green efficiency measures includes specific percentage reduction in water and energy use, benchmarking, and even air quality.

The demand for energy-efficient buildings in the commercial real estate market place is bigger than ever. There is a substantial shortage of energy-efficient properties, especially as more concrete data demonstrates the ROI of energy benchmarking and efficiency investments. This is resulting in more pressure from investors and tenants on pension funds and investment portfolios to have sustainable properties. There is more interest in improving existing stock: buildings certified as “green” or “efficient” increased from 5% in 2005 to 38% last year in the top 30 U.S. markets. There is even a new ASTM standard in the works for better energy efficiency in building roofs. Nowhere is this commitment towards efficiency more evident than in multifamily green lending programs. In their newly announced 2018 lending caps, Freddie Mac will be excluding Green Up and Green Up Plus loans, provided that energy and water usage are reduced by 25%. This is great news as Freddie’s green programs will not have to abide by the FHFA’s reduced lending caps and can therefore top their robust year in 2017.

Freddie Mac and Fannie Mae have each established their own set of guidelines for third-party reports. This can make New York a tough market to navigate, especially when it comes to the screening requirements for asbestos containing materials. New York and NYC are governed by two different sets of asbestos regulations. These regulations are among the toughest in the world. Whereas OSHA and EPA regulations apply ubiquitously nationally, the state and city regulations are more stringent and therefore are utilized more often. In New York City, an expeditor is used to navigate the building/renovation process as there is a significant amount of paperwork. Furthermore, any buildings in New York City constructed prior to 1985 undergoing retrofitting or rehabilitation for a Freddie/Fannie loan must submit an asbestos report. The New York State Department of Health requires special licensing compliance for asbestos abatement, project monitoring, air sampling, and investigations. It should be noted the City of New York requires a different certification to collect bulk samples. Many Partner employees have certifications in New York State and New York City.

As a recent example of this consulting expertise, Partner aided in an asbestos abatement project at the Statue of Liberty. There are numerous buildings on Liberty Island. Unfortunately, some of them were old and needed to be demolished to make way for newer buildings. For this project, Partner collected bulk samples to aid in the development of an abatement design, including providing project monitoring and air monitoring. This project was unique, as all supplies and asbestos waste had to be transported via barge. All employees had to be transported via passenger ships which made the work both challenging and a lot of fun!

Partner has extensive experience delivering due diligence services to an array of specialized lenders across the United States, which includes an assortment of reports for Fannnie Mae and Freddie Mac. Indeed, buoyed by our strong reputation, Partner has delivered more small balance Fannie/Freddie deals across the nation than any other due diligence firm. This year, in the New York City metro area alone, Freddie Mac more than doubled multifamily lending compared to 2016, in the hopes of meeting the growing demand for workforce and affordable housing. And green lending and affordable multifamily housing programs are expected to remain a robust and underserved sector heading into 2018. Furthermore, the Federal Housing Finance Agency, which oversees the Freddie Mac Multifamily Green Advantage Program, will be adding an extremely high-cost market category that will be eligible for exclusion from the small lending cap starting in 2018. This will create a perfect opportunity for investors in the New York Metro area as multifamily housing prices continue to rise.

There has never been a better time to take advantage of green lending and multifamily incentives in the greater NYC area. Leveraging these opportunities to their full potential involves partnering with seasoned due diligence consultants with deep knowledge of agency lending requirements and report filing.

Melissa Dahl