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Page 22 — Multifamily Properties Quarterly — August 2017
Sustainability
U .S. households residing in
multifamily housing – one
in four households – spend
approximately $40 billion
on energy every year. A 20
percent increase in energy effi-
ciency for these homes would save
$8 billion per year and cut green-
house gas emissions by 430 million
tons, according to the Department
of Housing and Urban Development.
To address these issues, HUD now
offers a reduced annual mortgage
insurance premium for energy
efficienct and green building stan-
dards: The Green MIP Reduction.
The Green MIP Reduction cuts the
MIP from current rates, which gen-
erally are between 45 and 70 basis
points, to 25 basis points for prop-
erties that meet one of the listed
industry-recognized energy efficien-
cy and green building standards.
Fiscally minded taxpayers will be
pleased to know that even with the
reduction in MIP for energy-efficient
loans, HUD predicts that loans
under this program will generate
net revenue for the federal govern-
ment.
To earn the Green MIP Reduction,
the project owner must demon-
strate that the project has achieved
– or must certify that it will pursue,
achieve and maintain – an indus-
try-recognized standard for green
building. Further, the owner must
certify that it has achieved, or will
achieve, a score of at least 75 on the
1-100 Energy Star score using Port-
folio Manager and maintain that
score for the life of the loan, with
certifications done annually.
For existing buildings, the owner
must benchmark
the building, then
process a statement
of energy perfor-
mance in the Portfo-
lio Manager with a
score of 75 or great-
er and apply for
Energy Star certifi-
cation. If the exist-
ing property has a
score of less than
75, a qualified green
building profession-
al would need to
audit the building and design a pro-
gram to achieve the green building
certification and meet the required
energy score.
• Developer's perspective. Tyler
Downs, principal of Wazee Part-
ners LLC, is utilizing the Green
MIP Reduction for the upcoming
165-unit multifamily, mixed-use
development known as West End 38
Apartments in Wheat Ridge, which
is being financed through HUD’s
221(d)(4) program. Downs’ advice to
other developers using the Green
MIP Reduction in the 221(d)(4) pro-
gram is to select an experienced,
HUD-compliant green building con-
sultant and to continually involve
the consultant in your engineering
and architecture meetings as early
in the process as possible.
The program will provide the
West End 38 project around $90,000
a year in MIP savings, according to
Downs. The cost to participate in
the program also was in the neigh-
borhood of $90,000 for the green
program certification fees and the
cost of Group14’s consultant fees,
which include commissioning and
application – the ongoing monitor-
ing will be separate. Most notably,
Downs does not believe there will
be a significant increase in actual
construction cost (and perhaps
no increase) to achieve green pro-
gram compliance for this project.
The program cost was not signifi-
cantly burdensome, perhaps in part,
because the construction industry
has made progress in adopting
some of the standards of the cer-
tification programWazee Partners
chose as baseline construction
standards, he said. For this project,
the payback for the cost to achieve
green program compliance will be
within one to two years.
• Sustainable design consultant’s
perspective. Building green doesn’t
cost more; you just have to “design
smart to build green,” said Josh
Marceau, sustainable design con-
sultant at Group14 Engineering, the
consultant for the West End 38 proj-
ect. Many studies show that there
is no cost to build green, or that the
cost is very low, he said.
“For example, think about the bal-
ance between the building envelope
and its mechanical systems,” said
Marceau. “A green building that
has better exterior insulation than
a standard building will allow you
to save money by downsizing the
mechanical system, which is one of
the biggest costs to a project.”
There are many opportunities to
save money as well. For example,
water-efficient fixtures are more
energy efficient and will save own-
ers money.
One of the benefits of the Green
MIP Reduction program is the expo-
sure and education it provides.
Any time we can expose builders
or designers who would otherwise
build a standard product to a third-
party green building rating system,
they will learn something and
change their practices, he said. We
are seeing an increase in develop-
ers whose decision-making is based
on the triple bottom line of people,
profits and the planet.
• Lender’s perspective. Most of
the borrowers Scott Graber, vice
president of multifamily and senior
housing at Gershman Mortgage,
works with are using HUD’s Green
MIP Reduction program. One reason
for this is that since most loans
are on a balance between being
either replacement-cost constrained
or debt-service constrained, the
impact of not using the Green MIP
Reduction is too much of a risk, he
said.
“In approximate terms, on a
roughly $17 million debt-service
constrained new construction loan,
a 40-basis-point increase – if the
developer did not pursue the Green
MIP Reduction – would result in a
reduction in mortgage proceeds
and increase in equity requirement
by $940,000,” he said. “On the flip
side, in that same example, utiliz-
ing HUD’s Green MIP Reduction,
there would be roughly $120,000 of
upfront MIP reduction savings, plus
40 basis points of effective interest
rate savings (approximately $67,000
per year), and $940,000 more in
mortgage proceeds.”
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Keely Downs
Attorney, Moye
White LLP, Denver