CREJ - Multifamily Properties Quarterly - August 2016
The Federal Housing Authority reduced mortgage insurance premiums for multifamily housing this spring. The savings realized from the reduced rates more than covers the cost to design, build or rehab a multifamily property to meet the energy and sustainability requirements needed to qualify. For every $10 million of U.S. Department of Housing and Urban Development debt financed, the reduced MIP rates save an estimated $75,000 at closing and an additional $20,000 annually. FHA reduced closing MIP from 100 to 25 basis points and reduced the annual premium from 45-95 bps to 25 bps for multifamily housing that meets green certification and energy-efficiency requirements. Projects can qualify by certifying under LEED, Enterprise Green Communities (if there is an affordable component), Energy Star or the National Green Building Standard. FHA also recognizes other qualifying certifications that we typically do not see in Colorado. As for energy efficiency, a project must be designed and operated in the top 25 percent nationwide as determined by the U.S. Environmental Protection Agency’s Portfolio Manager. To achieve this, a building with four stories or more in Denver would need a site energy-use intensity of less than 50 thousand British thermal units per square foot per year and a source energy-use intensity of less than 117 kBtu per sf per year. Those energy targets may seem like gibberish, so we recommend going through Xcel’s Energy Design Assistance program as an easy way to ensure the project meets the energy goals. The Energy Design Assistance program covers energy modeling and rebates the owner or developer once the project is complete. If the project is not in Xcel territory, the local utility may offer a comparable program. If that is not the case, engaging the energy modeler early in the design process will ensure the FHA requirements are met and can assist with energy code compliance. We anticipate projects under the 2015 International Energy Conservation Code will meet the targets as long as efficient lighting is installed. The soft costs to certify the project under a green-rating system and meet the efficiency targets generally are less than the first-year savings from the MIP reduction. Hard costs depend on the project and original goals and priorities. The MIP reduction also applies to broadly affordable housing and affordable housing. Broadly affordable housing has Section 8 in 90 percent of the units. Affordable housing includes set-aside units based on affordability and may be comprised of low-income housing tax credit, Section 8, inclusionary zoning, etc. The rate reduction is intended to preserve existing affordable housing as well as save tenants money on their monthly utility costs. There are additional financing opportunities that can be coupled with FHA mortgages or used with projects that do not have an FHA loan. We mentioned utility energy-conservation programs. These apply to new and existing building renovations, as does the MIP reduction. Another financing mechanism available is the C-PACE – Colorado Commercial Property Assessed Clean Energy program. The PACE program can finance 15 to 20 percent of the new construction costs for projects that at least meet the 2015 International Energy Conservation Code. The financing repayment is accomplished through a county property tax assessment. Currently, Boulder and Adams counties are participating with other Colorado counties anticipated to follow. Taking advantage of these financial opportunities in order to build more energy-efficient and sustainable projects will increase the overall value of the projects and help maintain affordability in our market.