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It’s A Good Time To Be Green

Green Financing for Multifamily Housing

For just over a year, the Fannie Mae Green Rewards and Freddie Mac Green Advantage programs have been running at full speed. Both programs offer attractive benefits, in the form of pricing discounts and underwriting of cost savings, to borrowers looking to purchase or refinance a multifamily property.  Borrowers are incentivized to make energy- and water-saving improvements to their properties, and the benefit is multifaceted. Borrowers both save money over the life of the loan via a point reduction on their interest rate, and reduce their utility expenses through implementation of recommended improvements. The split incentive that previously prevented multifamily building owners from making energy- and water-saving improvements to spaces where tenants pay utilities has been patched. And finally, property NOIs have increased, resulting in higher overall property values. It’s a good time to be green.

Recent FHFA Update

On November 21, 2017, the Federal Housing Finance Agency announced the 2018 multifamily lending caps for Fannie Mae and Freddie Mac. The release stated that to qualify for exclusion from the lending cap, all multifamily loans that finance energy or water efficiency improvements through either green program must provide a 25% energy or water savings.

fanniemae_webApartment Buildings

Fannie Mae Green Rewards  

The Fannie Mae Green Rewards program, piloted in 2012, ramped up at the end of 2015, and in 2016 accounted for $3.6 billion in green financing loans. As of September 2017, Fannie Mae green financing loans have totaled approximately $19.8 billion. The program’s mission is to “enhance the quality, affordability, and environmental sustainability of multifamily housing in the United States.” Borrowers must commit to reducing their whole property water or energy consumption by at least 25%.  Opportunities for savings are identified in an ASHRAE Level II energy audit and accompanying written report titled the High Performance Building report. The cost of the energy audit is reimbursed in full by Fannie Mae when the loan closes. All properties are compared against a national data set and receive an ENERGY STAR Score and a Water Score through the DOE’s online benchmarking program, Portfolio Manager. Borrowers also commit to reporting their utility consumption through Portfolio Manager for the life of the loan.

Freddie-Mac-Web-LogoFreddie Mac Green Advantage

Freddie Mac Green Advantage

The Freddie Mac Green Advantage program started after the Fannie Mae program but quickly matched the volume of loans going green. As of August 2017, 453 loans had closed through the program, with a total of $13.4 billion funded. By offering to reimburse the cost of the energy audit, Freddie Mac set a precedent that Fannie Mae quickly followed. Stated program goals are to improve workforce housing, sensitize borrowers to environmental issues, create a positive environmental impact, and save money for borrowers and their tenants. Borrowers qualifying for the Green Advantage program must commit to reducing owner-paid or whole property (depending on historical utility data available) energy or water consumption by at least 25%. These savings are identified in an ASHRAE Level I energy audit and accompanying Green Assessment report. Similar to the Fannie Mae process, all properties are benchmarked in Portfolio Manager and receive an ENERGY STAR Score and a Water Score. Borrowers commit to reporting their utility consumption for two years through Portfolio Manager following implementation of the energy- or water-saving improvements.

The Split Incentive

The majority of multifamily housing stock in the United States is aging and, in most cases, inefficient. According to the National Multifamily Housing Council, almost 44 million U.S. households (35% of total households) live in renter-occupied homes, and of those 44 million, 19 million households live in multifamily housing with five or more units. Two thirds of this multifamily housing was built prior to 1990.

Proponents of energy efficiency in multifamily housing have long struggled with the split incentive. Property owners are not incentivized to implement energy- and water-saving measures in tenant spaces when residents pay for their own utilities. Similarly, residents lack incentive to implement measures in a residence they do not own, nor are they able to in many cases. As a result, energy- and water-saving measures in apartments are often not implemented.

Many of the properties utilizing the Green Rewards and Green Advantage programs have direct metering in place for electricity and natural gas, and tenants reimburse the owner for water through a Ratio Utility Billing System (RUBS). The Fannie Mae Green Rewards program rewards building owners for all measures implemented that achieve a 20% reduction in whole property energy or water use.  Building owners benefit from implementing measures in tenant spaces. While the Freddie Mac Green Advantage savings threshold is more often achieved by hitting a 15% reduction in owner-paid energy or water, this includes water costs reimbursed by tenants. Additionally, to hit the green budget, building owners frequently address measures that impact tenants as well.

Impact of the Programs

The success of both programs has far surpassed initial expectations. Borrowers are quick to jump at the opportunity to “go green.” At Nova, we audit approximately 10,000 units of multifamily housing per month. Based on projects completed to date, our data shows the following average results:

  • Property size: 272 units
  • Age: 33 years
  • Whole property projected cost savings for all measures: $125,600
  • Projected % savings for energy: 28%
  • Projected % savings for water: 25%
  • Projected kWh reduction: 636,095
  • Projected therms reduction: 20,413
  • Projected gallons of water reduction: 3,450,333


Projected water savings at projects assessed by our team are already in the billions of gallons. Our hope is that, through Nova reports, building owners become aware of energy efficiency opportunities at their properties that go above and beyond qualifying for green financing programs.


Case Studies:

Case Study #1

The project was an acquisition of a 470-unit apartment complex in Texas built in the early 1990s. The property has significant irrigation and high annual water consumption at 117 gallons per bedroom per day. The borrower elected to get a Fannie Mae-backed loan.

The energy audit resulted in recommendations that would achieve a combined 40% reduction in energy and a 26% reduction in water consumption.

The borrower elected to implement the following measures to achieve 25% water savings:

  • Replace bath aerators with 0.5 gallon per minute (GPM) aerators
  • Replace kitchen aerators with 1.0 GPM aerators
  • Replace showerheads with a 1.5 GPM model
  • Replace toilets, most of which were old 3.0 gallon per flush (GPF) models, with a 1.28 GPF model
  • Reduce irrigation consumption by 17%



  • Total cost: $205,000
  • Cost per unit: $436
  • Annual projected owner cost savings: $20,323
  • Annual projected tenant cost savings: $72,528
  • Projected % water reduction: 26%


Case Study #2

The project was an acquisition of a 157-unit property in Florida built in 1961. The property has some irrigation and uses 75 gallons of water per bedroom per day. The borrower elected to finance with a Freddie Mac loan.

The energy audit resulted in recommendations that would achieve a combined 64% reduction in owner-paid energy and a 39% reduction in whole property water.

The borrower elected to implement the following measures to achieve 25% energy savings:

  • Common area and exterior lighting retrofit
  • Variable-frequency drive (VFD) pump for swimming pool



  • Total cost: $20,859
  • Total cost per unit: $133
  • Annual projected cost savings for all measures selected: $9,111
  • Projected % owner-paid energy reduction: 31%



keely feltonKeely Felton

Vice President

Energy Efficiency Group

(207) 939-4983




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