The View From Here
by Ric Jackson
May 1st, 2017

Financing: Overcoming the ‘Green’ Barrier in Multifamily Housing

To owners of multifamily buildings and other rental properties, the words “green retrofit” can take on a couple of different meanings. There’s the obvious environmental benefits – but also the green it takes to make the necessary upgrades.

Green retrofits can be very expensive, so there 1) must be a clear ROI for making the investment; and 2) financing has to be available to assist with the upfront costs.

So, let’s break these down even further.

Return on Investment

Return on investment is often thought of in terms of dollars. In the case of green retrofits that’s just one piece of the ROI equation. It’s true that there are clear benefits in terms of energy savings. But for owners of rental properties, the renter is often responsible for covering utility costs, so the incentive has to be greater than that.

According to recent data from Harvard University’s Joint Center for Housing Studies, the median renter paying utilities separately from rent spent $130 per month, with utilities accounting for 4 percent of income and 14 percent of housing costs. To any renter, that’s a significant amount. But to lower-income families, that percentage can be devastating.

This, in turn, is creating increased demand for green rental properties that will help reduce utility costs. Building owners are changing their rationale for making these improvements to protect their property values as more compete for green property tenants. Additionally, other studies have shown that tenants of green buildings stay longer, are generally more satisfied and are more willing to pay higher rents.

So, ROI has to include more than just dollars with today’s competitive rental market.

Financing

Based on the above, the incentive is there. And now, more and more green financing options are becoming available. Of note is Fannie Mae’s green financing program, which boasted $3.5 billion in new financing in 2016.

There are other programs like this – and it can be daunting to keep up with all of them. But The View from Here is that to stay competitive it’s important for us to keep up with all of the latest options to help encourage our multifamily customers to take the leap to go green – and to remain competitive in their own marketplace.

What’s your View? Email me directly at eric.jackson@quanex.com.

 

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