Freddie Mac's Green Advantage Program Explained

Freddie Mac’s Green Advantage program offers financing options and incentives to encourage property owners and developers to make their properties more sustainable. As the world continues to focus on sustainability and energy efficiency, the multifamily housing industry is also taking steps to reduce its environmental footprint. We’re excited to share insights about the Freddie Mac Green Advantage Program and the benefits it offers. At AEI can help you navigate the technical aspects of the program, such as conducting the necessary reports, to make your application process smoother. By the end of the blog, we hope you’ll have a better understanding of how the Green Advantage Program can benefit your multifamily investment, and how we can assist you in the process.

What is Freddie Mac’s Green Advantage Program?

Freddie Mac’s Green Advantage program is an initiative designed to encourage affordable rental housing providers to adopt sustainable practices that conserve energy and water. The program offers a suite of incentives, including Green Up, Green Up Plus, Green Retrofits, Green Certified, Green Rebate, and C-PACE. To qualify, borrowers must reduce the whole property energy consumption by at least 15% and reduce either energy and/or water consumption by an additional 15% for a total of 30% reduction in whole property energy and water consumption.

Freddie Mac’s Green Advantage program is unique in its focus on providing affordable rents for workforce housing. Properties that wish to qualify for the program must offer a percentage of units at rents deemed affordable for the local market. The specific requirements for this vary depending on the location of the property. In order to qualify for Green Up and Green Up Plus loans, borrowers must engage a third-party data collection consultant to monitor energy and water usage during the loan term. This involves reports such as the Green Assessment and Green Assessment Plus, Freddie Mac will reimburse up to $4000 for the cost of these reports.

Benefits of the Program:

One major benefit of the Green Advantage program is that it encourages energy and water savings, which can lead to lower utility costs and reduced greenhouse gas emissions. For example, a multifamily property that invests in energy-saving upgrades such as efficient lighting and water fixtures may be able to reduce its energy and water consumption by at least 30%. By doing so, the property can qualify for better pricing and more funding through the Green Up or Green Up Plus loan options. These upgrades can also lead to a healthier living environment for tenants, as they may experience improved air quality and reduced exposure to harmful chemicals. In addition to these environmental and health benefits, borrowers can also take advantage of financial incentives such as increased loan-to-value allowances and reduced debt service coverage ratios, which can help to make green investments more economically feasible.

Eligibility and Requirements:

To be eligible for the Green Up and Green Up Plus loans, the property must be conventional or TAH cash preservation with a 10-year fixed term, excluding SBL, seniors, student, MHCs, and supplementals. For workforce housing properties (40% of units affordable at workforce housing rents) the requirements are as follows:

80% AMI in standard markets
100% AMI in cost-burdened renter markets
120% AMI in very cost-burdened renter markets
150% AMI in extremely cost-burdened renter markets

To qualify, the property must also project a minimum consumption reduction of 30% for energy or water/sewer consumption for the whole property, with at least 15% from energy, based on a Green Assessment report. The property must also meet policy compliant DCR/LTV and complete the green improvements within two years, with funds for energy/water efficiency work escrowed at 125% of the cost and released as work is completed. Additionally, the borrower must engage a third-party data collection consultant to collect, input, and monitor actual energy and water usage through the term of the loan, and must provide Green Assessment and Green Assessment Plus reports.

Green Assessment and Green Assessment Plus Reports:

One of the key components of Freddie Mac’s Green Advantage Program is the Green Assessment and Green Assessment Plus, which provide lenders and property owners with a comprehensive analysis of their property’s energy and water usage and recommendations for improvements.

AEI can assist lenders and property owners with the Freddie Mac Green Assessment and Green Assessment Plus processes. We can provide expert guidance throughout the Green Assessment and Green Assessment Plus processes, ensuring that borrowers can take full advantage of the energy- and cost-saving benefits of these assessments.

The Green Assessment is an analysis that demonstrates how borrowers can conserve energy or water by making improvements to their property.
The Green Assessment Plus is a more detailed analysis based on an ASHRAE level 2 energy audit.

Already Have a Green Property?

The Green Retrofits program is designed for properties that have already undergone energy and water efficiency improvements within the current year or the previous two years. Eligible loans for this program include conventional and TAH cash preservation loans, with a 10-year fixed term. Properties must also pass an Affordability Test, with at least 20% of units deemed affordable at 60% AMI. By participating in the Green Retrofits program, borrowers can receive financing for green improvements they have already made, potentially increasing the value of the property while also reducing utility costs and environmental impact.

Looking for Green Certificates?

The Green Certified option provides discounted loan pricing for 10-year fixed-rate loans, as long as at least 40% of a property’s units are affordable at workforce housing levels and have an industry-standard green building certification. Eligible certifications include:

EarthCraft
ENERGYSTAR for Multifamily Existing Buildings, High Rise, New Construction by the EPA
Green Communities by Enterprise Community Partners
Green Globes by the Green Building Initiative
GreenPoint Rated by Build It Green
Leadership in Energy and Environmental Design (LEED) by the US Green Building Council
National Green Building Standard (NGBS) by Home Innovation Research Labs
Passive House Institute US (PHIUS) Certified
Passive House Institute (PHI) Certified

To take advantage of the Green Certified option lenders must speak to their Freddie Mac representatives, complete the Affordability Test, and provide evidence of certification as part of the loan submission to receive the best quote. Borrowers who do not choose any Green Advantage option can still receive a $5,000 rebate from Freddie Mac for delivering an EPA ENERGY STAR Score®.

Freddie Mac Green Advantage Program Successes:

Since its launch in 2016, the Freddie Mac Green Advantage program has achieved significant success. As of the third quarter of 2021, the program has been utilized on loans totaling over $64 billion, impacting nearly 630,000 units. The program has seen success in promoting the adoption of various green improvements, including LED lighting, HVAC thermostats, and insulation. These improvements have resulted in significant energy and cost savings for both property owners and tenants. Despite some challenges in obtaining whole building data from utilities, the program has successfully obtained sufficient tenant energy data to calculate tenant savings on 39% of properties receiving an energy savings analysis report.

Since energy savings were made a requirement on all loans, there has been a significant increase in the selection of energy-saving improvements, with a 6-fold increase seen in some improvements. The projected average cost for these improvements is approximately $478 per unit, with a total of nearly $300 million of projected improvements as of the end of the third quarter of 2021. Based on reported property data, tenants are saving an average of $129 per year. Nearly 50% of properties are experiencing more than 15% energy savings, including those with a required 15% energy reduction.

Final Thoughts on Freddie Mac’s Green Advantage Program:

In conclusion, the Freddie Mac Green Advantage program offers a range of benefits and incentives for multifamily property owners and developers who prioritize sustainability and energy efficiency. Eligible properties can receive discounted loan pricing and access to financing for green retrofits or certification. Freddie Mac’s Green Advantage program has resulted in significant energy and water savings with almost 50% of properties experiencing more than 15% energy savings. We encourage property owners and developers to take advantage of the Green Advantage program’s benefits and work towards a more sustainable future for multifamily housing.

With AEI’s help, lenders and buyers can make informed decisions and ensure compliance with Freddie Mac’s Green Assessments and Green Assessments Plus. Remember, if you have any questions or concerns, don’t hesitate to reach out to one of our experts at AEI. We are here to help you navigate the process and make sure you have the best chance of success when applying for Freddie Mac’s Green Advantage Program. Reach out to speak with one of our consultants today.

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Freddie Mac’s Green Advantage Program Explained

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