AGRION INDUSTRY SNAPSHOT
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AGRION INDUSTRY SNAPSHOT
Industry Snapshot
Energy Efficiency Financing for Multifamily Buildings
December 16, 2014
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NYC
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Energy Efficiency |
Writer: Oisín.O’[email protected]
Benjamin Healey, Assistant Director, CT Green Bank – Moderator
Philip Henderson, Senior Financial Policy Specialist, NRDC
James Hannah, Director of Client Energy Services, Bright Power
Michael Weisberg, Principal, M-Core Credit Corporation
At the beginning of the discussion, Michael Weisberg of M-‐Core Credit Corporation asked those in the room a fundamental question: Is a lack of available financing options the primary barrier constricting the energy efficiency retrofit marketplace for the multifamily sector? During the roundtable discussion, the panelists and meeting attendees examined this question and reflected on both what has been achieved in the multifamily space, and what is needed to Michael
continue serving the sector. Weisberg,
M-Core Credit
Moderator Ben Healey of the CT Green Bank added the perspective of a public authority: “The New York Green Bank, the CT Green Bank, and the NJ Green Bank—
each of these organizations has an opinion on this question: Is it a lack of capital that’s stopping us, or a lack of the right type of capital… that is, capital structured appropriately to address the specific needs of this sector? And if this is not the case—what do you think are the real challenges to this market?” Ben Healey, CT
Green Bank
James Hannah of Bright Power asserted that “as someone on the ground developing projects in New York City, I’ve never had a situation where financing was the reason that a project didn’t go forward—with the one exception being affordable housing.” That being said, the opportunities are vast for optimizing the financing process, and creating targeted financial tools that consider the distinct characteristics of this diverse sector. “It’s exciting to have a panel specifically focused on the multifamily sector, because I think typically when we have these conversations about EE, people tend to lump the multifamily sector in with the commercial sector, and what I’d like to focus on today is that even within the multifamily sector, there are so many different types of multifamily properties—and so many different ways that they are financed, and owned; because of that there are a lot of different ways that people approach making decisions on how to do capital improvements in those James Hannah,
properties.” Bright Power
One of the more promising solutions to dealing with that diversity is to try and standardize measures for different sub-‐sectors of multifamily housing. Hannah brought up the Pratt Center for Community Development’s Retrofit Bedford Stuyvesant’ Block By Block: 2009-‐2010 Summary Report as the type of work that needs to be done to lay the groundwork for establishing this standardization. By being able to reduce the substantial soft costs associated with energy efficiency retrofits—auditing and engineering—standardizing measures by building type could help accelerate the market. 2
AGRION INDUSTRY SNAPSHOT
Philip Henderson of NRDC emphasized that the routine purchase and refinancing loan process for the building owner is a great time to focus on making efficiency repairs and improvements. While a number of specialized loan products are today used to finance an improvement project, Henderson said the primary mortgage can be the vehicle for funding these improvements: “We have to focus on working energy efficiency into conventional financing decisions that major lenders and investors use. This is the foundation to build upon. A number of elements will help accomplish this, including building trust in the energy savings estimates of energy Philip
models, and educating lenders on the values added to the property from different efficiency Henderson,
improvements.” NRDC
From Henderson’s, perspective, a number of key ingredients must be present for a building owner and the funding lender to want to invest in making efficiency improvements. A primary ingredient is confidence that the improvements will help sustain or increase the property value over time, which could be from higher rents, better occupancy, lower owner expenses. Another ingredient is easy access to information needed to demonstrate the value of efficiency, such as energy usage information for the building. These elements will help to bring the “efficiency needs assessment,” including audit-‐backed savings projections, into the conventional loan process on a regular basis, which can open up the opportunity to invest in energy efficiency improvements. In addition, Henderson noted, for HUD-‐supported affordable housing, it is important to correct policies around utility allowances to clarify the value of energy efficiency for the owners and to remove the odd incentives sometimes created by utility allowances. Mayor De Blasio’s sustainability agenda, One City: Built to Last has focused the City’s policy goals on increasing efficiency across the City’s affordable housing stock. But as the roundtable progressed, it became clear that solving the efficiency puzzle for the affordable multifamily housing sector persists as the most elusive to solve. Lack of appropriately structured capital, inadequate credit, and overlapping covenants tied to federal, state and city subsidies all constrict the flow of capital into this sector for energy efficiency improvements. Richard Cherry likened this process to the redlining crisis of the 1970s, which was the original impetus for creating the Community Preservation Corporation. To solve the credit issue for the affordable multifamily segment, Richard Cherry suggested that new credit standards be developed that put more emphasis on the building owner’s responsibility to pay the monthly utility bill, tying debt service to the utility bill. There are regulatory challenges associated with this, but on-‐bill repayment pilots have been successful, including on-‐bill pilot programs administered by NYSERDA. A clear, deliberate focus to serve the small-‐scale, affordable multifamily sector—the 5-‐30 unit section of the market—is also needed, because this is the most underserved segment of the market. Laura Humphrey shared observations from her work with the Clean Heat program, where approximately half the participating buildings are affordable housing. “The affordable housing buildings in our mix are much more likely to take on bigger projects with greater energy savings than their market rate counterparts, because they have their eye on the OPEX budget in a way that the market rate buildings don’t. “ James Hannah shared similar observations from his work developing projects with Bright Power. With large-‐scale, holistic retrofits, the energy savings can be large enough to finance other building improvements. “I think the barrier is moving EE up the priority list for people that own or make James Hannah,
decisions about buildings. To some extent we’ve been successful in getting people Bright Power
to prioritize EE by using the savings from the project to fund the new roof, or playground, or new windows—other things that have been on the wish list—that is, finance them through the energy savings. We often see with these bigger, more holistic retrofits that the savings these projects are generating are in some cases hundreds of thousands of dollars more per year than the debt service on 3
AGRION INDUSTRY SNAPSHOT
the loan you’re taking out, so there’s room to wrap in other projects that aren’t going to yield energy savings, which are going to improve the quality of life, the living experience, and also the value of the property as well.” Ben Healey, CT
Green Bank
Similarly, Ben Healey shared personal observations from the Connecticut market place, where the CT Green Bank has been drawn to the multifamily sector because it is part of the organization’s mission. “The big idea I’ve come to so far is: the whole premise of leading with energy is wrong. Maybe that’s hearsay, and maybe totally incorrect—but—we’ve talked to building owners and management companies who say, ‘So you found me some energy savings; it’s a lot of work for saving 10-‐30 percent of what I currently spend on utilities. I’ve got health and safety issues, and maintenance that I haven’t been able to address yet.’” So if that’s the case—how deep are the opportunities to marry building efficiency with other building improvements that need to be done? Is part of the problem that the conversation about energy efficiency is being approached as separate from larger building improvements rather than being considered as a component of every retrofit? 4