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FINANCING ENERGY EFFICIENCY TO INCREASE OPERATING INCOME

Learn about the benefits of energy efficiency in affordable housing and how it can improve net operating income (NOI). Discover different financing options and specialized products to integrate efficiency into multifamily mortgages. Valuing projected savings and implementing best practices for lenders are also discussed.

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FINANCING ENERGY EFFICIENCY TO INCREASE OPERATING INCOME

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  1. NC Affordable Housing Conference October 2019 FINANCING ENERGY EFFICIENCY TO INCREASE OPERATING INCOME

  2. The many benefits of efficiency From Community Preservation Corporation’s Underwriting Efficiency Handbook

  3. The many benefits of efficiency From Community Preservation Corporation’s Underwriting Efficiency Handbook

  4. Let’s take a look at Net Operating Income NOI is used to Make debt payments Pay investors Make property improvements Retain earnings Determine debt capacity / Debt Service Coverage Ratio Determine property value / Loan to Value NOI = Net Operating Income = Income – Expenses Key Question: What can we control?

  5. Let’s take a look at Net Operating Income NOI is used to Make debt payments Pay investors Make property improvements Retain earnings Determine debt capacity Determine property value NOI = Net Operating Income = Income – Expenses Utilities are multifamily owners’ largest operating expense

  6. Overview of multifamily efficiency financing options Specialized efficiency financing products  • Energy services agreements on the property or portfolio level • Alternative repayment approaches • Property assessed clean energy (on property tax bill) • On-bill repayment (on utility bill)  Integrating efficiency into multifamily mortgages • Fannie Fae/Freddie Mac green mortgage products • Community Investment Corporation (Chicago) “Energy Savers” Mortgage • Community Preservation Corporation (NY) Sustainable Mortgages

  7. Why this works: valuing projected savings Efficiency upgrades result in operating cost reductions Lower operating costs leads to higher cash flow. This pays for the upgrade.. And sometimes more! The property is a better performing asset Better performing assets pose lower risk to borrowers, lenders, and investors, in addition to the many benefits to tenants

  8. Underwriting efficiency in action Before After • NOI = + $10k (+ $8k utilities, +$2K maintenance) • New DSCR: 1.34X • Free Cash Flow = +$10K

  9. Best practices for lenders Get buy-in from leadership Set institutional goals based on your definition of “better buildings” or “sustainability” Make new friends: contractors, utilities And align timelines to minimize added complexity! Train loan officers: provide loan officers with communications materials and other tools www.sahlln.energyefficiency forall.org

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