Fannie Mae launched their Energy Star program for apartment building investors by releasing their study on utility use. The report, called Transforming Multifamily Housing: Fannie Mae’s Green Initiative and ENERGY STAR for Multifamily (PDF). It’s loaded with great info on reducing energy and water use as well as stats on use broken up by unit, square foot and region. They also talk about their Green Preservation Plus loans which combined with certified Green Buildings they have financed $130 million in loans on as of Q1 2014. But let’s cut to the chase, key findings [Emphasis mine]:
On average, a 100,000 square foot property spends $125,000 on energy and $33,000 on water annually.
If this property saved 15% on energy and water costs, it would increase asset value by almost $400,000, at a 6% cap rate.
The least efficient properties use over three times as much energy and six times as much water per square foot as the most efficient properties.
When owners paid for all energy costs, median annual energy use was 26% higher than when tenants paid for them.
High-rise properties use almost 10% more energy per square foot than low-rise properties
Properties in the West use almost 50% more water per square foot compared to properties in the Northeast.
Clearly reducing common area utility costs and getting tenants to pay for their own use are the two of the best ways to improve Net Operating Income (NOI) and they have a nice graphic showing just how to do that:
As reported by CoStar: “Given that the multifamily market’s reliance on the enterprises has moved to a more normal range, to move forward with the contract goal, we are setting a target of a 10% reduction in multifamily business new acquisitions from 2012 levels,” Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA) said. “We expect that this reduction will be achieved through some combination of increased pricing, more limited product offerings and tighter overall underwriting standards.”
Our nation’s housing policies should reflect the importance of multifamily rental housing, the range of capital sources that support this market, and the need for liquidity and stability in all market cycles.
An interesting piece from Bloomberg entitled: Private Equity Has Too Much Money to Spend on Homes talking about how hard it is for large funds to buy foreclosed homes in bulk and turn them into rentals reminded me of a conversation I had with one of my private equity clients who was consulted by Tom Barrack’s Colony Capital about doing just that (and he said don’t).
“Funds planning to invest more than $6 billion to buy and rent foreclosed homes are finding it easy to raise money. The difficulty is spending it… The folks that raised capital are worried about under- accumulating properties and how to get capital out in an efficient way, Richard Ford, a managing director in the real estate investment banking group at Jefferies Group Inc., said in a telephone interview. A lot’s being raised. Less than $2 billion of institutional capital has been spent.”
Local and regional banks are working hard to fund ‘small’ apartment building investments in their local markets. Small loans in the $1-3 million dollar range are the ‘sweet spot’ for these lenders and investors looking for loans in the $3-5 million range are finding even more choices. For loans under $1 million the market is still pretty fragmented with lenders there averaging only five loans of that size.
“Banks are trying to create more aggressive lending programs in the small-balance multifamily financing space.”