Fannie Mae Interest Rate Break on Green Building

The exciting news in residential green building is that the Federal National Mortgage Association, commonly known as Fannie Mae, is providing incentives, including lower interest rates for multifamily properties with a green building certification.

There are an untold number of incentives for green building, including policies at the local, state and federal government levels, however, even in toto they are of limited efficacy. 

But Fannie Mae’s new incentive of 10 basis points off any loan for properties with a green building certification has the potential to be a game changer.

Fannie Mae, founded in 1938, is a government sponsored enterprise that has been a publicly traded company since 1968. Its purpose is to expand the secondary mortgage market with securitized mortgages. And while Fannie Mae has had green initiatives since 2010, they have previously been of limited scope. The NYC M-PIRE product is only available in New York City and the Green Preservation Plus program provides extra proceeds for green improvements and repairs only to affordable properties, resulting in both of those very good incentives only being available for an extremely limited number of properties.  

Fannie Mae’s green initiatives mission is “to improve the energy and water efficiency, to enhance the financial and environmental sustainability, and to extend the useful life of the U.S.'s multifamily housing stock.”

This new pricing break program does just that. It is available for refinance, acquisition and supplemental loans. And eligible properties are conventional multifamily, affordable and co-ops nationwide.

The pricing incentive of 10 basis point off is very real. (A basis point is one hundredth of a percent. For example, 10 basis points is the same as a 0.1%.) There is no minimum or maximum loan size. And the maximum loan to value is up to 80%.

The property must possess a valid, current third party green building certification. The list of acceptable certifications from the Fannie Mae website are:

EarthCraft, Greater Atlanta Home Builders Association & South Face

ENERGY STAR for Multifamily

ENERGY STAR for Qualified Multifamily High-Rise, EPA

Green Communities, Enterprise Community Partners

Green Globes, Green Building Initiative

GreenPoint, Build It Green

Home Energy Rating System, RESNET

LEED, US Green Building Council

National Green Building Program, National Association of Home Builders (NAHB)

While USGBC issued a press release about this new initiative some days ago, it is significant that green building can be much more than only LEED.

Beyond the benefits to owners of these multifamily properties that have a green building certification, the arguably larger benefit of this initiative is Fannie Mae’s sale of the bundled “green” mortgage backed securities. This is huge as it serves to standardize and expand the emergent green secondary financing market in the U.S. (.. think green bonds).  Each of those third party certifications is required to satisfy those environmentally conscious investors who will purchase the green securities.

Fannie Mae’s lower interest rates may not be the “in” response to climate change dystopia, but green mortgage backed securities, getting a big boost by this initiative, will be a key source of financing for green building that will save the planet.

A Green Building Game of Thrones

"Winter is coming."  

This is the common refrain in the popular book, Game of Thrones, in which kings vie to take over lands.  As I thought about the green building policy mess of 2012, I couldn't help but draw comparisons to Game of Thrones. 

This was supposed to be the year of the USGBC's new green building rating system, LEED 2012.  But somewhere along the way, the plan went awry and the USGBC had to retreat. 

In assessing the battlefield, I have concluded that the USGBC overextended itself, choosing to fight a two front war without the necessary resources. This is a common tactical mistake and one that has proven costly for the USGBC. Just how costly is yet to be seen. 

The Assault on Chemicals of Concern

Before being pulled, the proposed LEED 2012 rating system went through a lengthy, unexpected vetting process, culminating in a fourth draft.  One particular section of the fourth draft set the green building world on fire: 

New credit for avoidance of chemicals of concern – this credit encourages LEED project teams to specify materials that do not contain chemicals that are known to negatively impact human health (specifically in regards to cancer and reproductive toxicity).

New credit for Environmental Product Declarations - The new EPD credit encourages product manufacturers to engage in disclosure activities that provide specifiers with consistent and complete information about their products enabling specifiers to make more informed decisions.

The negative reaction to this credit was fast and furious. 

The timing of these lobbying efforts coincided with the GSA's release of a preliminary report  indicating that the Green Globes rating system was better suited for new federal construction.  While the report was not tied to the issue of chemicals in LEED 2012, it provided an opportunity for anti-LEED lobbying to push for a new federal green building rating system. 

With a pending final report from GSA this winter, and massive lobbying efforts against LEED at the federal level, don't be surprised if other rating systems are adopted by federal agencies going forward. 

The Wood Siege

The USGBC has also been stuck in a long standing siege with the wood industry. 

On the one side, you have two allies -- the USGBC and the Forest Stewardship Council (FSC).  The USGBC long ago selected FSC wood as the anointed certification for wood products.  On the other side is the non-FSC timber industry -- those wood providers that can't attain FSC certification.  This side prefers the Sustainable Forestry Initiative (SFI) certification.

In July 2011, it appeared the USGBC was willing to negotiate with SFI.  In a LEED Pilot Credit, the USGBC recognized SFI as one of four wood certifications.  

Then the USGBC shifted its tactics.  In the last version of LEED 2012 that was released this past year, the USGBC declared that "(n)ew wood products must be certified by the Forest Stewardship Council or better." 

The "Wood Wars" has left the USGBC bloodied.  In 2011, Congress passed a Department of Defense Reauthorization bill that effectively banned LEED Gold or Platinum certification.  One Senator indicated the LEED ban was in response to the USGBC's failure to adopt non-FSC wood certification. 

USGBC Retreats on LEED 2012

As the two battles on chemicals and wood have raged, the unthinkable happened: the USGBC had to retreat on its latest proposed version of its rating system, LEED 2012, before putting it up for a vote.  I had been tweeting for a number of weeks that things were looking grim for LEED 2012.  If you want to follow the drama, I highly recommend perusing the commentary at the LEED User forum.  

It's hard not to draw a correlation between the chemical industry's negative reaction to LEED 2012 and the USGBC's decision to pull it back.  USGBC CEO Rick Fedrizzi addressed this issue in an open letter to USGBC members:  "To be clear… this change is 100% in response to helping our stakeholders fully understand and embrace this next big step."  

Who Will Win the War?  

This winter, many decisions will be made that will determine the fate of the USGBC for years to come.

  • Will the next proposed version of the LEED rating system include similar Chemicals of Concern and FSC-only credits? 
  • What will be the GSA's final recommendations regarding green building rating systems? 
  • How will the presidential and congressional elections impact green building policy? 

I hope everyone is ready for a long, interesting winter. 

Federal Agency Adopts Green Globes Certification

During green building presentations that include legal views, I usually expect that someone in the crowd will not agree with my views of the green building industry.  Usually, the unhappy audience member cannot fathom that there are potential risks associated with green building.  Last week, though, I received a much different reaction when I presented to the National Research Council.  

A number of the federal agency employees in attendance voiced dismay that I focused exclusively on federal agencies' adoption of the United States Green Building Council's (USGBC) LEED rating system.  Some audience members expressed concern that federal agencies had wholesale adopted LEED certification in order to build green. 

These concerns reminded me of a recent news article highlighting alternative green building certification adopted by a federal agency:
"Fifteen Veterans Affairs Medical Centers in 10 states have received Green Globes green building ratings under the assessment system administered by the Green Building Initiative.

The GBI's third-party review system certifies buildings at four levels with ratings ranging from a single to four Green Globes.

All but two of the 15 VA medical centers that were recently certified received ratings of three Green Globes. The Los Angeles Ambulatory Care Center and the Durham VA Medical Center in North Carolina each received a rating of two Green Globes."

In describing the U.S. Department of Veterans Affairs' Green Globes buildings, Rob Watson, the Father of LEED, argued that Green Globes was continuing to "penetrate its mid-market target.

The use of non-LEED rating systems is a new development in federal policy, and one that may continue to gain in popularity for different building markets.  On Thursday, we will look at why green building certification is so important to federal agencies.

Is it possible that two green building rating systems can live harmoniously in federal policy? 

Related Links:

15 Veterans Affairs Medical Centers Attain Green Globes Certification (GreenerBuildings)
Yogi Berra Was Right (GreenerBuildings)

Governor's Mansion Goes Green

Last week, we discussed the Virginia General Assembly’s attempts to pass green building legislation in 2008. Virginia Governor Tim Kaine was also forced to weigh in on his preferred green building rating system in 2008.  Previously, in 2007, Governor Kaine indicated his preference for the LEED rating system in Executive Order 48

“All agencies and institutions constructing state-owned facilities over 5,000 gross square feet shall be designed and constructed consistent with the U.S. Green Building Council’s LEED rating system (including the use of Virginia forest products with alternate certifications) or the United States Environmental Protection Agency/Department of Energy’s ‘Energy Star’ rating.”

The Governor’s original proposed budget in 2008 did not include green building provisions.  As part of the budget process, the Governor’s budget was sent to the General Assembly to undergo legislative amendments and the following provision, which includes Green Globes, was added:  “All new and renovated state owned-facilities . . . that are over 5,000 gross square feet shall be designed and constructed consistent with the . . . U.S. Green Building Councils LEED rating system or the Green Globes rating system.”  Governor Kaine vetoed the inclusion of Green Globes but the General Assembly overrode the veto. 

The debate over green building rating systems continues to play out in Virginia and other states across the country.  GBLU looks forward to monitoring the 2009 Virginia legislative session and further green building legislation.  Virginia’s choice of a green building rating system will have a significant impact on the Virginia cities due to a peculiar statewide rule, which we will discuss next week.

Related Articles: 

More Green Building Legislation May Be Imminent for Garden State (gbNYC)