No more excuses for the city's biggest energy hogs

The cost of efficiency upgrades can be baked into mortgages

Crain's New York
By Sadie McKeown
August 22, 2017

A recently leaked federal report on climate change made clear that unless the world unites to drastically cut back carbon emissions, the Earth will continue to warm. For New York City to be part of the solution, it must address its largest contribution to the problem: its buildings.

Greener buildings cut down on energy consumption, have smaller carbon footprints and provide a host of long-term benefits for owners, residents and communities. Importantly, savings from energy-efficient property improvements can play a major role in the long-term economic stability of multifamily buildings, which is critical to the preservation of affordability in our communities.

A new report called the 2017 Green Building Roadmap, co-authored by the Real Estate Board of New York and building service workers union 32BJ, recommends ways for the next mayoral administration to improve our buildings' energy efficiency.

One critical recommendation in the report is the need to improve access to financing. The cost of upgrading buildings and the time it takes to recover that expense are major roadblocks for owners to make their properties more efficient. Unfortunately, there is no consensus on how to overcome this.

One answer is to incorporate the expected savings from energy- and water-efficiency features of new construction and rehab projects into the financing of first mortgages. This would break down the financial barriers that building owners of all sizes currently face by providing access to lower-cost, long-term capital, in a relatively standardized process familiar to owners.

At the Community Preservation Corp., we’ve leveraged nearly $6.4 million in additional mortgage financing to help fund more than 3,600 units of high-performance, energy-efficient multifamily housing across New York state using a new “underwriting efficiency” method.

Our projects include new construction and retrofits, with the additional capital helping to finance improvements like fuel conversions, new HVAC equipment, air-sealing, fixing water leaks and replacing plumbing fixtures, and updating heating and hot-water distribution systems.

The savings from these efficiency measures are significant. For rehabs and retrofits of typical multifamily buildings, we have seen annual energy bills reduced by 15% to 30% and water bills by 15% to 50%.

The Green Building Roadmap also includes recommendations for energy efficiency in small buildings. While not as eye-catching as a skyscraper, multifamily rental buildings between 5 and 49 units comprise roughly 38% of the rental stock across the five boroughs, making them the backbone of our communities. They are also a haven of affordability and more likely to be home to low- and moderate-income renters.

A challenge is that smaller buildings tend to be older, operate on thinner margins, and lack access to capital and other resources needed to implement upgrades and retrofits. However, improving energy efficiency for these buildings would have a dramatic effect on the city’s overall carbon emissions.

As a mortgage lender, we know it’s important to be realistic about realities and risks. Not every lending institution has made saving the environment a priority, but we all have a stake in protecting our investment by mitigating risk and the chances for delinquency. Using underwriting efficiency and providing owners with the ability to build green can improve a building’s energy efficiency, extend its useful life and lower maintenance and operating costs. The net result increases cash flow and decreases the chance that borrowers default on their loans.

This is an area where the private sector can take a leadership role. Unlike other efforts to increase energy efficiency, there are no political or legislative hurdles to implement underwriting efficiency.

Earlier this year we created an Underwriting Efficiency handbook so the lending industry can see examples of how to improve efficiency based on financing goals, and have access to a step-by-step framework for integrating efficiency measures into the mortgage lending process.

The real estate industry needs to get serious about recognizing the risks that climate change poses for our city. Our nonprofit has seen firsthand how underwriting efficiency can work for multifamily buildings, large and small. There’s no reason it cannot also be tailored for commercial buildings and single-family homes. The sooner we act, the sooner we can get to efficiency at scale, allowing the ‎industry to prepare for even more dramatic solutions that are emerging such as passive houses, zero-energy homes and renewables.

The time to build green is now.

Sadie McKeown is executive vice president and chief operating officer at the Community Preservation Corp., a nonprofit affordable housing and community revitalization finance company.