Thus, “the borrower was able to take advantage of the reduced MIP before closing,” Nguyen said.

Nguyen called HUD's offer of a lower annual MIP “an industry game changer.”

A Look at the MIP Fee Reduction and MAP Guide

Certainly, it offers financial incentives to the developer to be more energy efficient.

Padam Singh, an associate with Lancaster Pollard, did a deep dive into the MAP Guide Update and MIP Fee Reduction in a post earlier this year.

It noted that the new, reduced MIPs are not technically part of HUD's new MAP guide, but do reflect its increased focus on green development. According to Lancaster Pollard's Singh:

With the release of the new MAP Guide, HUD now allows 75% of energy savings to be underwritten between pre- and post-rehabilitation. This change has brought HUD closer to the prevailing practices of Fannie Mae and Freddie Mac, both of which have long promoted green underwriting practices. In order to qualify, owners must achieve and maintain industry-recognized green standards such as the U.S. Green Building Council's (USGBC) LEED, Enterprise Green Communities, and EarthCraft Communities standards, among others.

As for the MIP reductions specifically, Singh writes that:

HUD has reduced both upfront and ongoing MIP for affordable and green projects, with upfront MIP cost reduced by 75% and ongoing by ~45% for a refinance or acquisition. This means that a $15 million refinance loan will save $112,500 in upfront costs and $30,000 in annual costs.

Steady gains in the US economy have resulted in net positives for the multifamily sector—will this wave continue for the foreseeable future? What's driving development and capital flows? Join us at RealShare Apartments on October 19 & 20 for impactful information from the leaders in the National multifamily space. Learn more.

VIRGINIA BEACH, VA–An apartment project in Virginia Beach secured a $33.2 million construction loan from the US Housing and Urban Development. The loan, which was placed by Greystone, was able to take advantage of HUD's 2016 Multifamily Accelerated Processing, or MAP, Guide standards — more on that in a moment — and get a lower mortgage insurance premium because of its green or energy-efficient features.

The Choices at Holland Windsor is the name of the project. It will have 252 residential market rate units in seven buildings located at the the Holland Road / Windsor Oaks intersection of Virginia Beach. Greystone did not disclose the name of the developer but public records suggest the project is being developed on a parcel owned by S.L. Nusbaum Realty Co., where the Holland Windsor Crossing, a neighborhood shopping center, is also located.

To qualify for the Green and Energy Efficiency Housing MIP reduction, a real estate project must produce a Statement of Energy Design Intent score of 75 or higher, according to Greystar. The Choices at Holland Windsor's SEDI energy score is 89, and the project's design satisfies EarthCraft Multifamily Certification, a green standard that HUD recognizes.

The loan process for The Choices at Holland Windsor was underway when HUD released the 2016 MAP Guide, according to Phiet Nguyen, head of the 221d4 underwriting team at Greystone. At that point the developer changed the project's design and construction materials to meet the EarthCraft Multifamily standard, Nguyen said in a prepared statement.

Thus, “the borrower was able to take advantage of the reduced MIP before closing,” Nguyen said.

Nguyen called HUD's offer of a lower annual MIP “an industry game changer.”

A Look at the MIP Fee Reduction and MAP Guide

Certainly, it offers financial incentives to the developer to be more energy efficient.

Padam Singh, an associate with Lancaster Pollard, did a deep dive into the MAP Guide Update and MIP Fee Reduction in a post earlier this year.

It noted that the new, reduced MIPs are not technically part of HUD's new MAP guide, but do reflect its increased focus on green development. According to Lancaster Pollard's Singh:

With the release of the new MAP Guide, HUD now allows 75% of energy savings to be underwritten between pre- and post-rehabilitation. This change has brought HUD closer to the prevailing practices of Fannie Mae and Freddie Mac, both of which have long promoted green underwriting practices. In order to qualify, owners must achieve and maintain industry-recognized green standards such as the U.S. Green Building Council's (USGBC) LEED, Enterprise Green Communities, and EarthCraft Communities standards, among others.

As for the MIP reductions specifically, Singh writes that:

HUD has reduced both upfront and ongoing MIP for affordable and green projects, with upfront MIP cost reduced by 75% and ongoing by ~45% for a refinance or acquisition. This means that a $15 million refinance loan will save $112,500 in upfront costs and $30,000 in annual costs.

Steady gains in the US economy have resulted in net positives for the multifamily sector—will this wave continue for the foreseeable future? What's driving development and capital flows? Join us at RealShare Apartments on October 19 & 20 for impactful information from the leaders in the National multifamily space. Learn more.