WASHINGTON, DC–Fannie Mae and Freddie Mac urge, cajole and sometimes outright beg their borrowers to take advantage of the green finance tools they have introduced over the years. Why? Because an investment in water, energy or building efficiency can deliver multiple times the returns in financing.
A case in point is a recent $75.65 million refinancing Walker & Dunlop SVP Alex Inman did for a borrower with four class B, garden-style properties in Arizona and Texas. He tapped Freddie Mac's Green Up program, introduced last year, to secure the debt — and in the process squeezed out some $2.2 million in savings.
Inman had already refinanced the properties two years ago with floating rate loans to pull out some equity for the borrower. This time, the borrower wanted to convert the loans to a fixed rate.
Freddie's Green Up program offers favorable rates for properties that make investments in reduced energy and water consumption. To access these rates, the borrower agreed to make $380,000 in such improvements. * The portfolio's four loans were restructured with 10-year terms and interest-only payment periods ranging from five years to full-term, with Freddie Mac waiving the prepayment penalties.
The subsequent financing, Inman told GlobeSt.com, “gave us a significant price reduction in spread” — namely 20 basis points. *
Per some back of the envelope math: 20 basis points on a $75.6 million loan is $226,800 per year. Annualizing that on a loan term of ten years is $2,268,000.
And that is how one borrower's $380,000 green investment led to $2.2 million in savings on a $75.6 million loan.
CORRECTION: In an earlier version of this article GlobeSt.com said that the $380,000 in improvements were made and then the borrower approached Freddie Mac for refinancing. Also, W&D originally claimed that the reduction in spread was 30 basis points.
WASHINGTON, DC–Fannie Mae and
A case in point is a recent $75.65 million refinancing Walker & Dunlop SVP Alex Inman did for a borrower with four class B, garden-style properties in Arizona and Texas. He tapped
Inman had already refinanced the properties two years ago with floating rate loans to pull out some equity for the borrower. This time, the borrower wanted to convert the loans to a fixed rate.
Freddie's Green Up program offers favorable rates for properties that make investments in reduced energy and water consumption. To access these rates, the borrower agreed to make $380,000 in such improvements. * The portfolio's four loans were restructured with 10-year terms and interest-only payment periods ranging from five years to full-term, with
The subsequent financing, Inman told GlobeSt.com, “gave us a significant price reduction in spread” — namely 20 basis points. *
Per some back of the envelope math: 20 basis points on a $75.6 million loan is $226,800 per year. Annualizing that on a loan term of ten years is $2,268,000.
And that is how one borrower's $380,000 green investment led to $2.2 million in savings on a $75.6 million loan.
CORRECTION: In an earlier version of this article GlobeSt.com said that the $380,000 in improvements were made and then the borrower approached
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
