Energy Efficiency Financing
Growth through Energy Efficiency
Reduced energy consumption, not only contributes to a healthier environment, but also serves as a key cost containment measure that has a proven record of increasing operating income and improving the cash flow for multifamily assets. While still a relatively untapped financing mechanism in the broader multifamily sector, energy efficiency investment in multifamily housing projects has become an integrated part of property rehabilitation, modernization, and development plans.
Collingwood provides clients with a comprehensive understanding of the wide array of program offerings in the energy efficiency-specific financing market, and will assist you in planning, pursuing, implementing, and monitoring the most cost-effective energy-efficient project. Our team will support you in achieving your energy efficiency cost reduction goals, and fully understanding the risks and opportunities of different financing program features. Our goal is to provide distinct value-added services, to reduce the complexities associated with performance-based energy-efficient capital improvements in multifamily housing.
Planning & Implementation
The Collingwood multifamily team will assist with navigating through the planning and implementation processes associated with achieving your energy efficiency financing objectives. We will coordinate the development of an action plan covering:
- Green Physical Needs Assessment – identify qualified contractors to perform a property assessment to identify cost-effective improvements
- Energy Benchmarking – assess historic utility consumption and evaluate energy audit report
- Review needed retrofit measures, associated costs, and resulting projected savings
- Develop cost and payback schedules for each energy efficiency measure (EEM)
- Coordinate development team – identify and evaluate core competencies of program administrators, prequalified contractors to oversee construction of energy-efficient upgrades/retrofits, quality assurance monitors, and other professionals necessary to ensure your success
- Evaluate and share key information about federal, state, and municipal government policies and goals to reduce energy consumption
- Research availability of and develop strategies to secure federal, state, and local energy efficiency incentives and utility rebate programs
- Distinguish and summarize the mutual benefits of energy efficiency upgrades to owners, investors, lien holders and tenants
Access to Capital
We will assess financing alternatives to determine an appropriate financing strategy – to cover energy efficiency upgrades only, or if the cost of combining additional capital improvements should be incorporated into a larger refinance plan. Special attention will be given to:
- Matching financing product to energy efficiency action plan objectives.
- Ensuring that lenders underwrite the post-retrofit energy savings into projections of operating costs and cash flow.
- Assessing how various financing options would support defined objectives, including:
- Loans backed by Fannie Mae, Freddie Mac, or FHA;
- Federal, state, and local energy reduction incentives or subsidies;
- Energy Service Company (ESCO) financing;
- Refinancing products with energy saving upgrade components;
- On-Bill Financing and On-Bill Repayment options;
- Energy Service Agreements (ESAs); and
- Property Assessed Clean Energy (PACE) financing.
- Evaluating property partnership agreements, loan agreements, and other restrictive covenants to determine ability to enter into energy efficiency financing agreement.
- Demonstrating quantifiable security factors of the energy efficiency loan/investment in order obtain senior lender and investor permission for subordinate liens. (Before proceeding with the energy development plan – especially for affordable multifamily properties with multiple subsidy layers.
- Assisting in the preparation and submission of loan, grant, and rebate applications.
Oversight & Monitoring
The most attractive feature of certain energy efficiency financing products is the predetermined payment agreement, under which payments are contingent on documented utility savings. To this end, Collingwood will review quality assurance reporting to verify savings generated by energy-efficient upgrades. Through cost savings tracking methods, we’ll compare results (lower operating costs) to contractor guarantees of energy and/or financial savings to confirm owner/developer’s recovery of their investment in energy efficiency.
For subsidized multifamily housing, our team will confirm the state housing finance agency adoption of the Energy Consumption Model (ECM) calculation of utility allowances (IRS Ruling 26 CFR Part 1 Section 42 Utility Allowance Update). Application of ECM allows savings from energy efficiency capital improvements to be used in determining a lower HUD utility allowance used in LIHTC, tax-exempt bond financing, and other subsidized housing programs. Additionally, we’ll verify implementation of a predetermined “safety factor” to ensure that tenant utility allowances exceed tenant utility costs such that on average tenants will save more on their energy bills.