Recently, Fannie Mae announced new programs to promote green building in the multifamily industry. The Fannie Mae Green Initiative can be used to increase loan proceeds and lower the interest rate on your loan. For years green building requirements have been far too costly to be practical, but the new requirements for green designations are in line with standard building practices.

For properties that are not eligible for a certification prior to closing, Fannie Mae has a Green Rewards program that applies only to new loans. This loan program requires renovations that cut the water and energy usage by 20%. The program can give an additional 5% in loan proceeds over a standard Fannie Mae loan to cover the energy efficient improvements on the property in addition to the discounted rate.

Are you buying energy star appliances? Installing low flow toilets? Installing new, energy efficient windows? You are likely already qualified for at least one green certification. This qualifies your property for an interest rate reduction of up to 33 basis points, or a 1/3 of 1 %, on a standard Fannie Mae loan. This means, if a standard Fannie Mae rate is 4.25%, the green rate is 3.92%.

Let’s look at your largest expense in owning and operating a multifamily community, your debt service. Rate hikes mean:
• Reduced cash flow
• Lower loan dollars
• Decreased property value

For instance, on a $20MM loan, every 1/3 of 1% increase in the interest rate costs you an additional $50,000 in debt service every year. Over 10 years, that added debt service translates into a half of a million dollars ($500,000) in additional costs. Not only does this translate to less money in your pocket, it also causes the value of your property to decrease. An additional $50,000 in expense each year reduces your property value by $720,000. Assuming a 75% LTV for your loan, if the value of your property drops $720,000 you will experience an $180,000 decrease in your loan amount.
The pricing discount from Fannie Mae will save thousands of dollars over the life of the loan. Let’s look at an example. Savvy Sam is planning to refinance an 11 year old property in the suburbs of Raleigh. Standard Stanley has a similar asset that is also coming up for refinance. Sam and Stanley are long term holders and like to reinvest in their assets to keep tenants happy, occupancy strong, and attract environmentally conscious millennial tenants. They both use energy star appliances and are planning to take advantage of a reimbursement from their municipality to install low flow toilets. Savvy Sam has been working with Capstone Capital for years, and their familiarity with his properties and their familiarity with the Fannie Mae Green Rewards program prompts them to discuss upcoming renovations. Capstone Capital qualifies Sam’s property for the Fannie Mae Green Rewards program. Sam will be reimbursed for his planned renovations AND take advantage of a 33 basis point discount on his rate.

On the other hand, Standard Stanley works with Acme Bank. Acme offers Stanley a standard Fannie Mae refinance. Please refer to the chart below for the differences in Sam and Stanley’s loans.

Both loans assume a $20MM Appraised Value, 10 year term, and a 30 year Amortization

Fannie Mae Green Initiative Graph

The table above shows the 33 basis point discount on the rate for the Green Rewards Program. On a $15MM loan it saves $275,000 over the life of the loan. It can also cover the improvements to the property, which in this case equal $1,000,000 in additional loan proceeds.
Capstone Capital specializes in financing for multifamily communities. We have financed over $1 billion with Fannie Mae since 2007. We can advise you on the requirements for the green designation, and walk you through the loan process with Fannie Mae to determine if you’re eligible for increased loan dollars and a lower interest rate. To learn more please visit

-Ashley Helm
Vice President at Capstone Capital