How Multifamily Developers Can Save Money Through Green Certification

Some multifamily developers forgo seeking green building certification because they believe the costs are too high. It can cost a lot — but not for the reasons they may be thinking.

Ultimately, it's not that the costs are too high to earn the green certification; rather, it is the opportunity cost of leaving thousands of dollars of incentive financing on the table when they don't have a green certification. As these developers finalize their permanent financing, they realize how green certification would more than pay for itself if it had been identified as a design objective prior to construction.

Over the past few months, the NGBS Green team at Home Innovation Research Labs has fielded at least one call a day from either a developer or lender with a project facing one of two scenarios:

1. Either the building is ready to close on financing, and the developer or lender just realized the significant financing incentives available for buildings with a green certification, or
2. A developer just completed a project and has a potential buyer, but the buyer is only interested in the building if it has earned a green certification.

Unfortunately, post-construction and/or upon resale is not an ideal time to seek green building certification. Most buildings are unable to demonstrate compliance at that stage with any green certification program, and even for those that may be eligible at that point, it will always be more costly than if the project had been designed and constructed with the intent to earn green certification.

In most circumstances, developers will find the costs to earn NGBS Green certification — including sticks and bricks for compliance, verification costs and the certification fee — are far lower than the potential benefits. These are some known financial benefits for multifamily buildings that achieve NGBS Green certification:

• The Department of Housing and Urban Development (HUD) provides a significant mortgage insurance premium (MIP) reduction for NGBS Green Certified buildings whose owners commit to reporting use through the Environmental Protection Agency's (EPA's) Portfolio Manager. The MIP reduction is available for almost all HUD Federal Housing Administration (FHA) financing and can be used for new construction or moderate to gut renovations.
• Fannie Mae and Freddie Mac offer financing incentives for NGBS Green Certified buildings.
• The Department of Agriculture (USDA) offers multifamily incentives for energy-efficient and green properties.

For one NGBS Green Certified multifamily project, the developer received a 40 basis-point reduction on the project's $25 million, 40-year loan. NGBS Green compliance and certification for the project cost $15,000. The developer said air sealing was the costliest upgrade required for compliance because it wasn't a green practice he typically employed on other construction projects. The developer is now enjoying a $60,000-per-year benefit from the green financing alone, not to mention the additional savings from lower utility costs in the building's common areas from increased energy and water efficiency.

These numbers are not atypical, so it's easy to see how frustrating it would be to complete construction without a green certification and have a lender quote them at the financing table.

Developers new to NGBS Green certification can use the Quick Start Guide for a fast, simple overview of the program and compliance requirements. The Builder's Resource Guide provides a more in-depth summary and helpful resources.

If you're interested in exploring NGBS Green for your next construction project, speak with an accredited NGBS Green Verifier as early in the design process as possible. And don't be discouraged if you don't see a verifier located close to your building site — most verifiers who specialize in multifamily building verification often provide cost-effective services nationwide. If you have a project already under construction or nearing completion, Home Innovation offers an NGBS Green Appeal to seek a waiver of the rough inspection. See the Builder's Resource Guide for details.

Contact the NGBS Green Team with any questions.