The Secret of Green Financing

The River Arts Cooperative has always been forward-thinking when it comes to cutting costs by going green. The solar panels on the roof attest to this. But when the board at the 244- unit property, which overlooks the Hudson on Riverside Drive in lower Washington Heights, decided to switch from oil to natural gas, it ran smack into a roadblock. Con Edison’s existing gas line didn’t have the capacity to run the boilers, and the co-op was told that the price tag for installing a new line would be a staggering $1.2 million.

There was a way around the problem, however. If River Arts could form a “cluster” with nine other neighborhood buildings that would share the line, Con Ed would put it in at no cost. The hitch? The offer had a looming deadline, and in order for River Arts to commit to the cluster, the board had to come up with $350,000 to finance the conversion – fast.

Who You Gonna Call?

Fortunately, River Arts co-op board turned to the New York City Energy Efficiency Corporation (NYCEEC), a nonprofit company that specializes in loans for projects that save energy and reduce greenhouse gases. “Every co-op or condo board wants to cut expenses to avoid maintenance increases or assessments, but there are only so many line items you can affect,” says Posie Constable, NYCEEC’s director of business development. “The biggest one is your utility and energy use.” Securing the upfront money for green projects, however, is tough, since lenders typically don’t allow co-ops with underlying mortgages to take out additional loans from other banks. NYCEEC is there to step in and fill the gap. “You could call us the Holy Grail,” Constable says.

Funded by government and philanthropic grants, NYCEEC has financed more than $96 million in clean energy projects since 2012 through an innovative strategy: instead of using property as collateral – which is what primary lenders do, which is why they balk at secondary loans – NYCEEC secures its financing against the equipment. “We explain to banks that the minute you install anything that’s more energy efficient, it’s an asset to the property,” says Constable. “Once they understand the value added, banks will generally agree to our loans.”

While NYCEEC services some commercial properties, most of the projects it funds are for low- and moderate-income, multi-family dwellings. The loans – which range from $35,000 to $6 million and have interest rates of about 6 percent for market-rate co-ops and condos – can be friendlier to the bottom line than the alternatives. “Boards could add onto their existing mortgage, but the refinancing costs, such as prepayment penalties, quickly add up,” Constable says. “Boards could also tap into a line of credit if they have one, but those are frequently at floating rates, and you’d want that money as a backup for emergencies.”

The nonprofit, Constable points out, provides more than money. “Green projects can get hairy because they’re often complicated and very labor-intensive,” she says. “Unless a board has experience with them – which they usually don’t – they can use our help. We can help them calculate costs versus savings, and how much debt they can carry, plus we have engineers who vet studies, audits and projections. We really work the numbers.”

Green Project Gets Green Light

For its part, the River Arts co-op relied on NYCEEC not just for financing, but also to break the impasse with Con Ed. The board at the 78-year-old complex – two buildings spanning two city blocks, each with a single-pipe steam boiler – had decided to convert to natural gas back in 2012. The switch was designed both to save money and to comply with Local Law 43, which mandated that existing No. 6 boilers convert to No. 4 heating oil or an equivalent cleaner fuel by 2015.

“The city was putting in gas lines, but we weren’t in one of the designated areas,” says Jack Fogle, the co-op’s building manager and a River Arts resident since 1981. “We wanted to know how we could get in on the deal, which is when we learned about the cluster program and started organizing to get a group together.”

The next step was getting to the right people at Con Ed – which is where Constable stepped in. “I was at a Community Board meeting in Harlem when I learned about the so-called 158th Street cluster efforts,” she recalls. “River Arts and the other buildings had approached Con Ed separately, but I realized they had to band together to hammer out a deal.” With the help of staffers from the NYC Clean Heat program, Constable lobbied Con Ed for two years until the utility finally agreed to install a gas line on their dime.

NYCEEC needed to move fast to arrange the financing, since River Arts had to have the cash in hand to commit to the cluster – or else the Con Ed deal would fall apart. “We’ve had a green committee for 10 years, so we were aware of NYCEEC and knew they could provide the money,” Fogle says. “But since our underlying mortgage with Berkeley Financial doesn’t allow secondary loans, the lawyers had to make sure there was absolutely nothing that could put us in default.” Because the NYCEEC loan was unsecured, “technically Posie didn’t even have to get approval from Berkeley,” he adds. “But she did, which reassured the board.” And when Constable did the math for them – the five-year, $350,000 loan would cover all project costs, and the savings from the conversion would more than pay off the debt before it came due – the board gave the green light.

An Arduous Process, but Worth It

After the agreement with Con Ed was signed in 2014, River Arts immediately set to work upgrading the boilers, installing burners, building a meter room, and installing the infrastructure to connect with the new gas line. Unfortunately, Con Ed was way behind schedule. “They kept delaying when they’d get things up and running, and in the meantime we still had to pay off the loan,” says Fogle. “That’s when we hit the panic button. But NYCEEC was reasonable enough to restructure the loan so that we paid only the interest until Con Ed finally got us connected in 2016.”

Thanks to the conversion, River Arts is saving $150,000 a year in energy costs. “Which means our debt will be paid off in no time, and then we’ll book all the savings,” Fogle says. “It was an arduous process that required a very engaged and proactive board, but it was worth it in the end, thanks to NYCEEC. I refer a lot of people to them. We’re already looking at a combined heat and power [cogeneration] project, and now we know where we’ll go for financing.”

At present, there are few alternatives. Mortgage giants Fannie Mae and Freddie Mac offer green financing for apartments and co-ops, but only to borrowers who have existing mortgages with them. And banks remain reluctant to do equipment loans, either independently or by partnering with NYCEEC – “because energy-efficient projects are relatively small and don’t involve a lot money, so they just can’t be bothered,” Constable says. “We’re pretty much the only game in town. But by and large, NYCEEC is still a well kept secret, and we don’t want to be. We’re trying to get the word out to co-ops and condos that there’s a pot of money available to them.”