Changes Coming to NYSERDA Low-Interest Energy Loans

Beginning in February or March, says James Reis, program manager for NYSERDA's Multifamily Performance Program, the "floor" –the lowest interest rate – will be three percent."It will cost us less and we're trying to start using dollars someplace else because our funds are limited," says Reis.

The loan change has less to do with the current financial crunch and more to do with the way NYSERDA wants to encourage green projects over the long term. In the past, the loan program was crucial to convincing people to tackle costly green projects. Buildings rarely can afford to pay for them out of pocket. Banks were reluctant to lend because they didn't quite believe energy efficiency measures would pay back financially, Reis says. Now banks are more convinced that energy savings are real and that they'll provide enough cash to pay back the loan.

The Queens of Englander

David Englander says his 120-unit Queens co-op, the Forest Hills, would not have taken on its energy-efficiency project without the help of a NYSERDA loan. The co-op is participating in the Multi-Family Performance Program by installing cooling towers and cogeneration, among other changes, at the 45-year-old building. If not for the incentives, Englander says the board probably would have opted to simply replace the aging heating system with a new, traditional boiler.

To complete the project, the co-op is getting a 10-year. $1,156,924 loan from Amalgamated Bank. About half will be at the subsidized rate of 1 percent. The rest will be at 7.5 percent. (Energy $mart loans are limited to $5,000 per unit, up to $2.5 million per building. With multiple buildings, the cap is $5 million.) The total project cost is $1.3 million. The building is also expected to see $150,000 in cash incentives from NYSERDA. Energy savings are projected to be about $150,000 and loan payments will be $142,000 per year.

When it came time to find a bank to provide the Energy $mart loan, Englander went through the list provided on NYSERDA's website. One primary reason his board chose Amalgamated is because the lender did not require a second lien (meaning the bank issuing the Energy $mart loan is second in line behind the mortgage holder in case of default). At issue is not so much that the co-op would default, Englander observes, but rather that a second lien requires the co-op to pay a recording tax. That tax is 2.8 percent of the loan, says Geoffrey Mazel, a partner at Hankin, Handwerker & Mazel, the co-op's attorney.

In lieu of a second lien, Amalgamated required the co-op to put $120,000 in an escrow account. The bank even allowed the co-op to take that cash from the non-subsidized portion of the loan, Englander says. Amalgamated also required the co-op to write into the loan agreement that residents would see at least a two percent maintenance increase. That was not a problem; residents will face that amount of a maintenance bump in January 2009, as well as a still-to-be determined assessment. Those will be needed, despite the projected energy savings, because those savings will not be realized until the end of 2009.

The loan officer from Amalgamated visited the building. As well, there were several phone meetings and, of course, paperwork. "Frankly, I've had more problems getting my own mortgage," Englander says. "I was expecting all sorts of headaches but it went very smoothly."

NYSERDA's Reis says the individual bank determines whether a co-op or condo is creditworthy for an Energy $mart loan. From talking to several banks, Reis says he has heard lenders saying the program might soon feel a pinch from the financial crisis.

"It is probably going to get harder to approve people," he says. "There is going to be less money available and the banks will be giving out fewer loans."

Another change Reis expects to implement has to do with how buildings can get both cash incentives and loans. "Right now, we'll continue to do that, but as time goes by, we're going to try to back away and say you can either have the incentive or the loan but not both."

Even if NYSERDA chanced upon an influx of money, Reis notes that it would probably not go toward more loan buy-downs. The agency, he says, eventually wants to spend less money on energy-efficiency and more on renewable resources like geothermal energy and solar power. "Things become more costly as the technology develops," Reis says, and that's where NYSERDA wants to put more money down the road.

Adapted from Habitat February 2007. For the complete article and more, join our Archive >>

Illustration by Marcellus Hall