New Lender Offers Co-ops / Condos Competitive Mortgages to Go Green
August 16, 2010 — When the co-op board at the 16-unit building at 54 East First Street in Manhattan asked its managing agent to shop for a new mortgage so the co-op could refinance and take advantage of lower interest rates, it fortuitously found one that not only did that, but allowed the co-op to fund necessary upgrades and make the building greener simultaneously. Your cooperative apartment house or condominium can do likewise — even in this tight lending times.
"We were surprised at how little we had to spend to gain so much in savings," says board member Paul Olliver. "It's always nice to be green but unless it's backed with real cost savings it's a tough sell for a building such as ours to go forward."
What the co-op and the Plymouth Management Group found was the Community Preservation Corporation (CPC), a nonprofit, affordable-housing lender that recently began the Green Initiative, a program that marries financing with energy-saving upgrades.
Managing agent Pam Elgar had stumbled across the CPC at a green-buildings presentation. The program launched in September 2009 with $1 billion in funding to be used for construction and mortgage loans. About 50 buildings statewide are in the process of applying for loans and about 10 are on the brink of closing, says Andy Padian, CPC's vice president for energy initiatives. The CPC hopes to provide loans for 1,500 to 2,000 buildings.
Making It Easy Being Green
The Green Initiative adds an energy-saving twist to refinancing. Along with assessing the building's financial health, CPC loan officers provide an energy benchmark to see "whether you're an energy pig or an energy gnat," as Padian puts it. The benchmark compares your building's energy usage per square foot with that of other buildings.
If the building is approved for financing, it moves on to an energy audit, which the building pays for. While your co-op or condo, however, isn't required to make the specific energy upgrades the CPC recommends, your goals will likely be similar — "to reduce energy and water usage by 20 percent," Padian says.
[We want] to reduce energy and water
usage by 20 percent [but] we
don't tell people what they have to do.
At 54 East First, the building's old 7.5 percent mortgage had $433,000 remaining. The co-op took on a new 30-year, fixed-rate, $670,000 mortgage at 5.7 percent. The higher mortgage amount was offset by the lower interest rate, so no maintenance increases were needed, says Elgar. Because of the energy audit, the board is using at least $200,000 to upgrade the boiler and insulate hot-water tanks and pipes; install energy-efficient lighting in common areas; seal a dumbwaiter shaft; do some roofing repairs; repoint bricks on two walls; and renovate basement access stairs.
The energy audit projected that savings from the upgrades of $4,228 annually, with a return on investment for most of the work to come within five years. The return on investment on the most expensive improvements is longer — about 25 years for the boiler and 13 years for the lighting.
Incentives and Sensibility
As part of the green mortgage program, the CPC works with utility providers and NYSERDA to take advantage of any incentive programs that a building might qualify for. For 54 East First, those incentives are expected to total about $40,000. The building expects to get a Con Edison incentive for a heat timer on the boiler — up to a 50 percent of the $6,000 in costs.
Sadie McKeown, senior vice president and director of the Green Initiative at CPC, says rates will be competitive. At the time when 54 East First secured its 5.7 percent loan, rates were generally hovering in the same neighborhood, she says. If a building already has a loan through the CPC, it can add debt instead of refinancing to cut down on costs.
Refinancing fees (lawyers, engineering, title surveys, etc.) are similar to a traditional refi; about $10,000 to $12,000, McKeown says. The cost of the energy audit will range depending on the size and condition of your co-op or condo building, tallying between $3,000 and $10,000. The CPC takes a one percent origination fee.
Going Retrofit
The CPC expects that most of the properties seeking green mortgages will be rental buildings, which are often quicker to sign up for green trends, but officials say they hope co-ops and condos consider the program. "The whole goal for the program is to have it not differ from the traditional mortgage process," says McKeown. "What we are trying to do is to make the energy audit and the retrofit a routine part of the refinancing."
Most of the public agencies or government programs that provide financial incentives for environmental upgrades have strict rules dictating what work must be done and what products qualify. The CPC program is different. A building could completely ignore the energy audit and simply use the extra money to upgrade the lobby, though Padian says most buildings are more forward-thinking.
"We don't tell people what they have to do," says Padian. "We might think you need to buy a more efficient boiler. If people want to buy a crap boiler, well, they can be stuck with a crap boiler. We think it's better to buy a better piece of equipment, and people tend to agree with us.
Adapted from Habitat July/August 2010. For the complete article and more, join our Archive >>