A pilot loan program aims to reduce energy costs in older affordable housing developments in Massachusetts.
MassHousing is partnering with Boston Community Capital (BCC), a Roxbury-based community development financial institution, to offer loans to reduce energy costs by at least 20 percent at five to 10 affordable apartment communities. Loan amounts will range from $50,000 to $500,000, with the possibility for larger loans in some cases.
“We know that older apartment buildings could be more energy efficient, and we very much want to provide loans to make that happen, but it is difficult to underwrite a loan based on projected energy savings,” said MassHousing Executive Director Tom Gleason in a statement. “What was really needed was a third party who was willing to guarantee that energy savings could be achieved and who could mitigate some of the risk for us.”
In April, a term sheet and a request for proposals were sent to management first at 55 rental communities that were built under the 1970s-era Sec. 236 program. These are properties that have existing MassHousing mortgages and which have documented high energy costs.
However, the program is open to any property with a MassHousing loan. The agency has a portfolio of loans on more than 500 rental developments across the state.
BCC and MassHousing will jointly identify eligible properties. BCC will then analyze current energy usage at the properties, determine a scope of work, and select and oversee contractors. Most important, they will provide the up-front funds to pay for the energy improvements. Management companies will make interest-only payments to BCC at a rate of 6 percent during a two-year period during which BCC will monitor utility usage.
Once the property has demonstrated that energy costs have been reduced, MassHousing will advance funds to the property, which will then be used to pay BCC for the costs it incurred to make the upgrades. Management companies will then make amortizing loan payments to MassHousing for a term of up to 20 years at an interest rate not more than 4.5 percent.
“This is an ideal scenario for MassHousing because BCC is taking much of the risk, and our financing only comes in once significant savings have been demonstrated,” Gleason said. “If the savings don’t materialize, BCC is also providing guarantees that provide an additional hedge against our risk.”
If a 20 percent energy savings does not materialize after two years, BCC will provide a guarantee equal to 25 percent of the loan. And if after two years the savings are less than half of what they were projected to be, BCC will reduce the principal amount to ensure that the properties are still saving money.
Loan funds can be used for things like insulation, HVAC system upgrades, energy-efficient lighting, system controls, and water conservation measures. Expenses related to the upgrades, such as building permit costs, architectural and engineering costs, energy audits, and legal fees as well as education for management staff and tenants on how to use and maintain new equipment, also are eligible.
For more information, visit www.masshousing.com.