Tallman Pines sold its low-income housing tax credits (LIHTCs) for more than $1 per dollar of credit even after prices began to dip. Bank of America bid high to invest in the public housing redevelopment in Deerfield Beach, Fla., and kept its commitment to close the deal last summer even after prices began to fall and other affordable projects saw their investors change or even walk away from their commitments.

It helps to be green. When it's finished in June, Tallman Pines will receive a Leadership in Energy and Environmental Design (LEED) certification from the U.S. Green Building Council.

"Bank of America is very excited about us being the first LEED project in Florida," said Matthew Greer, CEO of Carlisle Development Group, a Miami-based affordable housing developer. Because of the LEED certification, "there was a greater ability to hold the prices as the market went down," he said.

Most investors are not yet willing to pay a premium to invest equity or make loans to green affordable housing projects. But flashy green features and certifications certainly help developers get investors' attention and keep it.

In addition, innovative financing programs offer green projects advantages like low interest rates. Green features are also important to the state and local officials that hand out affordable housing subsidies. More than half the agencies that reserve LIHTCs give green properties an advantage in the competition for tax credits, and a growing number of agencies require developers to include some green features to compete.

LIHTC investors commit to green

Many tax credit investors have begun to favor green developments. Homestead Capital is one of the few LIHTC syndicators that has been willing to pay as much as a penny extra for a dollar of tax credits for green properties. However, that was about a year ago, before it became a buyer's market for LIHTCs and average prices dropped more than 10 cents.

Today, Homestead's green premium is gone, but it still favors green buildings and is considering investing in only green properties in the future, said Lisa Decker, a spokeswoman for the nonprofit syndicator based in Portland, Ore. Homestead invests up to $60 million a year in LIHTCs.

Larger investors have also made commitments to green affordable housing. In the last three years, Enterprise Community Investment, Inc., has invested $570 million in 250 green projects across the country that met its own green building standards. Most of that investment has been in tax credits, though Enterprise also offers predevelopment grants to green properties.

The cash is out there

Green developers argue that investors should pay more to invest in green properties because of the proven energy savings and the protection from likely increases in the cost of energy that green buildings offer.

Conventional lenders like banks have finally started to listen-with a little help from a loan guarantee. Developers can now find low-interest conventional bank loans to pay for energy improvements with interest rates just a few basis points higher than the yield on a 10-year Treasury bond. The 10-year Treasury was trading at 3.54 percent in early March.

However, to get that rate, such loans need to be guaranteed by a company like Honeywell International, Inc. The Morristown, N.C.-based firm guarantees that packages of energy improvements like new boilers, water conservation measures, and even expensive energy-efficient windows will pay for themselves in energy savings within the 10-year term of a loan.

Without loan guarantees, most conventional lenders still refuse to offer premium terms to green properties or even recognize the documented operating savings provided by energy conservation in their underwriting. For example, Tallman Pines received a $3.5 million loan from Bank of America. Despite the bank's enthusiasm for the project, underwriters did not increase the size of the loan or lower the interest rate in recognition of the project's green features.

Lending institutions argue that despite the wealth of operating data accumulating from finished green projects that meet, for example, the federal Energy Star standard, they still need more information.

"Doing quality control is difficult," said Jon Searles, spokesman for Fannie Mae. "We're hoping to have some clearer standards set."

In the meantime, green developers can still take advantage of less-conventional financing sources and government programs.

For example, energy services companies such as AES Cogen, Inc., and American DG Energy offer to install their own new energy-efficient equipment at affordable housing properties. The energy companies maintain the equipment themselves. The only costs developers pay are the monthly bills for the heating and cooling produced by the machines. These costs are often 25 percent lower than the cost to fuel and maintain aging and less efficient equipment and much less than the cost to buy new equipment, according to developers familiar with the program.

Federal, state, and local officials are also far ahead of conventional finance companies in recognizing the value of green building. A plethora of government programs finance green improvements, from federal renewable energy tax credits, which can help pay for technologies like solar panels and co-generation plants, to local programs like the grants available in Chicago and Washington, D.C., to install green roofs.

Even the Department of Housing and Urban Development has gotten ahead of conventional bankers, offering incentives like increased developer fees and other subsidies through its Mark-to-Market program to encourage developers to make their old project-based Sec. 8 properties more energy efficient.

One of the strongest state programs, the New York State Energy Research and Development Authority (NYSERDA) provides developments with generous grants averaging about $700 per apartment for energy improvements that tend to cost about $3,700 per apartment. The rest of that cost is usually paid for with low-interest financing provided by NYSERDA and with money from the project's reserves.

Green properties also have an advantage in the competition for LIHTCs and soft financing provided by state agencies. More than half of the state programs that reserve LIHTCs offer some incentive, usually extra points, to green affordable housing projects in the competition for subsidy. Several states have also begun to require that any project they consider for tax credits meet some green building standard.

Developers need all the financial help they can get to help make up for the extra cost of building green - typically an addition of 1 percent to 4 percent to the hard cost of construction, depending on the standard chosen by the developer, according to green developers and investors. This extra cost isn't as much as many developers feared, but with equity prices falling and cutting into project budgets, every little bit counts.