The rehabilitation of a 195-unit affordable senior housing community is getting a big boost from Wells Fargo and Fannie Mae.
The financing for the renovation of the Noble Tower apartments in Oakland, Calif., is unique because it involves the first Fannie Mae Green MTEB (MBS as Tax-Exempt Bond collateral) loan. It was the largest MTEB project completed in terms of the amount of the bonds and associated loan at the time.
In accordance with the multifamily green bond framework, the development team of Related Cos. and the East Bay Asian Local Development Corp. is making improvements that target energy and water reduction at the property.
"Related has a long-standing commitment to both the preservation of affordable housing and sustainability and are thrilled to combine these efforts at Noble Tower apartments in Oakland,” says Dave Pearson, senior vice president of affordable development for the company. “We are proud to partner with Fannie Mae, Wells Fargo, and CalHFA [California Housing Finance Agency] to begin a property renovation that will improve the living spaces for our residents and contribute to a greener world for everyone though significant energy efficiency and water reduction improvements."
To qualify for Fannie Mae’s Green Rewards program, property owners must commit to property improvements that are projected to reduce the whole property’s annual energy and/or water usage by at least 30%, of which a minimum of 15% must be attributable to projected savings in energy consumption. Typically, improvements include such features as low-flow toilets and showerheads and the installation of energy-efficient lighting.
Wells Fargo’s Peter Cannava, managing director, and Matt Engler, a director on the public finance team, served as the senior managing bond underwriter in the deal. The bank’s Multifamily Capital group provided the $74 million Fannie Mae loan under the MTEB structure, and its Community Lending and Investment team invested approximately $40 million in low-income housing tax credit equity. CalHFA was the bond issuer.
Related Cos. was already applying to the Green Rewards program, which has stringent requirements. That allowed the Wells Fargo team to incorporate those requirements in a disclosure in the offering document such that investors could rely on the fact that the deal was going to meet certain designations of being a green loan, Cannava says.
The project benefitted from a strong location, but the team thought there would be an added benefit from making it a green MTEB deal.
It helped illustrate to the broader capital market that these energy efficiencies were going to take place in this project, says Engler, noting that several investors liked the green designation.
While Fannie Mae has used the green designation on taxable MBS in the past, the Noble Tower deal brings that application to the tax-exempt side. More such deals may follow.
“The reason why is we think combining green and affordable makes all the sense in the world,” says Angela Kelcher, director of affordable housing at Fannie Mae. “As we’re looking to create efficient financing products and reduce the costs for affordable housing projects, finding ways to reduce energy use and the use of natural resources is great, but it also helps reduce the utility costs and makes the property operate more efficiently and makes it a good business proposition as well.”
Fannie Mae often looks provide different incentives to borrowers who are doing green improvements and also allow them to underwrite the savings that they will generate with those property improvements in order to help boost proceeds.
Kelcher says the deal was also able to combine the Green Rewards with the Healthy Housing Rewards initiative, where Fannie Mae provides incentives to borrowers who invest in improving the health of the residents.