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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   May 2011

Green Gets It Done

Energy-efficiency financing can help close deals that otherwise wouldn’t fund

Green financing may be the greatest untapped opportunity available to commercial mortgage brokers right now. In today’s tightened credit markets, savvy brokers can leverage green financing to increase profits and get deals done. Loans that might otherwise be impossible to close may qualify for grant or rebate money that can close gaps in funding.

Put simply, when a client greens a property or plans to, the lending environment dramatically changes in their favor. Green improvements to a commercial property can increase appraisal values. Energy-efficient mortgage programs — unusable before green improvements — now are viable options for your borrower. High appraisal values and energy-efficient mortgage programs make your deals easier to close.

Brokers who want to capitalize on this lucrative corner of the market must know how green financing can help their clients and how to find it in their area.

Green money

There are numerous federal, state and city grants available for various green projects that can help bridge funding issues for your clients.

Let’s take, for example, a 20-unit multifamily project valued at $1.1 million. The owner installs a green retrofit, and the property’s appraised value jumps $200,000. In addition, the owner now can get a 15-year loan at below-market rates for as much as $450,000 to offset the cost of those upgrades. The owner doesn’t have to pay out of pocket for any of those upgrades because the $450,000 financing will come from a state program earmarked for energy-efficiency projects.

Multifamily incentives are particularly good. Most incentive programs seem to be based on the potential energy savings and number of families impacted. Usually, the greater the number of apartments, the more money there is available. There are programs available for other commercial properties, as well.

Green money is available for your clients in a variety of forms, including:

  • Rebate programs;
  • Government and private grants;
  • Stimulus money;
  • Fee waivers; and
  • Below-market mortgages.

Internet research can help you uncover the best sources to find programs applicable to your clients.

Green benefits

Brokers who know how to find green financing to fund their clients’ deals will be in great demand. By being knowledgeable about green money, brokers accomplish two things:

  1. They improve their clients’ situation.
  2. They virtually eliminate their competition

Both factors lead to higher commissions, more closings and more referrals. Satisfied customers will likely not only do repeat business with you, but they also likely will refer new clients to you. In terms of your competition, can you name the top two green brokers in your market right now? If not, this may be a niche you can monopolize

Green financing also gives you an easy way to maximize appraisal values. Appraisers use three methods to appraise properties:

  1. Comparative
  2. Income
  3. Replacement cost

By using an appraisal method based on a building’s income, along with recent Energy Star guidelines, property owners can add equity to an appraisal based on annual energy savings. Energy Star says that energy-efficient properties are more valuable than comparable properties. The formula to compute the additional equity is: annual energy expense savings divided by cap rate equals estimated asset-value increase.

So, for example, consider a commercial property valued at $900,000 with a 7 percent cap rate. The projected annual energy-expense savings is $12,000. Based on the above formula ($12,000 / .07 = $171,428), the new property valuation is $1,071,428.

With increased property valuations, your clients can find previously unavailable funding.

Go green

Brokers who are interested in bringing green financing into their business must learn about the market and the programs available. Here are seven steps to get started:

  1. Learn about the variety of energy-efficient mortgage programs available in your area and to your clients.
  2. Research the different programs in your area. Learn what properties are eligible for what programs.
  3. Take a seminar on the basics of green building and/or energy efficiency to gain a working knowledge of the issues in this arena.
  4. Add several green-financing terms to your RSS reader (e.g., energy-efficient mortgage, green building lending, etc.) to stay current on trends.
  5. Hire a grant writer to research all of the different programs available to your clients. Professional grant writers are masters at finding all the different programs available to serve your clients.
  6. Network with any green-building or green-business groups in your area. They attract green-focused people who may need brokers but have no clue how to find one.
  7. Add green financing to your marketing. You should approach this slowly as you get more experienced and knowledgeable. Talk about programs available and benefits to your prospective clients.

Despite tightened credit markets, it is an exciting time to be a mortgage broker. Capital has been sitting on the sidelines for years, and there are buyers out there who are waiting for the right deal. By learning the ins and outs of green financing, you can position yourself to be an expert in an up-and-coming niche.  


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