HUD’s M2M Goes Green to Preserve Affordable Housing

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Currently enjoying renewed media interest, green building principles can improve energy and resource efficiency in all real estate projects, but because early inclusion is cheaper than retrofitting, they are most often applied in new construction. “There is a perception that green technologies are luxuries when it comes to rehabilitating affordable housing,” says Theodore Toon, Deputy Assistant Secretary for HUD’s Office of Affordable Housing Preservation (OAHP). HUD’s recently announced Mark-to-Market (M2M) Green Initiative is working to change that perception. The initiative, unveiled in July 2007, encourages owners of multifamily housing to incorporate green building principles when undertaking property rehabilitation and developing plans for long-range operations. The initiative also offers financial incentives for adopting green technologies.

The M2M Green Initiative encourages Section 8 property owners to improve energy and resource efficiency using green building techniques during property rehabilitation.

The voluntary pilot program is open to properties within HUD’s Section 8 portfolio, specifically those in the M2M program administered by OAHP. M2M works with owners and purchasers of affordable multifamily properties to restructure financing and bring the property up to market standards through initial rehab and subsequent repairs and replacements over a 20-year period.

Going Green

“Over the 20 years the project is in M2M, almost every system can be replaced with a green alternative as part of its repair and replacement schedule,” says Toon. Greening opportunities begin modestly during initial rehabilitation, which covers only those items that need to be replaced immediately. Green principles that can be applied to a property include:

• Improving the property’s energy efficiency or using renewable energy sources;

• Reducing the property’s environmental impact by using recycled materials and installing landscaping that requires less water and maintenance (xeriscaping);

• Conserving resources by using recycled materials, increasing energy efficiency, and reducing water consumption; and

• Improving indoor air quality by improving ventilation, using materials with low levels of volatile organic compounds (VOCs), and employing integrated pest management that uses prevention and other alternatives to chemical pesticides.

No- or low-formaldehyde cabinets help contribute to a healthier environment for residents.

The Green Initiative is taking shape within the existing structures of M2M. Every M2M property undergoing debt restructuring and rehabilitation must have a Physical Condition Assessment (PCA). During this code-level assessment, the inspector reports the immediate rehabilitation needs and estimates long-term repair and replacement requirements. The assessment is expanded for the Green Initiative to note where green alternatives can be incorporated. The PCA also provides a cost-benefit comparison of green and traditional systems and materials. During the underwriting process, the PCA will be used to determine which green techniques should be included in property rehabilitation and in long-term improvement scheduling.

One challenge to Green Initiative implementation is the amount of information available on green building. “HUD has a fiduciary responsibility. We will need to decide which green building technologies to fund in a way that considers the longevity of the products,” says Toon. Property owners and the underwriting team will adopt only those green technologies that fit the property location, need, and deal structure.

Solar energy can help reduce utility costs for Section 8 owners and residents.

In addition to completing the agreed-upon green rehabilitation, the initiative specifies that property owners must maintain the property beyond the 20-year schedule of repairs and replacements, and develop a Green Operating and Maintenance Plan that includes resident involvement and outreach. Property owners will receive special financial incentives for going green. Owners of M2M properties are normally required to contribute 20 percent of the initial rehabilitation costs. Under the pilot initiative, however, a system or material designated as green can be labeled as a significant addition, which reduces the owner’s required contribution to 3 percent. HUD also encourages owners to pursue all available grants from federal, state, and local sources that are available to fund green technologies.

Benefiting Owners and Residents

Going green has many potential benefits for property owners and residents, as well as for HUD. Green property updates can result in lower utility and operating costs for owners, which can be passed along or shared with residents. HUD will closely monitor all savings that properties accrue under the Green Initiative, but expects to share most in the energy savings. Drops in utility costs will mean lower HUD utility subsidies to property owners, with a commensurate potential for substantial savings to both taxpayers and HUD.

Green properties offer a more healthful living environment for residents. Improved ventilation, low levels of VOCs, reduced presence of allergens, and addressing the risks of mold-related illnesses all contribute to a better quality of life. Going green offers a unique marketing opportunity for owners, who can capitalize on a rehabilitated property’s improved indoor air quality, higher efficiency, and healthier living environment to effectively market the properties and boost occupancy levels.

Getting Underway

Still in its initial stages, the Green Initiative is already creating interest. Several property owners, including one of the country’s largest affordable housing property owners, have expressed interest in participating. Two projects are currently underway: a 64-unit project in Lawton, Oklahoma and a 900-unit complex in Cincinnati, Ohio. The Lawton project incorporates reflective roofing materials, blown-in foam insulation to improve energy efficiency, low-E windows (which reduce heat loss and gain), native plantings, and no- or low-formaldehyde cabinetry. The Cincinnati project is in the underwriting stages. These first green projects are helping HUD fine-tune our implementation guidelines, which will be available in the fall.

An outline of the M2M Green Initiative is available at www.hud.gov/offices/hsg/omhar/index.cfm. For more information about the M2M Green Initiative, contact Theodore Toon, HUD Deputy Assistant Secretary, Office of Affordable Housing Preservation, 202.402.8386.