M2M Program Offers Owners "Green" Incentives

December 24, 2008

“Green” technology, devices, and plans are typically cheaper and easier to implement when constructing a new building than when retrofitting an older building. But the incentives in the Mark-to-Market (M2M) program offered through HUD's Office of Affordable Housing Preservation (OAHP) is making green rehabs more affordable.

“Green” technology, devices, and plans are typically cheaper and easier to implement when constructing a new building than when retrofitting an older building. But the incentives in the Mark-to-Market (M2M) program offered through HUD's Office of Affordable Housing Preservation (OAHP) is making green rehabs more affordable.

HUD inaugurated the green building initiative in the M2M program in summer 2007 as a way to promote the principles of going green among multifamily housing owners. HUD wants them to use green techniques when they perform gut rehabs of existing buildings or when they plan long-term renovations. HUD even offers cash incentives to owners who actually implement the green techniques being promoted.

The M2M Green Initiative is a voluntary program available to owners of Section 8 housing. HUD is targeting owners of M2M sites administered by OAHP. HUD will work with multifamily owners to refinance and raise the site to market standard, thereby increasing property value. The methods used for raising value are initial overhaul and rehabilitation, followed up by replacements and further repairs over a 20-year term.

“There's a perception that green technologies are luxuries when it comes to rehabilitating affordable housing,” says Theodore Toon, OAHP's Deputy Assistant Secretary. “But over the 20 years that the project is in M2M, almost every system can be replaced with a green alternative as part of a cost-effective repair and replacement schedule,” he says.

Green Building Principles: The Basics

A number of green principles can be applied to sites immediately, including the following:

  • Increasing a site's energy efficiency;

  • Making use of renewable energy sources;

  • Limiting adverse environmental impact through the use of recycled materials;

  • Landscaping with materials that require less water and lower maintenance;

  • Reducing water consumption generally;

  • Improving ventilation;

  • Raising indoor air quality through the use of materials containing low-level volatile organic compounds (VOCs);

  • Prohibiting chemical pesticides; and

  • Managing infestations of insects, vermin, and other pests with preventative techniques instead of allowing them to build up to the point where less environmentally friendly chemicals are necessary.

EDITOR'S NOTE A write-up of the M2M Green Initiative and OAHP's involvement is available on HUD's Web site at http://www.hud.gov/offices/hsg/omhar/index.cfm.

Physical Condition Assessment

HUD requires M2M sites to find ways of adopting green techniques. HUD is requiring a physical condition assessment (PCA) of every M2M site undergoing debt restructuring or physical rehabilitation.

The assessment consists of inspecting a site's rehabilitation needs and performing a long-term analysis of its likely repair and replacement requirements. Built into the inspection is an analysis of where green principles can be woven into the site's physical plan. The inspection includes comparing the cost of traditional materials and systems with those of more innovative green ones. In addition, the inspection is used at the time of underwriting to decide which green principles will be used for rehabbing the site in the near term and for scheduling renovations in the long term.

Green Principles Must Fit Site

Among the challenges facing owners who are determined to implement HUD's M2M Green Initiative is sifting through the wealth of available materials on going green. However, when it comes to implementing suggestions, HUD will let owners incorporate only those green principles that are a good fit with the site's location and financing terms.

“HUD has a fiduciary responsibility,” Toon says. “We will need to decide which green building technologies to fund in a way that considers the longevity of the projects.”

Long-Term Commitment and Financial Incentives

HUD is also requiring participants in the M2M Green Initiative to maintain the site beyond a 20-year cycle of replacements, renovations, and repairs. Owners must establish what HUD calls a “Green Operating and Maintenance Plan,” which includes outreach to the local community and participation by residents in site upkeep.

As mentioned above, HUD is offering owners cash incentives for implementing green principles. These incentives reduce an owner's initial required contribution.

For example, a contribution of 20 percent of initial rehab costs is traditionally required from owners. However, under the Green Initiative Program, materials, plans, and systems labeled green are classifiable as “significant additions,” which drops the owner's required contribution to 3 percent of initial rehab costs. HUD will also help guide owners toward grants available from state and local sources promoting green technology.

For owners, the major benefit of going green has to do with lowering energy costs and, consequently, bringing down operating expenses. And as a result of improving a site's overall environment, the quality of life improves for everyone, giving owners a better marketing pitch for boosting occupancy.

The benefit to HUD is lower utility subsidies to owners.

Insider Source

Theodore Toon: Deputy Assistant Secretary for the Office of Affordable Housing Preservation, HUD, 451 7th St. SW, Washington, DC 20410; (202) 402-8386.

 

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