MIDWEST LENDERS CONFERENCE GREEN ENERGY PANEL Chicago, IL – September 28, 2017 Moderator: Rick Orf Deputy Chief Underwriter Berkadia Panelists: Jason Happe Director of Energy & Sustainability EBI Consulting David Wilderman Senior Production Specialist Tech. Division – Office of MF Housing Department of HUD – Headquarters Stephen Evanko Managing Director – Energy & Sustainability Dominion Due Diligence

Green MIP requires Green Building Certification, Energy Efficient design and commitment to benchmark the property 221(d)(4) NC or Gut Rehab example Design Construction Occupancy NGBS Consulting NGBS Verification Green Building Certification Award Green Building Commitments Form HUD-92013-D Green Rider Green Recognition Energy Design Modeling (SEDI) Energy Performance 15 months Ongoing Data Collection Annual Energy Star Benchmark (SEP) Energy Data Acquisition Plan Closing * Non-conforming CAP

Projects must select and obtain a green building certification HUD approved options for New Construction National Considerations for green building certifications Cost and feasibility Local regional incentives Architect and developer experience Marketability Regional Niche Super Green

Statement of Energy Design Intent (SEDI) = Energy Benchmark of the Building/Property Design Projection of future energy use, post completion of construction or energy retrofit Requires energy modeling by experienced, accredited professionals using approved modeling tools Score is only as accurate as the data input, including defined design parameters and proficiency and experience of the energy modeler What if the score is below a 60? Then the design team must work with the modeler to improve the design (eg. Better insulation, better HVAC, etc) “ For new construction and gut rehabilitation: The HUD Custom SEDI must show an Energy Score not less than the minimum prescribed in MAP Guide Appendix 5G. If less than the threshold, the design of structures must be modified to achieve the minimum energy score. (Note exceptions for gut rehabilitation of historic buildings.) If unacceptable, indicate reasons: “ (Pg 140) Exceptions to Energy Score Threshold. While all applications must provide the HUD Custom SEP or SEDI and the accompanying utility analysis report, some properties are exempt from meeting the minimum score threshold. 1. The minimum score threshold for gut rehabilitation may be waived for properties designated as historic, or located within and subject to design requirements of a designated historic district where elements of the building contributing to a low score cannot be removed, or replaced (e.g. windows), or adequate conservation measures cannot be implemented consistent with historic preservation. 2. Portfolio Manager does not calculate scores for properties (or for separate sites) with fewer than 20 units, and so scoring thresholds do not apply to such properties.

Portfolio Manager SEDI Score Project teams can leverage the energy modeling process to identify the most cost-effective approaches to achieve a SEDI score of 75+ Case Study: 18 low-rise garden style buildings 380 dwelling units South Region (~3,200 HDD, ~900 CDD) Original Design Improved Design Additional Options R-38 Fiberglass Batt insulation at top-floor ceiling R-49 Blown Insulation (air-sealing/Grade 1) High Performance Windows and additional air sealing HVAC 14.5 SEER / 8.2 HSPF HVAC 16 SEER / 9+ HSPF Incorporate Natural Gas Few Energy Star Appliances All Appliances Energy Star Additional LED Lighting Portfolio Manager SEDI Score 72 78 80+ Need to be Conservative in Modeling (per HUD) Take the following Potential Scenario Aggressive model might score as a 77 in Energy Star If building used 5% more energy during occupancy because of higher infiltration rates, missed common area usage, tenant behavior, etc, the Energy Star score would fall to ~70 Owner would be stuck trying to recover 5% energy efficiency in operation that might require significantly more investment (e.g. replacing new equipment) than if they had just been more accurate in their modeling and more conservative in the design phase. Typical Design suggestions to help a property score above 75 Incorporate natural gas whenever and wherever possible to reduce source-site energy ratios Focus on maximizing efficiency in relation to the heating needs (HDD) and or cooling needs (CDD) of the property Use Energy Star minimums as a guideline to start design. Envelope and Windows Heating and Cooling Efficiencies DHW     Lighting Appliances Hard to control for tenant behavior so make sure that modeler/analyst uses appropriate conservatism and seek a design which scores at least a 78

Data Plan Requirements Interim Sampling Routine Projects must also produce an Energy Data Collection Plan and commit to annual Energy Star Portfolio Manager benchmarking (SEP) Data Plan Requirements Interim Sampling Routine Must demonstrate the owner’s understanding of utility data needs, management procedures for obtaining data, and technical solutions Detail periodic steps and technology to obtain, organize, store and report data to the EPA Portfolio Manager system Detail the roles & requirements of each utility provider at a specific property Include details regarding Tenant cooperation Impact of turnover Potential tenant resistance If whole building data is available, it must be used If not available then utility data from 25% of units must be collected. Data sources must be randomly selected, provided the following are proportionately represented by the sample set: Unit types Buildings Each size (s.f.) and direction (N, E, S, W) of unit exterior wall elevation Each building floor or level Each materially different HVAC package A properly selected sample may be repeated year to year for annual HUD SEP compliance Reference D3G Green MIP Data Plan Whitepaper plan must demonstrate the owner’s understanding of utility data needs, management procedures for obtaining data, and technical solutions. o The plan shall detail periodic steps and technology to obtain, organize, store and report data to the EPA Portfolio Manager system. o The plan is to detail the roles & requirements of each utility provider at a specific property. o The plan shall include details regarding tenant cooperation, the impact of turnover, and potential tenant resistance to prescribed methods of data collection. Source: “Green MIP Reduction The Destination, and the Way to Get There” HUD-FHA MF Production Webinar, 8/25/2016 Note: This sampling plan is not compliant with EPA EnergyStar building certification

Green MIP requirements at closing commit the project to obtain the green certification and to conduct annual energy benchmarking Form HUD-92013-D: Owner’s Certification and Acknowledgement for Program Obligation For Broadly Affordable, Affordable, Green/Energy Efficient Multifamily Housing Mortgage Insurance Premiums Statement of Energy Design Intent (SEDI) showing EPA Portfolio Manager score or 75 or higher Signed by qualified professional preparing the report Evidence of green building certification in drawings and schedules Note: NGBS, LEED, etc on the construction drawings title page Green Building Scoring spreadsheet Required milestones for the green building standard incorporated into the construction schedule (e.g. onsite verification) Green Rider: Borrower’s Obligation to Maintain Project’s Energy Performance as Consideration for MIP Reduction (Optional): Letter of Attestation from the Green Consultants that the project is on track to meet the green requirements. Should include the Green Consultant’s credentials and experience Energy Data Acquisition Plan demonstrates the owner’s plan to obtain energy data and complete annual Statement of Energy Performance (SEP) benchmarking in EPA Portfolio Manager Evidence for Green Recognition: 1.     Certification from Owner stating “Green Standard” selected and level of achievement sought, if applicable (example: LEED Silver, not just LEED). 2.     Lender should discuss the architect’s prior experience with designing LEED projects. If a consultant is being engaged, they should let us know and provide the consultants qualifications as well. 3.     Identification of required milestones for the selected green standard from either the architect or owner (or consultant if one is engaged). Construction progress milestones for the standard should be incorporated into the Construction Schedule.   Evidence for Energy Performance: 1.     Statement of Energy Design Intent (SEDI) showing EPA Portfolio Manager score or 75 or higher has been submitted 2.     Data Collection Plan is required to demonstrate the owner’s ability to complete future Statement of Energy Performance (SEP) required. Plan should show the owner understands the data needed, management procedures required, and any technical solutions implemented. Plan must contain details of steps and technology used to obtain, organize, store, and report the data to EPA’s Portfolio Manager. The plan should also detail requirements of utility providers and tenant cooperation needed in the data collection. HUD-92466, R-6 Green Rider: Borrower’s Obligation to Maintain Project’s Energy Performance as Consideration for MIP Reduction

Impact on Forecasted Energy Use Experienced, accredited modelers will ensure robust and appropriately conservative modeling Example of how differences in modeling can impact property energy use Modeling Parameter Change/Explanation Impact on Forecasted Energy Use Complete inclusion of Multifamily amenities (e.g. heated pools), common space (clubhouse), corridors, exterior lighting, etc Examples: Missing the common space lighting, heating/cooling or systems such as ventilation, elevators or pools Risk of missing up to 20% of the total property energy use Unit Selection (Bottom/Middle/Top) Middle floor units have conditioned space above and below and thus are more energy efficient. (4% different in this scenario) A 3-story building that was modeled with just the middle floor unit would appear to be 2.7% more efficient than a model that more accurately reflected the difference between the levels Construction Process (infiltration rates) Aggressive modelers may assume that the air infiltration rates are uniformly better than averages. A conservative approach assumes 0.35 air changes per hour(ACH) but a more aggressive model could claim a 0.20ACH Aggressive assumption forecasts 2.7% less energy use Construction Process: Insulation Installation Changing from a grade-3 installation to a grade-1 installation More aggressive assumption forecasts 1.2% less energy use Occupant Behavior (Temperature Set-points) EPA suggests set points of 70 for Heating and 75 for Cooling. Even slightly more aggressive assumptions adjusting the set-points by 2 degrees to 68 for heating and 77 for cooling More aggressive assumption forecasts 3.2% less energy use Property level benchmarking so analyst needs to incorporate all energy used: Multifamily amenities (e.g. heated pools), common space (clubhouse), corridors, exterior lighting, et Cautions against aggressive modeling Modeling too few units Assuming overly optimistic infiltration rates Assuming unrealistic tenant HVAC setpoints Many building design, construction and operation parameters can dramatically affect the energy forecast 1. Property location 2. Number of buildings and building types associated with the subject property 3. Number of dwelling units and total number of bedrooms 4. Gross square footage 5. Building envelope details used in energy consumption model (Exterior walls, windows, doors, ceiling/roof) 6. Building foundation details used in energy consumption model 7. Mechanical equipment used in energy consumption model (HVAC, DHW and elevators for all dwelling units and common areas) 8. Distribution system details used in energy consumption model (located in or out of conditioned areas, insulation levels, leakage rates) 9. Set points associated with environmental controls used in energy consumption model 10. Lighting specifications used in energy consumption model (interior and exterior lighting details for all dwelling units, common areas and site) 11. Kitchen appliance specifications used in energy consumption model (all dwelling units and common area kitchens) 12. Laundry appliance specifications used in energy consumption model (all dwelling units and common area laundry facilities) 13. Air infiltration rate used in energy consumption model 14. Energy consumption associated with amenities 15. Energy consumption associated with property parking (open, partially enclosed, fully enclosed, lighting, ventilation and supplemental heat) 16. All property fuel types accounted for 17. Property characteristics accurately recorded in Portfolio Manager Source: Analysis to demonstrate some parameters and modeling assumptions can affect an energy forecast. To avoid cherry-picking extremes this is based on an above-code Multifamily property in Virginia which represents a moderate climate

The hardest part is securing the energy data Data Collection Options Master Metered Utilities Tenant Paid Utilities Collect monthly utility bills for every meter associated with the property Request Whole-Building Aggregated Data from Utilities In limited regions, utilities will provide the whole-building aggregated energy data without requiring individual releases Limited availability Secure Tenant Authorization/Release Tenants sign release form allowing the owners to request energy usage from the utility (req. @ least 25% sample of representative units) Time consuming and challenging to secure releases Install Energy Data Loggers Install digital, remote reporting master metering data logger upstream of tenant meters to capture all usage Modest upfront cost Lenders should request this energy data ASAP Do not wait until ordering CNA!

It is the duty of the lender to: The MAP guide specifies the required review and underwriting duties for the Lender It is the duty of the lender to: Guidance “Review and evaluate the EPA Portfolio Manager forms (SEDI or SEP)” Ensure the SEDI or SEP scores are reasonable “when an energy audit is prepared …, assure that the preparer is properly qualified” SEP and ASHRAE Level II Energy Audits must be prepared by a qualified professional, such as: AEE Certified Energy Manager (CEM) AEE Certified Energy Auditor (CEA) BPI Multifamily Building Analyst (MFBA) RESNET Home Energy Rating System (HERS) Rater ASHRAE High Performance Building Design Professional (HPBDP) “assess the credentials of the auditor and the reasonableness of projected utility consumption savings” “assess the accuracy of the needs assessor’s or energy auditor’s report of utilities ... and rates charged” Ensure the utility rates and projected savings are reasonable “calculate and incorporate in underwriting 75 percent of documented utility cost savings” Pg 150 5. Utility Conservation Metrics Review and evaluate the EPA Portfolio Manager® forms (HUD Custom SEDI or SEP). When an energy audit is prepared for an existing property or a model of projected use is prepared for a new construction or gut rehabilitation project, assure that the preparer is properly qualified. Confirm and document any claim of ENERGY STAR®, LEED or Earthcraft for Multifamily certification by obtaining the certification and attaching it to the CNA. Assess the accuracy of the needs assessor’s or energy professional’s report of utilities used at the property and rates charged for these utilities as reported on the Utility Rates and Usage form. In accordance with the guidance in Section IV of this appendix calculate and incorporate in underwriting the expected cost of owner paid utilities, including in the case of existing properties with an ASHRAE Level II energy audit, 75 percent of documented utility cost savings. (Projected utility cost savings per year are reported for each immediate repair as part of the list of critical and non-critical repairs reported with each validation or submission of a CNA.) Pg 161 8. Consider the ASHRAE Level II Energy Audit, if any, and assess the credentials of the auditor and the reasonableness of projected utility consumption savings. Assess the accuracy of the needs assessor’s or energy professional’s report of utilities used at the property and rates charged for these utilities as reported on the Utility Rates and Usage form. Source: 2016 MAP Guide Appendix 5 Section G

SEP and Energy Audit Professional Qualifications SEP and ASHRAE Level II Energy Audits must be prepared by a qualified professional, such as: Auditors must have a minimum of 3 years work experience evaluating multifamily Certifications AEE CEM or CEA American Energy Engineers Association - Certified Energy Manager (CEM) or Certified Energy Auditor (CEA) ASHRAE HPBDP American Society of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE) –High Performance Building Design Professional (HPBDP) BPI-MFBA Building Performance Institute (BPI) – Multifamily Building Analyst (MFBA) RESNET-HERS Residential Energy Services Network (RESNET) – Home Energy Rating System (HERS) rater

Case Study #1 Existing building Refinance MAP 223(F) 3 Stories Garden Style with 480 units built in 2014 Common Space (Clubhouse, Pool, Gym) Individual Meters with a Tenant Landlord Agreement Energy Star Score 65 ASHRAE Energy Audit completed ECMs identified Time of day lock out schedule for common spaces Minimum and maximum apartment setpoints Reduction of site lighting Changing HW heater setpoint and placing on a schedule

Case Study #1 Cont. Benefit to Owner Achieved MIP Reduction Reduced Maintenance Costs for building operation Approximate saving 16% of operations cost Extended life of HVAC and Plumbing equipment on average by 2 years Was able to use energy success to market building with an Energy Star score to tenants

Case Study #2 Existing Building Refinance with a Green Certification MAP 223(A7) 5 Stories Garden Style with 775 units built in 2012 Mixed Use space (Retail, Pool, Gym) Individual Meters Was not able to get 100% of utility bills from the Electric Provider Energy Star Score of 79 25% sample of utility bills accepted thru Energy Star Must be representatively sampled: Unit types Buildings Each size (sq ft) and direction (N,S,E,W) of unit exterior wall Each building floor or level Each materially different HVAC package

Case Study #3 ASHRAE Energy Audit completed ECMs identified Existing Building Refinance 3 Stories Garden style with 310 units Common Space (Clubhouse, Pool, Gym) Individual Meters (Currently) Was able to get 100% of utility bills from utility provider Parking Deck Benchmark score of 92 without all the tenant information but 100% of common space. ASHRAE Energy Audit completed ECMs identified Time of day lock out schedule for common spaces Minimum and maximum apartment setpoints Reduction of site lighting Balanced building to reduce humidity issues in Common Areas Installed a Meter for future reporting

Case Study #3 Cont. Benefit to Owner Achieved MIP Reduction Reduced Maintenance Costs for building operation Approximate saving 14% of operations cost Extended life of HVAC and Plumbing equipment on average by 4 years Was able to use energy success to market building with an Energy Star score to tenants

Lender Responsibility Engage early for Benchmark and Energy Star Certification Accurate Property Description and Details Provide Borrower utility data for 12 Months Electric, Gas, Natural Gas, Heating Oil, etc Complete info no older than last bill of 120 days Must have actual usage not an average Assist in site visit coordination If Energy Audit is needed Engage Quickly Schedule call with owner and EBI to discuss ECMs Provide a Data Collection Plan to HUD

Common Pitfalls Refi 223f Refi Common Mistakes Insufficient/Wrong Energy Data Incorrect Property Descriptions Number Stories Building Usage Building Type Gross Sqft Mixed Use vs Common Space Retail Centers Gyms Restaurants Stores Average Data vs Actual Usage Data Cost instead of Usage Wrong Information provided by utilities Address Usage