Freddie Mac has priced a first-time “green-bond” multifamily securitization, marketing notes totaling $435 million that are backed by mortgage loans which finance energy and water-efficiency upgrades for aging apartment dwellings.
According to a press release Thursday, Freddie is launching the inaugural bond sale from its “KG-Deals” program, which is the environmental and social impact series within the agency's umbrella risk-sharing K-Deal platform for issuing multifamily mortgage-backed securities.
The notes being issued by the FREMF 2019-KG01 Mortgage Trust are backed entirely by workforce housing loans offering lower financing for green-friendly upgrades of apartment buildings that fulfill affordable housing needs in communities. Those loans are made through Freddie’s three-year-old Green Advantage program.
To qualify under Green Advantage, borrowers have two years to complete improvements that provide a minimum 30% reduction in combined water and energy costs (with at least 15% energy-related) in dwellings. The resulting upgrades will reduce lower monthly utility costs for tenants in older apartments, and also provide utility and water-demand relief for communities, the program touts.
Freddie first announced the KG-Deals program for securitizing Green Advantage loans on June 10.
“In a way, every K-Deal since 2016 has had some element of green because we have integrated Green Advantage loans throughout our platform since the creation of the program,” Robert Koontz, the head of Capital Markets for Freddie, said in a June 10 press release. “KG-Deal goes a step further, offering environmentally and socially conscious investors the opportunity to invest in bonds that support that mission. Ultimately, these investors are helping to reduce carbon emissions and water usage in thousands of older multifamily units across the country.”
According to Freddie, more than 77% of U.S. rental housing was constructed prior to 2000.
Freddie Mac launched its Green Advantage program in 2016, and has since purchased over $44.7 billion in green loans aimed at providing energy-efficiency upgrades for older properties that fulfill affordable housing needs in communities. The program has financed 1,100 borrowers for properties with an average age of 34 years.
The FREMF 2019-KG01 transaction includes five classes of fixed-rate notes, of which four are being offered. Freddie is not soliciting ratings for the deal.
The capital stack includes three tranches: a $27.1 million Class A-SB tranche (with a 2.738% coupon), a $210 million Class A-7 tranche (at 2.875%) and a $198.14 million Class A-10 tranche (2.939%). Freddie also is offering a Class X1 tranche that is limited to interest-only payment flows on a coupon of 0.9693%.
The Class A notes priced above par, according to the Freddie release, and will have a weighted average life between 6.8 years (Class A-SB) and 9.63 years (Class A-10).
JPMorgan and Citigroup were co-lead managers and joint bookrunners on the transaction. Amherst Pierpont, Cantor Fitzgerald, CastleOak Securities and Goldman Sachs participated as co-managers.
