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Doing Well By Doing Good: Taking Risk Out Of Mortgages By Building Sustainability In

A multifamily building where 30% of residents commute via subway will be significantly less likely to default on the mortgage than the same building located within 1,000 feet of a freeway corridor, according to the findings of a study funded by Fannie Mae.

Published May 29, "The Effect Of Transportation, Location, And Affordability Related Sustainability Features On Mortgage Default Prediction And Risk In Multifamily Rental Housing" found that properties with certain sustainability features are a better risk than previously thought.

"Perhaps the most important point of this study is that sustainability is just as much an issue with material consequences for investors as for those interested in social and environmental well‐being," explains author Gary Pivo, University of Arizona professor of Urban Planning and professor of Natural Resources and the Environment.

Pivo points out that this is not a new concept. In 2005 he described the emerging understanding of a common ground between real estate investing and sustainability. And his new study underlines the reality of the finacial consequences of investing in sustainability.

"Multifamily lenders can mitigate risk by gearing their portfolios toward more sustainable properties," Pivo explains. "Moreover, and for society this may be even more important, lenders can offer favorable financial terms to more sustainable properties without increasing risk, or as Benjamin Franklin once said, they can 'do well by doing good.' ”

A summary of Sustainability Effects on Default Risk in Multifamily Mortgages showed:

  • Building within 1000 feet of a freeway corridor increased the relative risk of default by 59%.
  • Each minute increase in commute time increased the relative risk of default 3.7%.
  • Each unit increase in the percent who walk to work lowered the relative risk of default 3.1%.
  • Having 30% of residents commute via subway reduced the relative risk of default by 58.4%.
  • Having 16 or more retail businesses in the block group decreased relative risk of default by 34.4%
  • Meeting FNMA definition for afforable housing reduced relative risk 61.9%
  • Being within 1 mile of protected open space reduced relative risk by 32.5%.