Multifamily properties with sustainability features have a significantly lower risk of mortgage default. That’s the conclusion of a May 2013 report by Professor Gary Pivo
, which is available from Fannie Mae. The lengthy and self-explanatory title of the report is The Effect of Transportation, Location, and Affordability Related Sustainability Features on Mortgage Default Prediction and Risk in Multifamily Rental Housing.
Professor Pivo was able to access Fannie Mae’s database of multifamily loans. The study looked at 37
,385 loans that ranged in age from brand new to 30 years old; the average loan age was 6 years. The default rate of properties in this study was a very low 0.86%. That means only a few hundred properties were in default.
The average location on the urban-rural spectrum was “metro city” — between the urban center and the urban outskirts. The average number of dwellings on each property was 95 (standard deviation was 125 dwellings) and the average construction date was 1968 (standard deviation was 26 years). Both of the latter two measurements had a large standard deviation
, meaning the data values were spread over a wide range.
The study tested the portfolio of loans with seven sustainability variables. The variables were based on U.S. Census 2000 statistics for census tracts, census block groups, and other sources.
- Commute time: Commute time in minutes for those who work outside the home
- Rail commute: Do at least 30% of the residents take a subway or elevated train to work?
- Walk commute: The percentage of residents who walk to work
- Retail presence: Are there at least 16 retail establishments nearby?
- Affordability: Are some of the units required to be affordable?
- Freeway presence: Is the property located within 1,000 feet of a freeway?
- Park presence: Is the property located within 1 mile of a protected area?