Montgomery County Green Bank launched a new resilience financing tool for affordable housing owners and developers that it hopes to be a catalyst to resilience planning in its local Maryland footprint and a model that can be replicated around the country.
“Climate impacts are intensifying,” says Laura Mondragon, senior director of climate adaptation and resilience, Montgomery County Green Bank. “Floods are here. Extreme heat is here. Storms are here, and we have very old, aging buildings across the entire nation.” She adds, “What we need to do through this dedicated fund is tackle that problem.”
The green bank is a public/private partnership, chartered by the Montgomery County government, that uses public funding from energy tax money to make investments in clean energy. In 2023, the county expanded the green bank’s scope of work to invest in physical resilience, which led to the creation of the Resilience Dedicated Fund that is available to local affordable housing owners and developers.
One of the biggest hurdles to resilience planning is the overall lack of capital and, particularly, the lack of access to early-stage capital. “Even though you have a vision on how to do it and why to do it, and you’re championing this as a stakeholder, you just simply don’t have the capital to do it,” says Mondragon.
The Resilience Dedicated Fund is structured as a low-interest revolving loan facility that is used to finance investments that reduce climate-related risks or manage clean energy, water use, community well-being, and health improvement across a borrower’s portfolio of properties. The revolving loan’s proceeds can be deployed and then repaid, creating a multiplying effect in terms of potential impact.
Effectively, the Resilience Dedicated Fund marries the flexibility of a line of credit with the credit of a loan fund. “We’re preaching flexibility, but we’re also giving borrowers some guardrails . . . for us to see the investments that we want to see,” Mondragon says.
How it works
Borrowers can use a portion of the revolving facility toward needed capital improvements to fix problems, make repairs, and maintain their buildings. Every capital improvement investment must be paired with a resilience investment, however. For example, a property owner may need capital to address a roof leak; the accompanying resilient investment could include additional steps to strengthen the roof against wind damage or to add solar panels.
Currently, loan amounts range from $3 million to $5 million, with interest-only payments and three-year extendable terms. Borrowers must contribute 10 percent equity into projects, and rates range from 2.5 percent to 9 percent, with lower rates for high-impact projects.
A common obstacle that affordable housing developers face when they’re underwriting and trying to finance projects, whether new construction or preservation, is that they’re doing it property by property. One of the innovative aspects of the fund’s structure is that finance underwriting is being done at the portfolio level and parent entity rather than at that of the individual property or project. Mondragon calls it “a very low-risk transaction where repayment is coming simply from cash flows from the affordable housing owner or developer.”
In addition to providing funding, the green bank created a dedicated technical assistance program that helps borrowers with resources to identify resilience investments that they can pair with capital improvement investments.
From reactive to proactive
One of the goals of the fund is to enable affordable housing developers to make proactive investments to improve resilience that mitigates risks to people and property, and that breaks the model of reactive post-disaster recovery, clean-up, and repairs.
Traditionally, affordable housing operators and developers have relied on grants to pay for resilience projects or improvements. The challenges are not knowing how much of a grant they may get, exactly when they may get the money, or if the funding can be sufficient for what they’re trying to do.
“People often think, ‘I’ll apply for these five grants, and then I’ll do this work.’ But when it comes to retrofitting buildings or planning large-scale resilience measures across a portfolio of properties, you end up in this vicious cycle of grant Whac-A-Mole, says Shalini Vajjhala PhD, executive director of PRE Collective, a nonprofit consulting group that assists with infrastructure and project development. Mondragon and Vajjhala met at ULI’s annual Resilience Summit, which led PRE Collective to work with the green bank on the development of the Resilience Dedicated Fund. PRE Collective is also providing program support.
Often, Vajjhala adds, the result is operators who are doing piecemeal projects that leave value on the table. For example, an operator may have a property that is prone to flooding. Instead of continuing to be reactive, cleaning up the damage, and waiting for the next heavy rain, the owner can use the Resilience Dedicated Fund to install better drainage at the property to redirect water away from the building. It involves working with maintenance teams and planning ahead, but the outcome saves on recurring costs, according to Vajjhala.
Instead of using funds such as grants for recovery costs and repairs after an event, capital can be used to harden assets and prevent or minimize damage. “There are clear outcomes from a structure like this. There’s going to be a clear reduction on costs for affordable housing developers, and there’s going to be safer housing and healthier communities,” Mondragon says.
Opportunity for more growth ahead
The green bank is expected to close on its first credit facility to Victory Housing—a nonprofit that operates 35 affordable housing and senior living communities in Maryland and Washington, D.C.—in early October, and it has four other projects in the pipeline. For the initial projects, it is using its own capital. However, the aim is to bring in private capital partners that will allow the bank to scale the size of the fund, serving more borrowers and increasing the size of the available credit facilities.
Victory Housing plans to use its $5 million credit line to help fund its resilience strategy. “We want to focus on new construction, but we also need to tend to our existing portfolio and get it ready for the future, which is going to have a lot more strain from climate,” says Leila Finucane, a ULI Washington member and CEO of Victory Housing.
Among Victory Housing’s priority projects, the revolving line will be used to help finance the electrification of Victory Tower in Takoma Park and renovations at Hampshire Village, a 111-unit affordable senior living property in Silver Spring, Maryland. Key resilience components at Hampshire Village include upgrading HVAC systems to help reduce greenhouse gas emissions and water conservation. “Water is important for all of us, but from a utility standpoint, it’s also an operational cost where the rate keeps increasing,” Finucane says.
Low-cost, flexible portfolio funding is what organizations such as Victory Housing need. Complex projects—electrifying centralized systems, for example—require more pre-design and engineering planning. “Rather than having to go look for pre-development funds for each different project and explain what we’re trying to do, this allows us to be nimble and advance multiple properties at the same time,” Finucane says.
The Montgomery County Green Bank believes that it has created a scalable framework in its Resilience Dedicated Fund with the potential to be a model for others. “This is such a deceptively simple and powerful instrument, because it removes a lot of the obstacles for affordable housing developers that exist in the housing sector,” says Vajjhala. It’s important to have an entity like the green bank to do the first one and show that it can work. However, she adds, it’s “a pretty plain vanilla,” logical product that can work for housing developers in a lot of different contexts.
