As the economy was collapsing back in 2008, Greg Mutz and his leadership team had to make an important decision. Like everyone else in the housing industry, the team at Chicago-based AMLI Residential was concerned with having to right-size headcounts, extend maturities, defend its balance sheet, and decide whether to shut down, or at least slow, its development and construction spigot. But unlike many of its multifamily peers, AMLI’s decisions weren’t strictly defensive. Even as the recession was tightening its grip on the country, the firm made one large strategic decision: It invested in a massive program to make its properties more energy efficient.
“We came together 18 months ago and concluded that environmental issues will increasingly impact valuations in the future. We also believed that the price of energy and water will escalate well ahead of the overall inflation rate,” CEO Mutz says. “We think the control of energy usage and water usage will enhance the bottom line and become a competitive differentiator.”
AMLI placed a bet with its owner, PRIME Property Fund, which is managed and administered by Morgan Stanley, that investors will come to covet—and pay more for—those apartments that are more efficient. To reduce its carbon footprint, lower energy costs, and enhance sustainability, the company undertook a double-barreled approach to determine where both its properties and its property managers stand on energy efficiency. Under the new AMLI initiative, the company’s tech team would create another dashboard to measure each property’s energy efficiency and would use its construction and development teams to have an internal energy audit of AMLI’s buildings.
Unfortunately, with the construction world crashing, the development team wasn’t very busy. Instead of laying them all off or jettisoning them into property management, Mutz decided to change a handful of key personnel roles within the organization to focus more on measuring how to green its current stock of apartments. He tasked Fred Schreiber, his vice president of development, with leading that charge.
So far, the results have been positive. “AMLI has really come up with some creative and efficient ways to measure energy on a real-time basis,” says Sue Ansel, chief operating officer of Atlanta-based Gables Residential. “I think they’re a step ahead of the game. I think that’s a place where we will all get to, but I think they’ve done a good job of incorporating that into their daily software. It’s the next step for us.”
Managing that software—and modifying it to meet the ever-evolving energy demands of living buildings and growing portfolios—is a full-time job for Schreiber, a lawyer by training who started with the company in 2007 on the development side after a stint in real estate finance law with New York-based law firm Weil Gotschal & Manges. But the 31-year-old has embraced his new role with a passion. “As development slowed down, a lot of us tried to help in other parts of the company,” Schreiber says. “I did a little legal, but part of what I volunteered to help out with was the sustainability program that we were running at that time.”
Now, Schreiber is leading AMLI’s green program, which involves Mutz; Phil Tague, executive vice president of AMLI; and Jennifer Wolf, AMLI’s senior vice president of development. Schreiber’s plan? To use the company’s in-house teams, including construction, development, management, and utility groups, to solve the energy riddle and shepherd AMLI into a profitable, sustainable, efficient future.
“Instead of a shotgun approach, I advocated focusing on our core competencies and leveraging things AMLI was good at,” he says. “Instead of trying to do everything green, let’s focus on the green dashboard and energy audits. We were able to dive into that headfirst and take responsibility and make sure it was implemented. My role has been helping to put the company’s best and brightest together and push them to develop these technologies.”
Hands on the Dashboard
The dashboard concept is nothing new at AMLI. In 2003, the firm spent a year to develop the web-based technology that would serve to measure its on-site performance. The platform provides both executives and on-site managers with sortable, real-time information about 12 different factors, including effective rent increase, physical occupancy, percent of service requests completed in 48 hours, average Internet response time, renewal ratio, closing ratio, average days held vacant, and the portion of the budget that can be managed via controlled expense reduction.
With that template and technology infrastructure already in place, AMLI thought it would be easy to take its dashboard and create a second generation that would measure and rank managers on their ability to reduce energy and water usage in common areas; increase the percentage of environmentally-friendly products they’re buying; and re-asses their recycling practices. As with the regular dashboard, properties can be sortable by region, metro area, construction type, and even joint venture partner. The green dashboard enhancements took a year to develop.
“They created their own metrics, and they created their own dashboard,” says Doug Bibby, president of the Washington, D.C.-based National Multi Housing Council. “They didn’t get something off the shelf. They put a tremendous amount of work in it, and it’s very impressive.”
The payoff is worth it, though, according to Schreiber. With a simple double-click of a mouse, a site-level employee can pull up a property’s utility bills (though there is usually a lag time of about 60 days from when the energy was used and when the bill goes up). “There’s a simple page with all meters. You can see which ones are the outliers, and make sure you’re paying for the right amount,” Schreiber says. “You have to give it to site-level employees in a digestible format that they can take action on and get back to leasing and customer service.”
Mutz and Schreiber are looking for month-to-month improvements, while realizing that weather anomalies—such as a cooler-than-normal July or a snowless winter—could impact net revenue results. “This is an attempt to say if you’re pushing the needle and trying to get improvements, you’re going to see your score go up,” Schreiber says. “We measure [the properties] against themselves and maybe over time that standardizes in a way so we can reward the best performers in the company.”
The system measures recycling at each property each month by weight. Tague says that about one-third of AMLI’s properties have doubled the size of their recycling since the dashboard became active. “The most tangible result has been in the area of recycling,” Tague says. “All of it is just a matter of focus. [The property managers] are competitive, and they want to win.”
For instance, AMLI discovered that its North Briarcliff property in Atlanta was recycling 9 pounds per unit, per month, while its Milton Park property in Alpharetta, Ga., was recycling 21 pounds per unit, per month. The reason is that Milton has its vendors recycling cardboard, which is a heavy product.
Suddenly, the managers at other properties were beginning to ask their vendors if they can handle cardboard, too. That lead to greater recycling poundage across the portfolio and saved AMLI money—recycling vendors often charge a flat fee, while garbage collectors charge by the pound. “If our on-site teams know what vendors are doing across the country or region, you can leverage that,” Schreiber says.
Tague says the next big improvement will come in electrical usage. “I think people are not used to measuring their electricity in the common area,” he says. “We weren’t able to give them data on the level [by meter] that the dashboard does.”
Others are impressed by the amount of information AMLI can provide its property-level managers. “They definitely have more information,” says Ric Campo, CEO of Camden Property Trust, a Houston-based REIT. “Information is power, as we all know. That’s helping them implement these strategies on a more cost-effective basis.”
In some ways, the industry is still figuring out how to build green. For AMLI, the problem wasn’t new construction. It was the approximately 24,000 units in their existing stock. “Everybody is spending time, money, and effort thinking about how to make new development greener,” Mutz says. “The bigger question is how do you make the millions of existing units greener?”
One option, of course, is grading managers through the green dashboard. The downfall there? If they have a property that bleeds energy, there’s little a manager can do. That’s where the second part of AMLI’s strategy comes into play. “We went out and devised our own index so we could rank our properties on a sustainable basis across our portfolio,” says Wolf, who worked on AMLI 900, a 440-unit high-rise in Chicago that was AMLI’s first LEED-certified building.
AMLI uses two devices to measure its buildings’ efficiency for its grading system. First, the company uses the blower door diagnostic test to measure how tightly sealed a space is. The test works like this: A tester shuts the entry door to the unit, closes the exterior windows and doors, and opens up the interior doors. Then they turn the fan on, which forces air out of the units. “How hard that fan works will tell you how leaky your home is,” Schreiber says.
Air can also leak through heating and air-conditioning ducts and vents, escaping into the attic and putting an extra strain on the HVAC system. And that’s what AMLI studies with its second test—the duct blaster diagnostic tool. “We pump a bunch of air into the duct system and measure what and how much comes out of the supply registers,” Schreiber explains. “Whatever is missing is lost in the duct work and reduces the efficiency of the system.”
Originally, AMLI brought in outside firms to administer these tests and rate its properties, but it soon chose to send six employees through a Home Energy Rating System (HERS) course, used by the single-family industry, where they’d learn how to test the apartments.
“We gather data and then come back and put that into a spreadsheet to get a snapshot of the performance of our apartments,” says Timothy Gianndrea, vice president of construction for AMLI. “We use that information to make improvements relative to the issues at the property.”
AMLI’s new team has tested around 60 AMLI properties around the country. When they’re finished with their testing, they generate a report, giving it a grade between 1 and 100 (with 1 being the most efficient and each number above that signifying a percentage point more efficient). Roughly 70 percent of this score is comprised of a property’s energy efficiency, with another 10 percent coming from its water efficiency, indoor air quality, and site sustainability.
Though AMLI goes through a deliberate process to make sure its fixes provide the intended results, it’s finding that the fixes are fairly simple, such as insulation, caulking, weather-stripping, and lighting retrofits in all common areas and clubhouse. “When they get a HERS test and an energy audit, there’s a whole section that lists the types of things they can do for immediate results,” says Steve Hallsey, president and CEO of AMLI Management Co.
For instance, AMLI found it can reduce water usage by 20 percent if it puts restrictors on its showerheads and faucets. If there’s a duct leaking in the attic, the company could apply spray foam in the roof—holding the air in the structure. “Instead of solar, geothermal, or nuclear, all you really need to do is caulk,” Mutz says. “You can do an amazing amount of stuff by being smart and focusing on the low-hanging fruit. As an industry and as a nation, we have been remarkably wasteful when it comes to energy. We think we will be able to achieve a whole lot by simply leveraging a little common sense, some focused effort, and some smart folks knowledgeable in building design and operation.”
Now that AMLI’s green dashboard is up and running, the goal of the project is to show property managers exactly how much energy the lights in their clubhouse are costing or how many tons of recycling they’re doing a month. And the energy audits are wrapped up, so there will be time to do just that.
One new frontier is, of course, the multifamily world outside of AMLI. Already, the company is working with Boca Raton, Fla.-based Altman Cos., which is planning energy audits at two very different properties. At the 279-unit Satori in Ft. Lauderdale, Fla., there are a lot of green touches, but Joel Altman, chairman of the company, wants to make sure he’s getting the most bang for his buck. Meanwhile, in the second project, Altman is having AMLI test a troublesome high-rise for the elderly in downtown Detroit that was once a state-of-the art building. “We’re getting killed by utilities,” Altman says. “We thought this is a great place where we might be able to test.”
But there’s also potential for the green dashboard itself to become a revenue generator. Consider what AMLI’s peer Camden did with the YieldStar revenue optimization system—launching the technology in-house as a way to improve efficiencies and then spinning it off into its own product line. Campo says he sees potential for AMLI’s green dashboard technology to ultimately be packaged for the rest of the industry to use on its computer systems as well. “What AMLI is doing can ultimately be commercialized in the industry overall once it’s more proven,” Campo says. “The idea of shutting lights off and changing out regular and fluorescent bulbs—you don’t need a lot of specific technology to do that. But to monitor your electrical use or indoor air quality or to do some of those things, it does take technology.”
Right now, AMLI is using its energy audits to break down the payback on any investments they make seven months up to four years from now (or even for a more extended amount of time). “We tally it up and say this is roughly the type of payback you can expect,” Schreiber says. “We also try to help our partners understand what savings will be direct to ownership and what will accrue to the residents and therefore have an indirect benefit to the owners.”
The green dashboard measures utility and energy costs across common areas, clubhouses, leasing offices, pools, amenity areas, and vacant units. That still leaves a lot of square footage controlled by residents. And other than education (see “Resident Training” on page 27), there aren’t a lot of ways to control resident usage other than structural fixes, such as caulking or weather-stripping.
Tague says the company has thought of opening the dashboard up to residents, but ultimately, it may just post the results and appeal to their sense of competition. “We can tell residents how they can move their property from the lower half of the ranking to the upper half of the ranking,” he says. “Some people will become competitive, and they’ll think about not running their washer until they have a full load.”
Mutz sees a lot of advantages with his green investment. For instance, energy represents about 13 percent of AMLI’s operating expenses. If AMLI can reduce energy by 10 percent (even across 20 percent of a property), that’s huge.
And it’s putting the company ahead of the game, especially if localities tighten up their energy usage standards or even go in the direction where they require apartment companies to publish energy usage per unit (which is something some companies are exploring). Then, Mutz thinks the apartment operators with a lead in energy usage reduction will be winners. There is no doubt in Mutz’s mind that over time, regulation will increase and government at all levels will mandate ever-increasing requirements that lower energy consumption and enhance sustainability. And that’s not all Mutz is banking on.
“It’s not that we can make the living experience at an AMLI apartment just a little bit better,” Mutz says. “We can make living at an AMLI community a lot more enjoyable of a place to live. There’s more satisfaction. Going green has a very positive impact on the perception of the AMLI brand.”