A dark cloud still looms over the heads of apartment owners when it comes to spending money on energy efficient retrofits and construction. The problem has largely been justifying, in hard data, when and how they will see a return on investment.
While figures on the actual savings may be difficult to come by, there are specific strategizes being implemented in the industry that are showing positive results. Here’s a look at four ways multifamily owners can cash in on green building investments:
One of the ways a company can recoup money on energy-efficient investments is called “green leasing.” It’s a relatively new idea, but it’s basically a way that an owner and tenant can work together on the efficient use of energy. Essentially, a green lease outlines future rental increases, and justifies those increases by detailing the energy savings that a tenant can expect to see on their utilities.
The key concepts outlined in any green lease include rent structure and operating expenses; build out of tenant improvements; sustainable development principles and regulations (throughout the building or larger development); the use and disposal of hazardous materials, including cleaning supplies; recycling; and environmental management plans, according to the Green Real Estate Journal.
This approach is all about transparency and revealing a numbers game that has traditionally been contained in the corporate office. With green leases, tenants can see, in hard data, what the owner will spend on their unit and how those expenditures benefit the renter. Currently, green leases are in a pilot phase and data have yet to be collected on their success, but the concept offers a creative solution to a nagging problem.
Another way to monetize green initiatives is to cash-in on energy saving efforts as a marketing tool to renters.
Green retrofits can serve as an important selling point for attracting environmentally conscious renters, such as the 80 million or so Gen Y-ers expected to flood the market in the coming decade. An increasing number of multifamily companies are using their energy efficient certifications as a marketing tool to brand their communities as eco-friendly.
Companies like Chicago-based AMLI Residential market their green features, such as water efficient fixtures, specialty glass, recycled building material, and energy efficient thermostats, to set them apart as offering units with cheaper utilities costs. They can then justify higher rents using energy efficiency savings. And a lot of the time, renters are willing to make that concession to find a community that shares their values on environmental awareness.
Common Area Utilities
A third way owners are seeing energy efficiency returns is through utilities savings in common areas at a property. In short, a green building is less expensive to run.
Carlos Ochoa, president of Richardson, Texas-based JEC Energy Savings, knows firsthand how hesitant many apartment owners have been to spend on energy retrofits during the last few years. But he’s also seen the benefits. Things have been on the upswing for JEC the past two years, as his company’s decision to focus on a single aspect of utility retrofit has helped entice owners by proving out the return on investment.
“I’ve always wanted to find ways to save on electricity. We chose to stick with lighting, because you will know exactly what you are saving,” said Ochoa. “On a garden style property, for example, one with 150 to 200 retrofitted fixtures in common areas, we can prove savings in anywhere from 45 to 60 days,” he adds.
Higher Price in a Disposition
Perhaps the most attractive benefit of green retrofits is the value it adds to a property once it comes to market. Achieving third-party certifications for energy upgrades increases the overall value of a property and makes it more attractive to potential buyers.
“There’s an important role here for third-party organizations to help,” said Nate Kredich, president of residential market development at the U.S. Green Building Council. “Third-party certifications certainly carry a premium, especially when you are going to sell an asset at market,” he added.
Some of the third-party certifications that dictate what standards apartment owners need to achieve include Leadership in Energy and Environmental Design, Energy Star, and Enterprise Green Communities. And currently, the Environmental Protection Agency is working to develop a scale that allows multifamily owners to judge energy performance against other apartment buildings to help standardize some of the industry’s energy retrofit data and provide the much sought-after metrics that lenders are waiting to see.