Sustainability is the hottest concept in Washington these days. President Obama has made reducing our reliance on foreign oil and combating global warming a priority, and Congress is currently debating a massive energy and sustainability proposal.
This enthusiasm for sustainability provides the apartment industry with both opportunities and challenges. The National Multi Housing Council (NMHC), and its recently launched sustainability committee, will be addressing some of these issues. At the inaugural meeting in January, committee chair Thomas Toomey, president and CEO of UDR, announced that the committee will focus on three key areas: advancing industry best practices; working with lawmakers to adopt voluntary and incentive-based energy policy; and developing and promoting standards to help firms market their sustainability quotient.
Participants at that kick-off event reported that while the money spent “greening” one’s apartment portfolio might not look like it will pencil out at first glance, it is critical that it be done for two reasons. First, residents want properties that are managed with “green values,” and they are increasingly incorporating utility costs into their rental decision. Second, the investment community may soon cease purchasing properties that aren’t green. In other words, failing to build green now could save on upfront construction costs in the short term, but it could cost much more than that when the time comes to sell that property because the pool of potential buyers will be much smaller.
Smart real estate managers, looking to improve NOI and increase the value of their assets, are undertaking energy performance evaluations. Toomey reported that his firm had comprehensively evaluated its energy usage and determined that it could obtain significant consumption savings simply by investing in “off-the-shelf” technology upgrades such as programmable thermostats, low-flow showerheads, and standardized, energy-efficient compact fluorescent bulbs. His firm continues to pursue savings by replacing in-unit appliances with high-performance, Energy Star-rated equipment. The firm’s energy performance evaluation shows that this resulted in a reduction of approximately 35 percent in utility consumption on retrofitted properties.
Playing by the Rules
While energy performance evaluations make good business sense, the time may be coming when building owners will be required to disclose the utility consumption of their properties to both prospective renters and investors, as outlined in draft energy legislation pending in Congress.
One provision would require property owners to disclose their buildings’ energy usage statistics. Another would create an energy efficiency standard that would require utilities to demonstrate that their customers (including apartment firms) have reduced their use of electricity by 15 percent and natural gas by 10 percent by 2020. How this would affect apartment owners is not yet clear. Will there be incentives for owners to reduce energy demand, or will there be a more onerous mechanism to force reduced usage? Any effort to significantly reduce energy demand will require rehabilitating existing properties. To that end, NMHC prefers the incentive-based approach that rewards owners based on energy and water savings.
A third provision would establish a program to develop energy performance labels or “grades” for residential and commercial buildings. The label would display as-designed and actual building energy performance for the purpose of making decisions about transactions, operations, and maintenance. Building labeling is already in place in Europe and some American cities, including New York and Seattle, are considering it. The building code organization ASHRAE is currently developing a grading system for commercial buildings based on energy consumption.
NMHC supports voluntary labeling programs such as the EPA’s well-established Energy Star program. Mandatory labeling requirements for the apartment sector are more problematic because there is currently no Energy Star-like rating system for multifamily properties, though the EPA does offer an online “Portfolio Manager” benchmarking tool. The tool allows managers to track and assess energy and water usage across their entire portfolio; identify underperforming buildings; and verify efficiency improvements. Once the EPA has a sufficiently populated database, it plans to establish an Energy Star designation specifically for multifamily properties.
Labeled as green or not, it’s important to note that multifamily housing fundamentally is sustainable housing. It’s more resource- and energy-efficient than other types of residential development because its concentrated infrastructure conserves materials and community services. As part of an infill or mixed-use development, apartments create communities where people live, work, and play with less dependence on cars. This reduces the consumption of fossil fuels and their carbon emissions.
But that won’t necessarily be enough to exempt apartments from mandates at the federal and state level. NMHC is actively working with its sustainability committee and lawmakers to create financial incentives that enable our industry to be part of the nation’s move to more sustainable communities. More information is available on NMHC’s green practices Web site at www.nmhc.org/greenpractices.
Eileen lee is a vice president of energy and environmental policy for the National Multi Housing Council in Washington, D.C.