Slicing a percentage point from routine costs can make a big difference for a new development with hundreds of units. To boot, cost savings can be tied in with sustainability.
The 2017 Multifamily Executive Concept Community, Next Generation Development, is peering into the future to uncover areas where sustainability will lead to more efficient, cost favorable solutions. Improvements will soon come from everywhere in the project, from financing to water usage to solar power.
Richard Lamondin, co-founder and CEO of EcoSystems, started his company to provide water- and utility-saving programs for commercial and residential properties. Recently, he completed a project that converted 2,500 bathrooms to high-efficiency products, including toilets, showers, and sinks, which qualified the property to receive $360,000 from the city.
Lamondin says the company goes into a property or lot to analyze it before the build or retrofit. It benchmarks the project versus others in the area based on a HUD database, project savings, and property-value increases.
For instance, if a project uses compact fluorescent lights that burn 18 to 24 watts, the entity could convert to LED bulbs that use only 6 to 8 watts. That 12- to 16-watt drop would then be applied across all the bulbs in the property.
Water—Not a Drop Wasted
Lamondin points out that every market and market condition is different. For example, Atlanta has the highest rates of water use and sewage production in the country. That’s because of aging infrastructure, including Civil War–era pipes.
On a macro basis, the Environmental Protection Agency reports that 20% of all toilets leak up to 200 gallons a day.
Lamondin says there's also plenty of room for growth in tracking water and utility usage. “Only now are utilities giving consumers access to information to track consumption,” he shares. “If you want to track water, you have to do it yourself by the water usage on your bills. In terms of data, it’s very uneven across the industry right now.”
Building Integrated Photovoltaics for a Brighter Future
Solar energy is slowly finding its way into multifamily, but Aaron Wilson, CEO of Solar One, says the technology will be embraced more when it can be built into a structure rather than retrofitted. For years, the potential of solar has been limited by the panels that provide it, but now technologies exist in which the product is part of the building façade and can cover more surface area with photovoltaic materials.
Windows, too, can be a great surface for photovoltaics. South-facing windows can minimize heat and sunlight and create electricity by filtering that light. Wilson thinks this technology will be available in six or seven years. He says solar is a great multifamily investment because it’s long term, provides value every day, and isn't beholden to occupancy rates.
“With solar, you don’t need to future-proof,” Wilson says. “It’s all a safe investment. You've already paid for it, and it’s producing free energy for you.”
Banking on the Future of Electric Cars
The popularity of electric vehicles (EVs) could have multifamily developers rethinking how to use the grid and how to open additional revenue streams.
Wilson sees electric vehicles as portable energy systems: After all, the vehicles have batteries that store energy. Because hundreds of EVs could be parked in future developments at any given time, he thinks current community designs should incorporate technology to pull power from the vehicles when electric rates are at peak, or even sell back power to the grid at optimized prices.
Wilson envisions wireless charging stations in all parking spaces that are engaged by an RFID tag on the vehicle. Residents would be charged a small fee to use the stations. Wilson says that during peak usage hours, it may be cheaper for the development to discharge energy from the electric cars through the wireless charging system to offset the power that's being purchased from the grid.
In this instance, the development would pay the tenant for the use of his or her car’s energy. The price paid to the customer would be preset, and once the cost of electricity reached a certain price, the property would "search" the garage for available cars to tap. The tenants, in turn, would agree to allow a certain amount of power to be withdrawn from their cars, and the property would be "intelligent" enough to determine exactly how much capacity was available at any one moment.
In this ideal scenario, both parties win: The tenant makes money from his or her car's surplus electricity, and the developer benefits in two ways—the company saves money by getting energy for less than it would cost from the grid; and, by having to rely less on the grid, the developer has less exposure to market conditions.
To illustrate exactly how much savings could be realized, Wilson put together the following example based on the current cost of gas and electricity and the range of a Tesla Model S and a comparable internal-combustion–powered car.
Given:
- The cost to travel 335 miles in a Tesla Model S = $10 (cost to charge the 100KW battery, at $0.10/KW); and
- The cost to travel 335 miles in an internal-combustion car that averages 25 miles to the gallon = $28.81 at average speeds and average national gas price:
The car could save the user about $2,000 a year, if the electric vehicle were charged, or the conventional car's tank were filled, every four days.
If the car were charged every four days, one vehicle could generate $7 for the community in that amount of time.
If there were 350 cars that needed a full charge every four days, the development could potentially generate $223,000 a year from the charging station and earn even more during "peak savings" times.
Using Green to Finance
While these products and services can improve energy performance, there also are new ways to access capital associated with sustainable developments. Anne Murphy Hill, president of RAHILL Capital, consults on PACE (Property Assessed Clean Energy) financing.
PACE started in California nine years ago and has since evolved from a solar-financing tool to a mainstream financing source. Murphy Hill predicts that in five years, PACE will be just as popular as any other financing source, like EB-5.
“[I'll be] shocked if it’s anything less than a $1 billion industry in 2018,” she says. “PACE only takes two months, whereas EB-5 can take a year. PACE capital is readily available.”
PACE is currently in 32 states where the assessment acts as a property tax and lasts 20 to 30 years. Murphy Hill finds that, on average, the financing is 6.5% cheaper than mezzanine debt. After a project maxes out bank lending, PACE becomes a next source of cheap capital.
RAHILL Capital recently worked on a multifamily deal in Colorado where the owner wasn’t able to capture all the necessary financing. The owner could get mezzanine financing at 14%, but it also qualified for PACE at 6.5%.
“It’s extremely attractive and makes a lot of sense,” Murphy Hill says. “Many deals may not pencil without PACE. It lowers the owner's WACC [weighted average cost of capital] and improves its ROI. With construction-debt opportunities getting smaller, this becomes much more attractive.”
RAHILL has been engaged in more than 30 PACE transactions, representing more than $200 million. The smallest deal was $500,000, and the largest, $90 million for a $400 million multifamily community. Typically, most individual project transactions are about $10 million, Murphy Hill says. The cap is associated with the loan-to-value ratio, maxing out at 20% of the project value.
The Multifamily Executive Concept Community, Next Generation Development, will take a close look at how to incorporate these and other sustainable ideas. Watch the progress of the project at www.multifamily.com/mfe-concept-community.
