Jeff Brodsky has a nightmare about multifamily energy benchmarking and the energy usage disclosure mandates sweeping across major U.S. metropolitan areas. “We have three buildings in New York City that are over 50,000 square feet and are required to begin benchmarking and disclosing energy usage,” says the president of New York City-based Related Management Co. “The last thing any operator wants, really their worst nightmare, is that the New York Post accesses that data the day it becomes public and says that the nice, new, iconic green building is actually an energy pig that uses more energy than 16 other buildings from the 1970s.”
During “Building Performance Evaluation as a Risk Management Tool” keynote session at the 2011 Apartment Operations and Technology Conference and Exposition, Brodsky joined New York City-based J.P Morgan Asset Management executive director Don Rederscheid; Washington, D.C.-based Fannie Mae green initiative program manager Chrissa Pagitsas; and Washington, D.C.-based U.S. Environmental Protection Agency chief of market sectors group for the Energy Star commercial and industrial branch of the office of air and radiation Michael Zatz in warning multifamily operators that failure to begin energy benchmarking initiatives will result in competitive disadvantage for apartment owners relying on institutional investment partners, lenders, asset and portfolio purchasers, renters, and the general public.
Zatz advised apartment owners to begin benchmarking against their portfolio, against a peer group, or even benchmarking a single asset’s performance against itself over time as the EPA and Fannie Mae work collaboratively to build a database intended to ultimately allow for a 1-100 energy performance rating system leading to an Energy Star certification program (there is currently not a timeline for completion of this intitiative). “Everybody should be benchmarking, whether you use portfolio manager and Energy Star or just an excel spreadshhet, the most important thing is that you just go do it,” Zatz said, noting that programs mandating multifamily energy audits, energy benchmarking, and/or energy usage disclosure have been or will soon be established in New York City, San Francisco, Seattle, Austin, Washington D.C., Philadelphia, Boston, and Chicago.
“The majority of operators are either already required to do this or will be very soon,” Zatz warned. “People are going to see your data, and you don’t want to be that building on the day the data goes public that is at the bottom of the list. Customers are going to look at it, tenants are going to look at it, certainly the media is going to look at it, and environmental activists are going to look at it. Utility savings are a direct profit: It goes right back to your bottom line, and you can use it for whatever you want.”
Rederscheid agreed, noting that J.P. Morgan is making efforts to encourage better energy benchmarking and thus better energy performance at the site level across its portfolio. “Every good energy decision is a good business decision, and most multifamily operators have a utility line that is probably the first, second, or third largest controllable expense incurred,” Rederscheid said. “If you can reduce your energy consumption through retrofit, you can immediately benefit the bottom line.”
To help encourage multifamily operators to get on the benchmarking bandwagon, Fannie Mae recently introduced its Green Finance Plus program that provides affordable housing operators with up to 85 percent LTV and additional loan proceeds as an incentive to get an energy assessment and benchmark properties, Pagitsas said. “The intent is to provide those proceeds to invest in the property for energy efficiency projects that will go to your bottom line, and we are currently looking at similar enhancements for all of our multifamily products.”
Greater lender scrutiny of energy usage (not to mention increased attention from equity providers and dealmakers) is bound to become standard operating procedure as benchmarking programs and disclosure mandates become de rigeur, the panel concluded. “I am of the opinion that financial organizations will soon expect energy benchmarking or energy auditing as being a requirement of the financing or refinancing of real estate,” Brodsky said. “Energy is a risk factor associated with the investment they are making in the debt, and investors on the equity side will be asking for the same kind of analysis. Institutional owners will consequently be asking third-party management companies to provide them with benchmarking tools; they will expect it from you. We don’t believe it is a question of ‘if’ this is going to become a standard practice, we believe it is just a matter of when.”
