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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   April 2015

Climb Up to Energy Efficiency

Going green on multifamily units requires a blueprint and a plan

Climb Up to Energy Efficiency

According to the U.S. Environmental Protection Agency (EPA), the combined annual energy cost for U.S. commercial buildings exceeds $100 billion, and 30 percent of this energy is used inefficiently or unnecessarily. This figure includes multifamily apartment complexes, which represent an excellent target for energy-saving upgrades and retrofits.

The EPA projects that $20 billion could be saved every year if the energy efficiency of commercial and industrial buildings was improved by just 10 percent. Implementing energy efficiency measures in a commercial building or across a network of multifamily units takes more than just a ladder and a few energy-efficient light bulbs, however. Commercial mortgage brokers should advise owners to gather data and design a firm plan to secure the necessary funding.

What steps can owners of multifamily complexes take to improve the energy efficiency of their properties? Two good target areas are:

  1. Basic energy conservation measures: Replace lighting fixtures, HVAC equipment and appliances with more energy-efficient components as well as adding smart climate or lighting controls;
  2. Renewable energy sources: Install solar photovoltaics (PV), solar thermal, wind generation or co-generation projects.

Commercial developers also can increase building efficiency by improving the building envelope. Replacing windows, adding solar film, adding shading or improving building insulation will all strengthen the barrier between interior and exterior environments, producing substantial, long-term cost savings in many instances.

Energy efficiency workup

Before beginning an energy efficiency improvement program, commercial developers should first determine the property’s energy consumption by reviewing the building’s energy bills over the previous one to three years and comparing the results to similar properties. This is often referred to as benchmarking, and is used to establish a baseline of energy consumption.

Benchmarking a building’s energy consumption is like going to the doctor to get your annual physical, where your blood tests, heart rate, blood pressure, etc. are  recorded and compared to commonly accepted standards for people in the same age group and gender. Your doctor will then give you recommendations for improving your health based on those results.

Energy benchmarks provide the information the developer’s need to diagnose the property’s energy health. As with an annual physical, developers should perform these benchmarking tests every year to observe trends and make adjustments to maintain or even improve the health of their commercial buildings.

Once the developer has the benchmark data, the next step is to perform an energy assessment or audit of the property to identify energy efficiency measures (EEM) or energy conservation measures (ECM) that can be implemented to improve the energy efficiency or reduce the energy consumption of the property.

Case study

A national owner/developer of upscale apartment communities scheduled for redevelopment or major renovations recently performed detailed energy audits with the help of a consulting company. For those units where tenants were responsible for paying utility bills, the conservation measures were mostly in common areas, such as site lighting, parking garages, fitness centers, swimming pools and spas, lobbies, corridors and community rooms.

In those apartments where the landlord provided utilities, conservation measures could be implemented in apartment units as well as common areas. Water was normally furnished by the landlord, so water conservation measures were included in both cases.

For the seven properties surveyed nationwide, energy consumption was reduced by nearly 34 percent and water usage was reduced by about 25 percent. The total annual cost savings because of energy and water conservation for all seven properties was estimated to be $347,000. The total cost to implement the recommended ECMs to achieve those annual savings was $1.8 million, making the simple payback or break-even point for performing these upgrades 5.2 years.

Obviously, not all of measures would be implemented because of price  constraints and simple payback. Significant reductions in carbon emissions and energy consumption still could be realized, however, by implementing most of the recommended ECMs.

All seven of the apartment communities in this study were scheduled for redevelopment, as a consequence upgrades and component replacements were also required. By replacing equipment and building components with energy-efficient components, equipment and appliances, tenants benefit from lower utility costs, the property owners benefit from reduced operation costs and improved marketability, and the community benefits from lower carbon emissions.

Developers looking to purchase or renovate existing multifamily properties can use this type of assessment to determine the cost-savings they can realize over the course of their commercial loans by financing and implementing energy conservation and efficiency measures upfront.

Collaboration is key

Unfortunately, many property owners in general are reluctant to spend additional capital funds for energy improvements, especially in cases where tenants are responsible for paying their own utility bills. Some owners reportedly have even been burned when expensive or unnecessary energy improvements were recommended that didn’t offer the expected  return on investment or operational  savings. A well-prepared energy assess- ment must be a collaborative effort  between the property owner and the energy services company with the goal of maximizing energy efficiency and minimizing capital expenditures.

Many low-cost and no-cost energy efficiency upgrades can significantly reduce operating expenses with minimal to no out-of-pocket investment. These low-cost upgrades include items such as replacing interior and exterior light bulbs with LED bulbs, replacing shower heads and faucet aerators with low-flow devices, harvesting sunlight instead of using electrical lighting, adding devices and controls that dim or shut off lights when rooms, stairwells or corridor are vacant, and adding smart thermostats that program themselves to reduce energy consumption based on patterns of room occupancy.

Some properties are candidates for implementing more aggressive energy efficiency programs such as installing renewable energy sources, or replacing old and out-of-date HVAC equipment with newer, more efficient equipment. These options are cost-intensive, but can pay huge dividends in the long run.

Funding for these more aggressive EEM programs can come from a variety of places. Mortgage brokers may find lenders that are open to finance these programs as long as they are backed by detailed energy audits and cost analyses. Many of these options can also be subsidized through local, state or federal incentives. The capital costs of newer, more efficient equipment and renewable energy projects can often be paid for with the money saved in utilities.

•  •  •

 Energy consumption and carbon emissions of buildings can be effectively and significantly reduced through common sense and good judgment. A well-prepared energy assessment or energy audit is the key to improving the energy efficiency of many commercial buildings and multifamily apartment communities.

Commercial mortgage brokers who work with developers or property owners looking to purchase or renovate older commercial buildings should know that implementing energy conservation or efficiency measures could provide quantitative long-term cost savings, adding overall value to these purchase plans.


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