Elevate Energy and financing partner Community Investment Corporation have upgraded more than 18,000 multifamily housing units with energy efficiency improvements in the Chicago region. Here, an Elevate Energy analyst performs an audit on an eight-unit building on the south side of Chicago. (Elevate Energy)
In an era of rising energy costs and environmental concerns, local policy makers are paying more attention to the energy performance of public, commercial, and residential buildings. Increasingly, jurisdictions seek to learn more about residential energy consumption and strive to make this information more transparent. Although energy consumption by the multifamily residential sector makes up only 3.5 percent of the U.S. total, it is growing and capturing the focus of local decision makers.
Nine U.S. municipalities currently require building owners to track, benchmark, and disclose the energy consumption of large buildings—typically those over 50,000 square feet (4,700 sq m). Six of these nine municipalities include multifamily buildings in those regulations. The increased interest in the energy efficiency of multifamily housing represents an exciting opportunity, but also a distinct challenge as building owners and operators ramp up to track and understand their energy use.
For building owners, benchmarking can be an important tool, especially as part of a larger energy management plan. Benchmarking allows property operators to track their energy use over time and compare their efficiency to that of similar buildings. Tracking energy use and analyzing performance is essential to identifying poorly performing buildings and opportunities for improvements and interventions.
Benchmarking Platforms
There are many platforms designed to help building operators benchmark their portfolios. The U.S. Environmental Protection Agency’s (EPA) Energy Star Portfolio Manager is a free tool already used by many commercial building operators. Portfolio Manager is also the preferred platform for many local governments that require benchmarking and disclosure. Other third-party tools—such as EnergyScoreCard, created by New York City–based Bright Power, and WegoWise, created by a Boston firm of the same name—specialize in utility benchmarking for multitenant buildings.
The Urban Land Institute, through its Greenprint Center for Building Performance, also offers an environmental management platform that tracks energy use—as well as emissions, water use, and waste generation—for office, retail, industrial, and multifamily buildings, and hotels. Greenprint members reduced their energy consumption by 14 percent between 2009 and 2012.
“More tenants are looking for energy-efficient spaces, both for cost savings and environmental reasons,” says Helen Gurfel, executive director of Greenprint. “To meet local market demands, building operators are tracking energy usage and improving building performance.” She adds that Greenprint is working on establishing the link between the environmental performance of a property and its financial performance. “Well-operated properties should have higher tenant retention and lower operating expenses, resulting in increased cash flow and higher asset values,” she says.
Benchmarking has a proven track record. The 35,000 commercial buildings in Energy Star’s Portfolio Manager reduced energy use by 7 percent between 2008 and 2011. Although large studies have not yet examined multifamily buildings, multifamily operators have successfully used benchmarking to reduce energy consumption and to pinpoint and correct poorly performing heating, cooling, and lighting systems.
“Benchmarking measures the pulse of a building,” says Michael Catalano, green initiatives project manager at Jonathan Rose Companies, a real estate development and investment firm that focuses on green, urban solutions. “Energy efficiency and sustainability continue to be a cornerstone of our business. Through benchmarking we are able to measure our utility usage, catch any hiccups in terms of building performance, and ultimately reduce our environmental impact.”
In addition to reducing energy consumption, benchmarking can illuminate opportunities for cost savings. Homeowner’s Rehab Inc. (HRI), a development and management firm for affordable housing in Cambridge, Massachusetts, has a portfolio that includes 71 multifamily buildings, comprising 1,200 apartments, all benchmarked using the WegoWise tool. “We used to spend about $1.65 million annually on utilities—gas, electric, and water,” says Beverly Craig, energy efficiency specialist at HRI. “Just by tracking our consumption and identifying problem buildings and systems, we have been able to cut down by 15 percent, on average.” The resulting savings amount to more than $240,000 a year from 2006 spending levels. Since implementing the tool, HRI has also been able to reduce carbon dioxide emissions by 21 percent and average annual heating costs by 17 percent from a 2006 baseline.
Utility Limitations
Whereas the benefits of benchmarking are clear, collecting data on electricity and natural gas consumption can be a daunting task, especially for properties with tenant-paid utilities. Utility companies view the ratepayer, not the building owner, as their customer. Mired in a range of privacy concerns, many utilities are reluctant to share whole-building energy data with building owners and operators. In some states, public utility commissions (PUCs) prohibit utilities from sharing tenant utility data.
Ginkgo Residential, a development and property management firm specializing in creating energy-efficient market-rate multifamily rental housing in the U.S. Southeast, has experienced the frustration of obtaining whole-building utility data. The firm acquires existing multifamily properties in need of rehabilitation, completes comprehensive retrofits, then re-leases units at higher rents. For tenants, the increased rents are mitigated by the savings from energy and water improvements.
“These improvements reduce our monthly costs and improve our bottom line,” says Philip S. Payne, principal and chief executive officer of Gingko Residential and cochair of ULI’s Climate, Land Use, and Energy (CLUE) initiative. “They also have other indirect benefits, such as increased resident comfort. We find that we have higher tenant retention, lower turnover, increased occupancy, and are able to charge higher rent because tenants are paying less on their utility bills.”
Yorktown Club, a recently completed retrofit project in Durham, North Carolina, exemplifies Gingko’s business model. Gingko purchased the 236-unit development in December 2010 for $5.75 million. Gingko invested another $8 million in structural repairs and unit upgrades for aesthetics and efficiency, aiming for at least a 20 percent reduction of energy and water use. Post-renovation, Ginkgo has observed much deeper energy and cost savings than its target. Tenants who initially reported paying more than $200 in monthly energy bills—and some as much as $350—now report spending less than $100, on average, says Payne. However, these figures represent only a small sample of units, and Ginkgo faces ongoing challenges when it comes to quantifying energy and cost savings.
Gingko has no access to pre-retrofit utility data other than those pertaining to common spaces and a small sample of tenant utility bills. After the retrofit, Gingko attempted to have tenants sign waivers and/or download one year of billing data from their online utility accounts in exchange for $25 in cash and promotional incentives. These efforts have been largely fruitless, Payne says, and for those tenants who have signed waivers, Ginkgo has faced further obstacles, including a substantial processing fee charged by the local electricity provider for third-party data requests. These fees, compounded by the expense of paying staff to benchmark and analyze data, make it too costly and difficult for Gingko Residential to benchmark the Yorktown Club property beyond the common spaces, he says.
Ginkgo’s inability to access data affects its ability to support its business model to the fullest potential. It also greatly affects the willingness and ability of its investors and lenders to put up more capital for deeper green retrofits or for underwriting additional development projects.
“It is incredibly difficult to know that the work you are doing is making a difference in terms of energy, cost savings, and carbon reduction, but not to be able to quantify your impact,” Payne says. “Investors want real data and hard numbers. This is something that we currently just don’t have.”
Matt Birenbaum, executive vice president of corporate strategy at multifamily housing developer AvalonBay Communities, echoes Payne’s frustration with data access. “Though we have tenant utility disclosure as a component of our leases, the coordination it would take to negotiate with individual utilities is immense,” he says. AvalonBay Communities, a founding member of ULI’s Greenprint Center, has 250 properties with 60,000 to 70,000 units operating in Boston, New York City, Washington, D.C., northern and southern California, and Seattle.
“As a publicly traded real estate firm, we not only have to comply with a variety of benchmarking and disclosure mandates that are present in nearly all of our markets, we also receive requests from shareholders, shareholder advocacy groups, and leading financial institutions and are asked to report on our natural resource consumption generally and quantify our carbon consumption,” Birenbaum says. He adds that the industry could benefit from a central reporting platform, standardized reporting, and automated and transparent access to data.
Some municipalities partner with local utilities and PUCs to make whole-building data available to multifamily owners while preserving tenant anonymity. In New York City, ConEdison, for a nominal fee, provides building owners with the aggregated utility data needed to comply with the city’s benchmarking and disclosure law. In Seattle and Chicago, a partnership between the city and local utilities allows the direct sharing of aggregated, building-level data with commercial and multifamily building operators via Energy Star’s Portfolio Manager. By automating data collection in a central platform, these innovations give building operators the tools they need to track consumption and dramatically reduce the staff time required.
However, additional public policy interventions are needed to support access to more granular, whole-building data. “Bottom line, we need more access to transparent resident-level data in order to truly measure and reduce consumption,” says Catalano. Cooperation between the utilities and local governments is essential to supporting multifamily building operators, he says.
Multifamily building owners and operators are in a unique position to catalyze conversations about the need for better data access to benchmark their facilities. “As an industry we need to change the sustainability, green, and energy efficiency conversation from a moral argument to one that is based on dollars and cents,” says Payne. D. Scott Wilkerson, principal and chief operating officer of Gingko Residential, adds that he is encouraged by the partnerships forged between local utilities and the Apartment Association of North Carolina. Creating a groundswell of support for these issues and forging partnerships directly with local policy makers and utilities are the best ways to share information and build support for more transparent data access.
Conversations at the national level are advancing, including a recent resolution unanimously passed by the National Association of State Utility Consumer Advocates that supports whole-building data access for multifamily building owners, provided that the privacy of tenants is protected.
The Data Access and Transparency Alliance (DATA), a national network of energy efficiency organizations, nonprofits focused on sustainability, and real estate professionals, is fostering a national dialogue about the importance of transparent access to data. “Using our convening power, DATA is able to bring utilities, PUCs, jurisdictions, and building owners and managers to the table to develop solutions that are in the best interest of consumers, utility regulators, and the broader real estate community,” says Andrew Burr, director of building energy performance policy at the Institute for Market Transformation and an organizing member of DATA.
For the future, there are compelling opportunities for collaborative work across stakeholder groups, including utilities and PUCs, public policy leaders, and multifamily building operators. Furthermore, opportunities exist to inspire innovation and make targeted interventions through local, state, and even national policies to guide greater access to transparent data, close the data gap, and facilitate more efficient benchmarking for multifamily housing.
Molly Simpson is program manager of ULI’s Terwilliger Center for Housing.
