ENERGY STAR-Type Ratings for Apartment Units? It’s Possible.
According to a recent study by Recap Real Estate Advisors entitled, “Multifamily Utility Usage Data: Issues and Opportunities,” data on energy consumption in multifamily dwellings is incomplete, suggesting the difficulty apartment complexes have tracking the energy efficiencies of units.
I recently spoke with Steve Heinz, CEO of EnergyCAP, which publishes energy management software, and Jeff Bauer, director of energy management of Velocity, about the study and what could lie ahead as more emphasis is placed energy efficiency.
Michael Cunningham (MC): What are your thoughts on the recent report that multifamily utility data is incomplete?
Steve Heinz (SH): I think the first question is, “Why is the data valuable?” Most of what my company is about is collecting utility bill data and driving value from it. So what the study is talking about would be some additional value streams from the utility bill data.
Unfortunately, there is a lack of energy consumption data for entire properties because some of the residents pay bills directly to the utility companies, so the property owners don’t have an easy way to collect that [information]. And without that kind of data, some national organizations and the government don’t have what they need to establish energy efficiency standards and targets for multifamily residences.
MC: Why have these targets? What do they mean for residents and for property owners?
SH: The value that you get is better construction standards on units. You get the disclosure of energy consumption. When you buy a car there is mandatory disclosure on energy efficiency or miles per gallon. If you’re shopping for a refrigerator, every refrigerator shows estimated annual energy usage on a placard. But when you’re shopping around for an apartment, there’s no mandatory disclosure on the estimated energy usage of the apartment. Consumers are missing an important piece of information that might be very valuable and important when buying or renting.
MC: So, this data can almost give you the equivalent of an ENERGY STAR-type rating for an apartment unit.
SH: That is a long term objective to be able to do that, yes.
MC: There’s a growing demand for the apartment community to be greener. Surveys are starting to show that people are willing to pay more rent for apartment units that have green initiatives and amenities. Such a rating could be another way to promote that.
SH: Right. If you’re shopping for an apartment and you have $1,500 dollars per month to spend, it makes a big difference if the estimated monthly utility bill is going to be $200 or $400. And if you have no idea of that when you’re shopping for a unit, you really can’t compare units on an apples-to-apples basis.
MC: How would this data benefit property owners?
SH: Another value stream for the data is to help in the financing process. If you’re a property owner and you go to the bank and want to borrow $2 million to upgrade all of your units for energy efficiency, the bank is going to want to know how much that $2 million is going to save. Is it a good investment or a bad investment?
MC: But if I’m a property manager, why should I care about this data? If a resident is paying their electric bills, why should I care?
SH: Well, in some jurisdictions, like New York, [there is] a consumer protection regulation that requires you to disclose the energy use of your unit, because they want to provide the tools to consumers to make informed choices. As that becomes a compliance issue, as a property manager, you won’t have a choice. Let’s say more jurisdictions say that you have to disclose energy use in an apartment, the same way you see annual energy costs for a refrigerator. As a property manager, it becomes a compliance issue.
MC: What’s the next step then? How do property owners access this information to use it to their advantage? Jeff, is that where vendors like Velocity come in?
Jeff Bauer (JB): It could be a partnership between not only vendors like Velocity, but with the PMC (property management company). If they had this info, they would be able to pass it along to the resident, as if to say, “Here is what you can anticipate to pay for utility expenses.” But the problem is the privacy between the utility company and the PMC: the PMC can’t gather that information and the utility company won’t provide it. It’s very difficult to give that energy consumption [to the consumer].
MC: Industry talk suggests that advocating partnerships between jurisdictions and utility companies, where the utility aggregates total energy usage of a property and sends it directly to the building owner, would make sense?
SH: Yes, and I think the core problem is how to encourage energy efficiency in rental units when the developer runs the PMC, supplies the office rental, where they’re not paying the utility bill, and it’s in their best interest to buy the cheapest appliance and the cheapest mechanical systems to reduce their first costs and pass the operating costs onto the resident. How do you break that problem? Where is an incentive for the PMC to put in energy-efficient appliances? If there is a big sticker on the front door that says that this unit scores a 48-out-of-100 on energy efficiency, which would bring an incredible amount of attention. Then, all of the sudden, the PMC says, “Shoot, we’ve got to get this thing above 75 and get a blue sticker that says we’re Energy Star rated because we can’t rent these things. Everyone is going next door to the new property because it’s a lower total cost of residency over time.”
JB: Another issue for the PMC is that every community has different variables. They’re built in different eras, different construction methods, and different codes. There needs to be a standard of how the data is being collected, what’s being collected, and understanding what’s driving that expense.
SH: I think the underlying point here is that utility bill data is valuable for a number of reasons. The utility bill data is valuable. We need to capture it. We need to process it. We need to report on it and analyze it for a number of different reasons. So there isn’t just one thing.
JB: Whether it’s energy projects, energy efficiencies, procurement opportunities, understanding what’s driving the expense, and …
SH: Prioritizing projects. Let’s say you operate 50 properties and you want to upgrade properties from a competitive standpoint because your competitors are doing the same thing. How would you prioritize those?
JB: You benchmark your properties against each other to figure out which ones make sense.
SH: And you benchmark them against the national standard. With this data, you can create national standards. So with my 50 properties, show me my 10 worst compared to the national data base and I’m going to upgrade those first. But today, you really wouldn’t be able to make that intelligent decision because you don’t have anything to base it on.
MC: Do you think there will be a consumer demand for this? Or will the multifamily industry drive this initiative and use it as a competitive marketing means, to say, “Look, we’re greener than the guy down the street because we are ‘ENERGY STAR’ efficient?”
SH: Yes. I think you’re going to see more and more of that. The third one that you didn’t mention is government jurisdictions that push it. If the government says the only way we’re going to highly encourage energy efficiency in these tens of millions of apartment units is you have to put these stickers on the doors to say what the energy usage is. Because, once you do that, consumers have a weapon. Then, all of the sudden, all the really inefficient properties have high occupancy rates because the cost of residency is higher. And that causes the whole cascading effects of investment in energy efficiency. But often it just starts with the disclosure.
What do you think? Do you see a future where vacant apartment units have energy efficiency stickers on the doors? Do you like the idea of mandatory disclosures on the estimated energy usage for apartments? Share your thoughts in the comments below.