My green-minded colleague Kim Madrigal has a post about her time at NAA and the soon to be less audacious idea of sustainability as a fiduciary duty.
MFE interviews Jerry Davis, SVP of Property Operations at UDR, about their new electronic renewal initiative.
Irritated by my PACE post? Green Landlady has a welcome tonic in the form of HUD’s sustainability initiatives and it’s support for the Energy Efficiency in Housing Act of 2009.
Energy efficiency and green building play a crucial role in housing affordability. Some are concerned that green building adds to the cost of housing. I do not subscribe to that view. I believe that we can’t afford not to build green. Research increasingly shows that all types of affordable housing can be built or rehabilitated to rigorous green standards at a minor additional cost, and often without the need for capital investment. As we dispel the notion that green building will mean higher costs for low income families we must recognize while everyone is hurt by high energy costs, no one is more vulnerable to rising energy prices than low- and moderate-income families. Higher energy costs often result in cutting back on other critical needs, such as medicine and food.
HUD, Money & Green Housing 2010 – via Greenlandlady.com
I can’t emphasize this piece of advice enough: reduce water usage at every sourcepoint. One way or another, that cost is borne by owners.
Manage water better with high efficiency toilets, low flow showerheads, and aerators on all faucets. Not only are property owners paying for water, but for the energy to heat that water. Therefore, if residents use less water, less water needs to be heated and this can affect natural gas or other heating fuel bills.
via Focus on Efficiency – Green Landlady.
Much of my portfolio consists of Class B and C multifamily populated by working class residents. Even in good times, many of these residents live paycheck to paycheck or one significant car repair from having to move. Are there things that we as apartment owners can do to improve our resident’s financial health?
Low-income city dwellers must pay up to thirty percent more for food compared with low-income rural and suburban residents, primarily due to food transport costs and postharvest losses. And healthy foods, particularly produce, might not be available at all. Likewise, heavy air pollution loads contribute to high rates of asthma in poor urban communities, several times the national average.
Determining the actual energy savings in a building can be a complicated process. Actual power bills are better compared by kilowatt hour rather than dollar amount, since prices change. This usage should also be compared from one month to the same month in the year before because seasonal changes make adjacent months different. Measurement and verification devices that run for a full calendar year can also aid in determining actual savings.
But an efficient system is only as good as its daily operations.
via The Eternal Real Estate Challenge | The New York Observer.
Apartment Finance Today has a blog item highlighting some successful rebidding stories in “Multifamily Firms Rebid Contracts to Cut Costs”.
In a prior post, I’ve discussed the benefit of real estate tax appeals, but I have not spent much time on consultants and contractors. AFT provides a useful corrective with these recommendations:
This is good but somewhat limited advice. Probably because I hate sale retrades and because service providers like painters, landscapers, and others were usually contractors and residents in my affordable portfolio, I’m tend not to hammer contractors too heavily on price. Instead, I ask for more frequent service, better materials, or some other benefit to the property. Maintaining a good client at a current price matters to small businesses because it supports existing revenue projections and allows them to compete on something other than price. (Note: I usually find Seth Godin to be flip and lacking in both reflection and detail. However, even the blind pig finds an acorn, and this is a usefully concise summation of my point.) Maintaining a good contractor should matter to you because moving from price to service reduces the perception of your negotiations as zero sum.
On the other hand, I think consultants (attorneys, engineers, and accountants) probably should be roughed up on price or rebid. I’ve seen some egregious overcharges on standard affordable housing work by a national real estate accounting firm and I’ve had lawyers bill and call for so many expert witnesses that we eventually paid 2x in legal than we did for the settlement.
In the interest of moving the discussion forward, here’s what I’ve negotiated in the past:
In most cases, your road to financial health is not found via cost reductions, but value additions. Approach negotiations with this in mind, and most contractors will eagerly respond. Those that don’t, you never wanted anyway.
Since Earth Day, I’ve been following Energy Circle’s energy monitoring experiment. With the combined resources of a household electricity monitor and Twitter (plus an assist from some Google-fied graphics) they are nearly 90 days into a fascinating experiment.
With a reasonable passage of time, it was appropriate to provide an update. In this case, Energy Circle advocates that real-time monitoring works (24 hours later doesn’t).
You really should follow through for the full story, but here are the main reasons:
Hurricane season in the US starts June 1, 2009 the forecast predicts slightly above average activity. Multi-family owners and operators from New England, Mid-South, Gulf Coast, and Southeast must be aware of their risks. I know this from professional experience after Ike damaged my Arkansas and Tennessee portfolios.
Keying off the calendar, Multifamily Executive highlighted a recent report from the Resilient Coast Initiative of the H. John Heinz Center. The report, “Resilient Coasts: A Blueprint for Action” makes these recommendations:
Despite the title, it’s not just a problem for coastal states. Flooding throughout 2008 and the early part of 2009 should encourage you to keep that flood map handy. Delving further into the report, it cautions that existing maps created for land use, infrastructure, and mortgage due diligence ” do not accurately reflect current risks, let alone future risks, posing significant challenges for adaptation.” In addition to advocating more and better research to improve the accuracy of these maps, the report suggests that in exceptionally vulnerable areas, property owners be encouraged to relinquish (through exchange, purchase, or transfer) development rights.
Importantly for multifamily owners, the report strongly encourages insurers better price the risk “[to] give appropriate consideration and weight to the demonstrable reduction in risk provided by improved building standards and other risk mitigation efforts.”
Nor do asset managers or lenders escape an item on the ‘to-do’ list:
“Wise investing will involve asset managers understanding the impacts of climate change on their investments and managing that risk, especially in real estate, infrastructure and other financial instruments. Responsible banks will need to understand the levels of exposure within their investment and lending portfolios by incorporating climate risks into their due diligence.”
The short report is worth reading and contemplating. It was inspired in part by a 416-page Wharton study “Managing Large Scale Risks” (PDF Link) which highlighted two big items that affected my portfolio costs:
1. Insurers’ cumulative total profits in Florida from 1992‐2006 have been negative during the entire period. [Which explains some of these events.]
2. Flood coverage [i.e. the value of insured property], provided by the federal government through the National Flood Insurance Program (NFIP), has significantly increased over the past fifteen years. [GAO Proposals for fixing this]
So get better maps, review your structure’s resiliency, and start buttering up your insurance broker.
A couple of articles came on construction techniques came across the transom in the latest issues of Builder and EcoHome magazines.
The first article summarizes the traditional with a twist methods used by FirstCoast Homes to achieve Energy Star-ratings for all of its starter and move-up homes. Their efforts combine design, construction technique, and appropriate appliance upgrades, which limit the total cost to an estimated $1,000 per home.
[Note: As always, I try to bring additional value via hyperlinks. Take a look at all of them for additional information]
The 5 ways revealed to Builder:
1. Improve upon traditional methods through proper installation and 3rd party evaluation of various systems. Be sure to read this ode to traditional techniques from the February 2008 edition of EcoHome.
2. Build a tighter envelope through foam sealing penetrations, caulking baseplates, and use low-expansion foam around portals. These techniques and more reduce potential air intrusion “by about 30%,” according to FirstCoast. Duct blaster and blower tests ensure that the building is tight before the irreversible work begins. (Johns Manville believes 5-25% of ducted air is lost through leakage.)
3. Correctly install the right insulation by using a mix of foam around penetrations and fiberglass elsewhere. Make sure contractors install it right and protect it from crushing, moisture, and other damage during buildout.
4. True value engineering identifies areas to spend smarter, not just less. By reducing the number of windows, FirstCoast reduces the direct cost of windows, but also the size of the HVAC system, saving an additional $400-800 per house.
5. Identify other revenue sources by working with utility companies, and government incentives to reduce the cost of homes, appliances, and testing.
At sister publication EcoHome, green building consultant Mark LaLiberte highlights 5 common errors made in all construction:
1. HVAC ducting through unconditioned space needlessly reduces the effectiveness of your heating and cooling system. Put the ducts in soffits or between floors to maintain their ambient temperature. Research from WSU provides great detail on HVAC in conditioned spaces.
2. Tightened envelopes without intentional ventilation can cause stale air, odors, or moisture to accumulate. Install a whole house ventilation system to bring about 50CFM of fresh air 3-4 times per hour.
3. Improper flashing and drainage leads to moisture buildup and reduces the effectiveness of insulation and moisture barriers. Multifamily folks know all to well the hazards of moisture and mold growth, so this should be well-trod ground. For additional information, Freddie Mac offers a Moisture Management Plan to help identify sources of moisture build up.
4. Poorly installed/selected installation reduces energy efficiency and adds to costs (see above). Exposing it to moisture during the installation process can cause a cascade of additional systemic failures. Watch out for improperly insulated thermal bridges, particularly metal studs that have contact with exterior surfaces. This can be an unfortunate method of reducing the effectiveness of your HVAC system.
5. Excess waste leads to excess costs and can be offset by better reuse of construction materials but more importantly through increased standardization of all materials. All systems have a ‘commodity size’ and making use of these common measurements reduces the potential for waste and on the interior, unsightly seams.
In the days before handheld and car based GPS, asset managers were either good map readers or took no detours between their office/airport and the property inspection.
Invariably there was a failure and after 10, 15, or 30 minutes we’d call the property. The phone call always started with “Where are you?” followed by “Where am I?” All to often the reply was a laugh before hearing, “I don’t live here” or “Let me ask someone”.
I had one of those experiences again last week, so I’m re-linking to a January post on this subject.
To take it a step further, I want to highlight some other ways that owners and managers are letting someone else do it, particularly in the area of marketing communities. J. C. Hart of Indianapolis recently ran a contest for residents called “Live the Life”. Run as a way for residents to share what and why they liked living at a Hart property, the resulting videos were posted on YouTube. The contest resulted in 44 entries and generated over 30,000 views.
Urbane Apartments in Royal Oak, Michigan recently created the “Urbane Lobby” as a social network for their residents. Together with the “Urbane Blog” residents contribute blog posts, highlight local businesses, and build the type of community that most advocates of ‘social media’ can only dream of. Taking things even further, the owner of Urbane Apartments, Eric Brown, has found this model to be so successful that he eschews typical multi-family advertising such as printed guidebooks and uses Twitter and other social media avenues for part of his outreach. Leasing materials are provided on a flash drive, tours are self-directed, and units are improved, not rehabbed.
In my own portfolio, we’ve provided open space and materials for garden plots, worked with local religious centers for relationship counseling (which helped reduce delinquency from 8% to 1.5% in 4 months), arranged classes with the local Home Depot, and recruited local health agencies for on-site blood pressure monitoring, nutritional advice, and children’s dental care.
Even in straitened times, many towns and cities have a wealth of untapped resources. From saving money to creating a better environment for residents, it makes imminent sense to let someone else do it.
Green Decoder had a nice start of the year post about cost perceptions and his resolution to do more green outreach and education. Writing about his brother’s incomplete understanding of sustainable building:
Initially, his sentiment on green focused on the negative aspects: expensive, inconvenient, and difficult to do without professional help. I realized I am not doing enough to share my own message of Shades of Green. In our conversation, he quickly learned that going green is not only the big changes, but all the little decisions we make everyday.
I submit my resolution to you. This year, I will spread the message and teach anyone who will listen, and even some that won’t about Shades of Green. This year, I will move shades closer to the green I want to be.
The idea of Shades of Green is appealing, but following a discussion with a colleague earlier last week, we’re left with a question of why the perception remains “Green is too expensive.”
A recent post from 100khouse.com posits one theory as to why this perception continues to hold sway:
Most of the builders and developers reporting high premiums for pursuing LEED are still trying to build the exact same home they have always built. They are simply adding features to make that same house energy efficient, healthy and sustainable. This addition gets expensive. Rather than redesign the house that has been successful for them in the past, they add solar panels, geothermal systems, high end interior fixtures, extra insulation and other green features. The house gets greener. It gets certified, but it also increases significantly in cost. Since the features are add-ons and extras, the price rises as each one is tacked on.
The 100k house is an attempt by Philadelphia developers to build “a modern and “green” house for a measly $100,000.” The website has extensive information about their choices, challenges, and ambitions. It deserves a long look regardless of your property type.
Green Building Law wrote a good post promoting pink over green (i.e. insulation over solar photovoltaic systems). Similarly, CSM ran an opinion piece entitled “Green homes: solar vs. energy efficiency” that came to a similar conclusion. GBL (and I) agree that CSM didn’t seem to try very hard in their search for solutions, writing that “Policymakers say energy efficiency doesn’t have out-of-the-box solutions that are easy to mandate or incentivize.”
Regular readers may recall that this site discussed weatherstripping just a few weeks ago as part of an ongoing discussion of complexity-free solutions.
The current incentive structure, while it has the added benefit of promoting R&D and other desirable benefits, typically sells short more reliable and well-known solutions that could be installed by soon to be displaced skilled but non-professional tradespeople. Single family home energy audits cost several hundred dollars ($400-700 seems to be the going rate in the DC area) but per unit costs would be significantly less and could actually be performed by on-site service teams. So long as there is a difference between interior and exterior temperatures, using an infra-red imager will allow you to see cold spots and intrusions without a blower door. I can do it and I’m about the most unskilled person allowed on sites.
My firm has investments in about 230,000 units nationwide in a little over 2,100 apartment communities. Because most of our projects participate in the LIHTC program, we are subject to the QAP process, in which states mandate certain minimums to receive tax credits for affordable housing. If these requirements (occasionally incentives) could be included in market-rate housing, the impact would be both immediate and widespread. To put that 230,000 unit number into perspective, there are 5 states with fewer than 260,000 households (2000 Census).
The way to improve efficiency is to educate owners and lenders, and use effective policy tools to promote the best comprise of timing, cost, and achievement. Eventually, home inspections will automatically include an energy audit. It is up to policy makers and lenders to speed that date.
Joe Gillach at Green by Design posts about the cost choices owners make with big capital purchases. In this case Joe ran through the competing interests of landlords and renters when contemplating the purchase of 240 washers and dryers.
This is a familiar problem and one of the reasons Multifamily Guide was started: a decided lack of clarity on cost analysis for the multifamily industry. When you are operating at the edges of financial stability because of debt service ratios <1.15 or with a non-profit owner, the incremental costs of your sustainable decisions make a substantial difference. To take Joe's scenario, you'll probably replace 6-7 washers and dryers during a year with a difference between the standard and Energy Star prices of $210 apiece. It doesn't sound like much, but $1470/year ($5.88/unit at his property) makes a difference.
Green By Design » A Landlord’s Dilemma: The Short View vs. The Long, Green View
EcoHome Magazine linked to this article about a sustainable, affordable home in Orlando. Promoted as part of Green Works Orlando, the 2BR, 1,100 sf Craftsman-style home replaced a 1925 Craftsman-style home “that city leaders determined would be more costly to rehab than to rebuild. ”
Ahem.
Credit: City of Orlando via EcoHome Magazine
The sustainable elements included double-insulated windows, Hardieplank and spray-foam insulation among $15,000 of sustainable upgrades. The final sales price for the project was $120,000. Assuming the $15,000 estimate is accurate, the property would have to generate monthly utility savings of $94 in order to offset the higher mortgage payment with financing of 95% LTV for 30 years at a fixed rate of 6.875%. I’m dubious, but not nearly as dubious as Green Decoder, a TN-based homebuilder who comments “Payback would be about 15 years, twice the amount of time a typical homeowner will live in a residence.”
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