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August 29, 2016

Multifamily Sector Embraces Green Movement

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Multifamily Sector Embraces Green Movement

Staying current on incentives and programs available to multifamily owners and developers keeps real estate pros better positioned to discuss and market such properties.

Green isn’t just for single-family home owners anymore. Environmentally friendly properties are gaining favor among both tenants and property owners in the multifamily sector.

“Green buildings are seen by many as a better asset,” says David Newcombe, designated broker of Habitat Urban Agents in Phoenix. “The green concept will continue to be a stamp of approval, not just for the environmental benefits, but for the quality of the building.”

The initial push for green buildings — those that have a minimal impact on the environment — began in the early 1990s, propelled by the introduction of the Environmental Protection Agency’s Energy Star program and the creation of the U.S. Green Building Council. Soon technological advances created better ways to reduce energy consumption, and terms like “sustainable” and “high performance” became a more common element of a property’s description.

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Current eco-friendly updates include:

  • Energy Star appliances and windows
  • Water-saving features, such as low-flow faucets, high-efficiency toilets, and timers on irrigation systems
  • Efficient water heaters, such as tankless and solar models
  • Whole-home systems that give tenants the ability to control energy use when not in the home
  • LED retrofits in existing light fixtures

With the larger occupancy rate of multifamily buildings expending more energy per square foot than single-family homes, these structures have been the focus of recent energy conservation incentives and certification programs, giving real estate professionals and property owners new ways to compare and assess properties.

Energy Star for Multifamily

The Energy Star designation, created in 1992 by the EPA, has become synonymous with appliances and materials that are highly energy-efficient. Recognizing that multifamily property owners needed a way to understand and compare the performance of their buildings, Fannie Mae Multifamily Mortgage Business partnered with the EPA to create Energy Star for multifamily properties, introduced in September of 2014.

Newcombe says this is a huge step forward for multifamily customers, property managers, and developers.

“People are familiar with the concept of Energy Star; there’s a public understanding already in place,” he says.

To obtain a score, property owners submit data to the EPA’s Portfolio Manager, a free online tool for measuring and comparing buildings’ energy use. The resulting number, from 1 to 100, ranks a building’s performance in comparison with others; for example, a score of 70 indicates that the building performs better than 70 percent of similar properties.

Multifamily properties scoring over 75 qualify for Energy Star certification. Overall, certified buildings use approximately 35 percent less energy and emit 35 percent fewer greenhouse gases than standard buildings.

LEED Certification

LEED, which stands for Leadership in Energy and Environmental Design, was created in 2000 by the U.S. Green Building Council. A building receives LEED points for energy- and water-saving features, as well as other factors such as innovative property management. The total number of points sets the certification level: certified, silver, gold, or platinum. Real estate professionals can then incorporate such language into their property descriptions.

“We’ve seen tremendous success in multifamilies with LEED certification,” says Asa Foss, a LEED residential technical director with the U.S. Green Building Council.

Multifamily low-rise buildings became eligible for certification under the LEED for Homes classification in 2008. With LEED v4, launched in November of 2013, multifamily mid-rises—up to 12 stories above grade—are also eligible, and upgraded standards apply to multifamily low-rise buildings.

 “Certification is valuable if you’re marketing your building to a younger demographic, to whom environmental issues are important,” says Foss, adding that it can also be beneficial to property owners seeking financing. “Some larger lenders — who see certified buildings as better, safer investments — are starting to require LEED certification.”

Foss points to a recent study published by researchers at CoStar’s Property and Portfolio Research subsidiary for proof of the bottom-line benefits of certification. The study looked at a half-million data points about apartment buildings that drive investment value based on renter demand in the apartment sector. LEED certification was determined to be the second highest driver in lease rates, behind location.

Better Buildings Challenge

Another incentive igniting eco-friendly improvements to multifamily structures is the Better Buildings Challenge. Originally launched in 2011 by President Barack Obama and implemented through the U.S. Department of Energy, this program challenges commercial and industrial building owners to strive to make their properties at least 20 percent more energy efficient by 2020.

In 2013, the Department of Housing and Urban Development partnered with the DOE to expand the challenge to the multifamily sector. Participants in the challenge, referred to as partners, commit to reducing energy consumption by at least 20 percent over 10 years. Partners agree to publicly share their data on their energy savings and details about the efficiency strategies they employ.

Partners in the challenge are looked upon as energy-efficient role models in their community, and are recognized as part of a collaborative conservation effort. While the specifics vary by state, subsidized services and resources are available to support reduction goals.

Boston-based real estate developer WinnCompanies was a partner in the challenge in 2013.

“Joining the challenge has given us an opportunity to be a leader in both meeting — and going beyond — green building standards,” says Darien Crimmin, vice president of Energy and Sustainability at WinnCompanies. “Both renters and buyers are recognizing the trend toward more environmental building.”

Crimmin says the challenge has been beneficial, given the demographic shift in favor of environmentally sound buildings.

“It’s forced us to take a holistic look at our long-term energy efficiency strategy,” he reports. “Renters and buyers are recognizing that this is a priority.”

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