4 keys to optimizing property value
- Problems with traditional energy efficiency programs
- Benefits of an enhanced energy and ESG management program
- 4 keys required for a program to optimize property values
- How to get started
- About SitelogIQ
This ebook is for multifamily housing property managers and owners interested in learning about best practices for enhancing energy efficiency and strengthening ESG program management.
Energy efficiency programs have proven to be an effective means of reducing operating costs
for multifamily housing properties. However, traditional approaches are failing to meet current investor and resident demands for comprehensive environment-friendly initiatives. Industry leading owners and managers are using a centralized, long-term approach to complete projects quickly, show a data-backed return on investment, and offer full transparency about current and future plans.
With the increased global focus on climate change as well as the work-from-home phenomenon sparked by the pandemic, investors and residents are now weighing environmental considerations of multifamily housing at a more detailed and sophisticated level.
Benefits of a centralized approach to energy-efficiency:
- Align with growing ESG investor demand
- Address climate change risk and improve building resiliency
- Strengthen sustainability/ESG programs, reporting, and energy/GHG reduction targets
- Increase financial and environmental savings, and asset value
- Improve resident satisfaction
- Enhance brand and reputation
54% of institutional investors agreed that ESG initiatives lead to favorable impact on growth.* *Source: 2019 Edelman Trust Barometer Special Report: Institutional Investors | Edelman Amsterdam*
Investors are evaluating results from ESG initiatives
Along with finances, investors are scrutinizing environmental, social, and governance (ESG) reporting when considering their options. The world’s largest money manager made headlines in 2020 by publicly announcing an intention to prioritize ESG: “BlackRock is overhauling its investing strategy to make sustainability the ‘new standard for investing,’ which will include launching new active and passively-managed funds that focus on socially responsible investing.” CNBC
ESG is proving to be more than a passing trend with investors, and needs to be a serious consideration for multifamily housing properties.
“ESG considerations are particularly relevant to investing in real estate… Experts are anticipating half of all professionally managed investments to be comprised of ESG-mandated assets in the U.S. by 2025. ESG-mandated assets are expected to grow almost three times as fast as non-ESG-mandated assets.”- wealthmanagement.com
Risk management is another reason why investors are looking at ESG programs. GRESB cites a CFA institute survey showing, “65% of investors said that their motive for taking ESG issues into consideration was to help manage investment risks.” GRESB further explains, “Portfolios with a comprehensive sustainability strategy and data management platform are positioned to be ahead of the curve and readily able to adapt to meet local environmental regulatory compliance standards and avoid fines and penalties and potential reputational risk.”
Residents are seeking smart, energy-efficient, healthy living spaces
According to the US Green Building Council, client demands are a top trigger for green building in the US. Multiple factors are influencing residents’ desire for environment-friendly, sustainable living situations. Lower monthly utility bills from energy-efficient appliances can be an initial factor attracting residents to green properties. As well, people are increasingly interested in the effect that their living environment has on the planet, as well as their own health and wellbeing.
Working from home during the pandemic raised the bar on many residents’ needs for clean, safe, well-lit, energy-efficient living spaces. This shift in working from home is expected to be permanent, not temporary for many people, and could cause residents to seek out living arrangements that can accommodate long-term remote work needs. Residents facing higher energy bills will want apartments with energy conservation measures in place such as LED lighting, smart home technology, and renewable energy measures.
“Following the pandemic, more than half of Americans want to continue working remotely, while two-thirds of companies may render their current work-from-home policies permanent.” businessinsider.com
The COVID-19 pandemic also shone a spotlight on health and wellbeing issues in multifamily properties, particularly those with at-risk populations. Guidance from the CDC included ensuring adequate ventilation, improving central air filtration, and considering the use of ultraviolet irradiation. Although these issues were prioritized for properties with older adults considered at risk, building health became a more talked-about issue in general, making people more aware of the impact that the spaces where they spend their time can have on their health.
Properties that don’t prioritize health and wellbeing are likely to be at a disadvantage as residents seek out healthier living spaces.
Problems with traditional energy efficiency programs
present opportunities for better results
Many multifamily housing property managers and owners have the best of intentions to implement energy efficiency and environment-friendly programs. However, many plans lack the vision and scope needed to deliver optimal results. Fortunately, the problems typically encountered can be transformed into opportunities for better outcomes by changing tactics.
Problem: Lack of bandwidth, resources to implement plans
When property managers are tasked with the additional duty of making energy efficiency improvements, they frequently lack the expertise to implement a program efficiently. The procurement process alone can be overwhelming, in addition to navigating available rebates and incentives. Uncertainty and lack of confidence in decision-making can lead to costly delays.
Opportunity: Partner with an experienced implementor for fast results
A partner that has a proven track record of rapid roll-outs can ensure that plans translate into action so you benefit from energy efficiency upgrades as soon as possible. Experts can slash project time by relying on nationwide networks and resources to complete projects on time. And, warranty and after service support can be instrumental in preserving value. Lost savings add up every month that an energy-efficiency project is delayed.
“The majority of multifamily portfolios have energy efficiency gaps at sites that have been previously retrofitted or at properties where capital projects have been deprioritized.”
Clark Longhurst, President, Commercial & Industrial Division, SitelogIQ
Problem: No centralized, long-term plan
Implementing small programs at a regional or even building level is often where multifamily businesses start when looking to improve energy efficiency. Unfortunately, these scattered efforts lack the resources of a centralized program, and typically don’t deliver the highest level of potential results.
Investors are no longer satisfied with small ESG efforts. The Bloomberg.com article, “ESG Funds Need to Shrink Their Carbon Footprint Faster” highlights the importance of speed in ESG programs. The article states, “whether it’s strategy, inertia or a light shade of greenwashing, the days in which funds could afford to show only modest progress toward climate goals are fast coming to an end.”
Opportunity: Maximize results through centralized, portfolio-wide programs
Scaled-up, portfolio-wide programs can take advantage of centralized resources to deliver results that outperform smaller, scattered programs. Rebate specialists can use relationships with utilities across the country to ensure that incentives are identified, and that deadlines and qualifications are met.
“When looking for an ESG implementation partner, we want teams that bring new yet proven technologies to keep advancing our approaches to ESG and energy conservation. Having a forward-thinking and progressive team results in a true partnership.”
VP of Engineering, Windsor / GID
Problem: Savings can’t be demonstrated with auditable numbers
How much has been invested in ESG programs? What is the ROI of these investments? What is the projected cost and savings for the next 5 years? These basic questions should have readily available answers with the data to back them up. However, when individual properties run programs, the data from different vendors often isn’t easy to collect and explain in a meaningful way.
Opportunity: Share centralized data for full transparency
With a data collection system built into every step of the process, from planning to implementation, relevant data is always available on demand to stakeholders. Dashboard-style, easy-to-compare figures show exactly what’s happening with finances and environmental considerations. Full transparency increases accountability and trust between all partners.
Talking about energy programs and ESG in vague terms is a competitive disadvantage.
Investors and other stakeholders want to see data-backed results.
Benefits of an enhanced energy and ESG management program
With a centralized program that’s implemented quickly, operational cost reductions can start adding up right away. Energy-efficient HVAC equipment, smart controls, and LED lighting reduce utility costs as well as maintenance costs, for ongoing monthly savings. In certain areas, the use of solar or other renewable energy sources, and water efficiency measures such as smart irrigation and low-flow toilets can also have a significant impact on cost reduction.
“According to a widely cited study, energy efficiency improvements of 30% are both achievable and cost-effective across the multifamily housing sector.” Energystar.gov
“In recent years, REITs began tracking the impact of these environmental efforts, and have found significant cost savings, solid tenant and community engagement, strong executive and board commitment, and effective risk management to be some of the lasting, value-added benefits.” NAREIT
Improved net operating income (NOI) and preserved asset value
Properties with energy-efficiency programs and ESG initiatives in place stand out ahead of competitors. In the right markets, upgraded properties can command premium ratesby offering amenities such as electric vehicle charging stations.
By boosting the income side of the NOI equation while reducing costs month after month, energy efficiency and ESG programs can significantly improve annual NOI.
Taking proactive measures toward energy conservation can also minimize risks of non-compliance with new regulatory measures that are becoming more widespread. According to gresb.com, “ESG programs provide real estate companies with the ability to identify relevant material risks and opportunities to factor into asset acquisition and inform their business strategy. Managing risk creates long term value creation, drives sustainable financial performance and increases shareholder value.”
Upgraded properties can command premium rates by offering amenities such as electric vehicle charging stations.
“Our goal is to operate our properties as efficiently as possible. That, in turn, creates lower operational costs, which directly impacts resident rates and rents.”
– John Forde, Resource Manager, Essex Property Management Corporation
Reinforced investor confidence and trust
Properties that use long-term, portfolio-wide planning and can show a track record of successful, results-generating ESG initiatives build high levels of investor confidence. By being proactive and creating a plan, multifamily professionals are able to control the narrative and avoid falling into forced strategies and execution plans from investors. With organizations such as GRESB providing standardized, validated ESG data for real estate investment, ESG initiatives are being evaluated according to industry-set benchmarks.
A mature ESG program with centralized on-demand data will stand up to greater investor scrutiny and increasing disclosure requirements as well as increase stakeholder trust.
By being proactive and creating a plan, multifamily professionals are able to control the narrative and avoid falling into forced strategies and execution plans from investors.
“There are big benefits to a strong focus and commitment to ESG – resiliency in the face of climate change by transitioning to a low carbon approach; trust through stronger and more inclusive people and community focused initiatives; and innovation driven from diversity in thought which requires a more diverse workforce and leadership team. All of this impacts the bottom line.”
Kelly Vickers, VP, ESG Strategy and Solutions,
SitelogIQ Commercial & Industrial
Improved resident satisfaction and retention
When surveying public opinion for a research study, the US Green Building Council discovered that “almost a third of respondents have had direct, personal experience with bad health associated with poor environments or living situations.”
Distinct living spaces with well-designed LED lighting, smart controls, and efficient ventilation make people want to live and work there. Health & safety measures such as bi-polar ionization and well-lit exterior spaces can help attract and retain residents by improving their sense of well-being. Increased resident retention reduces vacancy costs and increases income.
4 keys required for a program to optimize property values
The following 4 keys are the foundation of highly effective energy efficiency and ESG programs that optimize property values:
- Using a centralized approach
- Broadening the scope of energy conservation measures
- Making decisions based on holistic outcomes
- Tracking progress with full transparency
1 – Using a centralized approach
At first it may seem like the best approach is to implement small changes on a property-by-property basis, keeping initial expenses low, and moving forward slowly with minimal investment. There are several problems with this approach, including slow progress and reduced efficiency.
Central decision-making eases the burden on individual regions and properties and puts control in the hands of those with information and expertise.
Central decision-making eases the burden on individual regions and properties and puts control in the hands of those with information and expertise. With the backing of a top-down mandate, upgrades can be done much more efficiently to maximize rebates, qualify for incentives and reduce operating costs as soon as possible.
The hbr.org article Energy Strategy for the C-Suite stresses the importance of a centralized approach: “An energy strategy will be hard to implement without explicit engagement from the CEO and a clear governance structure… The CEO mandate typically begins with a commitment—within the company, initially—to make energy strategy central to the firm’s mission and competitiveness.
2 – Broadening the scope of energy conservation measures
Along with a centralized approach, an effective energy plan should encompass the entire portfolio, cover a far-reaching time horizon, and include ESG initiatives that go further than immediate cost-cutting. Including goals such as improved health and well-being show ESG values that go beyond ROI.
Central planning for long-term results sets up better decision-making for higher overall returns on investments.
When implementing a portfolio-wide plan, an experienced partner can help with goal-setting and strategic implementation of energy conservation measures such as energy-efficient HVAC equipment, smart controls, and LED lighting. For those who want to make significant strides with ESG, energy conservation measures should also include the use of solar and other renewable energy sources. A strategic partner can also help determine where and when water efficiency measures such as smart irrigation and low-flow toilets should be implemented, along with other ESG initiatives.
3 – Making decisions based on holistic outcomes
Building on the first two keys, making decisions based on holistic outcomes applies to a centralized approach and a portfolio-wide long-term plan. A root cause of some programs that deliver disappointing results is the lack of long-term thinking. Limiting an ESG initiative to selecting appliances or solutions with low initial costs typically won’t deliver impressive results. Instead of focusing only on traditional financial measures such as ROI and NOI, it’s important to consider the triple bottom line (TBL). The triple bottom line looks at economic impact, social issues, and the environment. By having a long-term plan and ESG goals backed by upper management, decisions can be made with both financial and ESG implications in mind.
For example, re-lamping existing lights with LED bulbs will result in reduced energy consumption. However, investing in lighting design, smart controls, and new fixtures can conserve even more energy, and deliver extra benefits such as resident comfort. According to architectmagazine.com, “If planned thoughtfully and carefully, lighting has the potential to be a design tool that alters the mood of a space. It can cultivate environments that range from energizing and engaging to calming and soothing…. easily accessible user controls, from individual task lights to dimmers for overhead fixtures, can not only result in energy savings but also empower occupants and make them feel more invested in their environment.” If improving resident comfort is a priority in the central ESG program, then investing in lighting design and smart controls would be a better decision than simply replacing non-LED bulbs. That’s why a centralized, long-term, portfolio-wide plan needs to be in place with clear mandates and priorities to help drive a decision process that supports the overall goals of the program.
“We can create broader impact in the community and for our residents through energy efficiency and sustainability initiatives and it doesn’t have to be detrimental in any way to the business financials.”
– Sustainability Project Manager, Large Private Equity-Backed Multifamily Owner
4 – Tracking progress with full transparency
Capturing data relevant to energy efficiency and ESG mandates and being able to analyze and present it in a meaningful way is essential to the success of the program. Different stakeholders can ask to see progress reports, savings expressed in dollars per month or as a percentage reduction compared to previous years, environmental impact, etc. You need a robust data tracking system to be able to provide meaningful reports based on real data.
Tracking all aspects of your program ensures effectiveness and makes it easy to showcase sustainability efforts, which establishes trust with decision-makers.
Tracking what didn’t work along with the measures you’re taking to remedy the situation and prevent similar occurrences will elevate that level of trust even further.
Trust is valuable currency that can be easily lost and difficult to regain. Being transparent about how program money is being spent and where savings are being realized gives stakeholders peace of mind that they know what’s going on, and that there will be no surprises in store.
“Having clear audit process and savings projections make it easy to grasp the opportunities available.”
-VP of Engineering, Top NMHC Multifamily Management Company
Overcome barriers to change within the organization
By preparing a proposal that addresses objections you’re likely to face, you can build the business case for adopting a centralized approach to energy efficiency and ESG program management.
Provide a benefit to cost ratio
The ROI on energy efficiency programs is well documented. After determining your starting point, a program partner can provide you with relevant figures for a benefit to cost ratio. However, the benefits considered shouldn’t solely be financial. Use the triple bottom line approach to demonstrate how an ESG program can positively impact economic, social, and environmental goals. Benefits should also include avoiding risk and preserving asset value.
A program partner can provide data that demonstrates the multiple benefits of a centralized energy efficiency and ESG program for multifamily housing properties.
Show why a “wait and see” approach leaves money on the table
Every month that energy efficiency programs are delayed results in unnecessarily dilutive cash flows and missed opportunities to satisfy residents and investors. Energy and water costs can be reduced, along with maintenance costs. Projects that take advantage of available rebates or benefits of certifications such as ENERGY STAR need to be identified and prioritized accordingly.
With your current utility costs in hand, a partner can show where money is being left on the table without having an effective program in place.
Every month that energy efficiency programs are delayed results in unnecessarily dilutive cash flows and missed opportunities to satisfy residents and investors.
Explain how a centralized, comprehensive program is more efficient and effective
Centralized programs with clear objectives and backing from upper management perform better than small, local initiatives. For property managers at the initial stages of implementing an energy efficiency program, taking steps toward an intermediate level could include increased data collection for better decision-making, and implementing best practices and standards.
For those seeing some intermediate-level results, taking steps toward a more mature program with more aggressive goals and longer-term planning can dramatically improve results. Using benchmarks and collecting and reporting data against those benchmarks is critical to demonstrate effectiveness of the energy efficiency and ESG program.
A customized presentation prepared by a national partner can help illustrate the specific ways that a centralized program can help meet and exceed your energy efficiency and ESG goals.
Centralized programs with clear objectives and backing from upper management perform better than small, local initiatives.
SitelogIQ helps organizations increase property value by providing comprehensive facility solutions that strengthen resiliency, future-proofing, energy savings & sustainability.
What we offer:
- A centralized project approach that has helped our clients achieve energy and operational savings equivalent to more than $1 billion.
- Nationwide expertise
- Implementation expertise to see projects through to completion.
91% of clients would recommend SitelogIQ
- 1,447 completed multifamily projects
- $12M+ annual utility bill savings
- $230M+ property value increase
- 4M+ hours saved by asset, construction & maintenance teams
Learn how an accelerated energy management plan can add value to your multifamily properties.
Ask us for an Expert Assessment or call us at 1-855-581-6464