Sunday, November 6, 2016

Using Performance Data Could Help Unlock Billions of Dollars of Savings in U.S. Apartment Buildings

Increasing the energy efficiency of America’s multifamily buildings could save building owners and managers, residents, governments, energy efficiency service providers, and financiers close to $3.4 billion in annual savings. Recognizing this, a new report from the Institute for Market Transformation (IMT), “Catalyzing Efficiency: Unlocking Energy Information and Value in Apartment Buildings,” explores how governments and energy efficiency implementers could help these stakeholders better analyze and act upon building performance data to unlock these savings. This report was made possible with the ... support of the John D. and Catherine T. MacArthur Foundation.

“Poor-performing buildings waste energy and money for owners, tenants, and cities. In the past, we found that a lack of information about building energy performance deterred many multifamily building owners from implementing cost-effective energy efficiency improvements. However, while this data has become increasingly available in recent years, it is still vastly underutilized,” said Cliff Majersik, executive director of IMT. “Working with more than 125 industry stakeholders, we sought to examine why this data remains untapped. Governments and energy efficiency implementers or service providers can learn from leaders in the field and turn this growing wealth of information into action and tangible savings for all parties.”
Exterior image of low-rise apartment buildings with balconies and patios overlooking a sidewalk and surrounding vegetation.
Close to 38 million people live in multifamily housing in the United States (buildings containing five or more units) composing almost 18.5 million households. In recent years, data about how these buildings and units are using energy and water has become more broadly available as 11 cities and the state of California have adopted benchmarking and transparency policies that require multifamily building owners to track and report their buildings’ energy and water usage. These laws are designed to give owners and the market better information on buildings’ energy use while also helping policymakers, energy efficiency implementers, and lenders craft programs and incentives for energy efficiency investments. Despite this, many of the country’s multifamily buildings remain inefficient.

IMT’s report finds that the data is still in its infancy in catalyzing efficiency investments. Most owners and managers comply with benchmarking and transparency laws but don’t act upon the data to achieve greater efficiency and improve their bottom line. Residents lack access to this information when apartment shopping, and investors and appraisers lack valuation context, often leading them to undervalue and under-invest in efficient buildings. Until multifamily stakeholders work together to use and value building performance data effectively in consistent, transparent formats, energy and water efficiency opportunities will remain unrealized.

“As part of AvalonBay Communities’ commitment to integrating sustainability into our design, development, construction, and operations processes, we are pleased to contribute to this report,” said Mark Delisi of AvalonBay Communities, Inc., a REIT that owns or holds an ownership interest in 283 apartment communities containing more than 82,000 apartments in 10 states and the District of Columbia. “We understand the critical importance and clear impact of improving efficiency in multifamily buildings, and have set 2020 goals to reduce both energy and water consumption across our portfolio....”

IMT’s report provides concrete recommendations on how governments and energy efficiency implementers can better engage owners, managers, residents, lenders, and investors in using data to drive energy and water savings. Challenges addressed include data access issues that prevent multifamily owners and managers from gathering adequate data; market confusion over how benchmarking data can be deployed to spur and track efficiency investments; barriers preventing residents from factoring performance into their apartment decision-making process; and the fact that most lenders and investors do not yet factor building performance data into their standard business practices.

“The costs savings from energy and water conservation measures can help enable stable ownership for multifamily buildings, preserve affordability, and create more sustainability communities,” said Sadie McKeown, Executive Vice President & COO at the Community Preservation Corporation, a New York State nonprofit affordable housing and community revitalization finance company that has financed more than 170,660 affordable housing units. “We believe that our method of integrating these measures into the mortgage underwriting processes could put the lending industry at the forefront of the sustainability movement, and we’re excited to share our process, expertise and lessons learned with IMT and others in the multifamily housing space.”

In addition to releasing the full "Catalyzing Efficiency: Unlocking Energy Information and Value in Apartment Buildings" report today, IMT will be hosting a series of four webinars exploring the findings as they related to specific stakeholders: City governments and energy efficiency implementers (November 17); Market-rate multifamily owners (December 1); Affordable multifamily owners (December 8); and Multifamily lenders and investors (December 15). 
Although HUD spends about $6.4 billion annually on utility costs across its total housing portfolio, it is currently unable to effectively manage its energy and water consumption.... For 2016 through July, Fannie Mae provided more than $1.2 billion for green financing.

Freddie Mac was the top multifamily lender in 2015, with $47.3 billion in multifamily financing, supporting 650,000 units.105 Freddie Mac collects ENERGY STAR scores on a voluntary basis and borrowers can provide their building’s score with their loan documents.  ENERGY STAR scores are then reported in Freddie Mac’s commercial mortgage-backed securities offerings, known as K-Deals. To encourage owners to benchmark their properties, Freddie Mac offers a $5,000 rebate on new property loans for properties of at least 20 units that have an ENERGY STAR score.107 Moreover, in August 2016 Freddie Mac launched the Freddie Mac Multifamily Green Advantage to promote energy and water efficiency investments.108 Under Green Advantage’s Green Up and Green Up Plus programs, borrowers can obtain better pricing and additional proceeds to finance efficiency improvements that will save 15 percent energy or water usage. Both programs require energy and water benchmarking, and owners must provide Freddie Mac with access to the building’s ENERGY STAR profle.109 Green Up requires borrowers to complete a Green Assessment based on the ASHRAE Level 1 standard, while Green Up Plus requires a Green Assessment Plus that meets the ASHRAE Level 2 standard. Notably, Freddie Mac will underwrite for 50 percent and 75 percent of projected owner-paid energy and water savings for Green Up and Green Up Plus respectively and will reimburse owners for the cost of the assessments by up to $3,500. Freddie Mac expects about 200 properties per year will use Green Up or Green Up Plus,110 contributing to the projected $1 billion in Green Advantage business by end of 2016 and $3 billion to $3.5 billion in 2017 business.

Some lenders are beginning to use building performance data in managing their portfolios. HomeStreet Bank is a bank with $5.42 billion in assets providing lending services to multifamily borrowers in the Western United States and Hawaii through construction, bridge, and permanent loans, and nationally through the Fannie Mae Delegated Underwriting and Servicing Program.
The Institute for Market Transformation (IMT) is a Washington, D.C.-based nonprofit organization promoting energy efficiency, green building, and environmental protection in the United States and abroad. IMT's work addresses market failures that inhibit investment in energy efficiency and sustainability in the building sector. For more information, visit

by Megan Houston, with assistance from Erin Beddingfeld, Alissa, Burger, Zachary Hart, and Leonard Kolstad
November 3, 2016

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