Over the last few years, the multifamily industry has been exposed to terms like benchmarking, sustainability and Energy Star Portfolio Manager (ESPM). These terms may be familiar to some with exposure to other markets, but they are alien to many of us in multifamily.
To add more fuel to the fire, several cities, a couple of states and a few institutions like Fannie Mae and Freddie Mac offer different interpretations and standards for individual utility benchmarking initiatives.
Energy benchmarking standards
There are entire organizations with a sole focus on creating and maintaining benchmarking standards and tools. The most popular for the energy management industry is EPA’s Energy Star Portfolio Manager, first launched as an energy usage rating tool for the office building industry. Based on the successful launch and adaptation of ESPM in the office building industry, several additional groups followed, such as manufacturing, data centers and institutions like hospitals, schools and universities—just to name a few. Yet, a major energy user was not included in the group—multifamily residential properties.
The multifamily industry presented some challenges for ESPM. One challenge was the diversity of multifamily properties with varying categories like high-rise, mid-rise, garden, garage structure, surface parking, underground parking, amenities, open hallways and enclosed hallways.
The biggest challenge, though, was presented by the utility metering layout. How would it be possible to collect consistent whole-building energy data from properties with central HVAC equipment, but individually metered apartments for electricity? Or central, natural gas metering with individual HVAC equipment and electric meters in each apartment?
The utilities, in general, were not cooperating with aggregate usage data distribution due to privacy laws and their inability to do so. EPA could not enforce utilities to cooperate, but cities could—and did. New York City mandated multifamily building benchmarking and forced the serving utilities to provide whole-building aggregate energy data.
This mandate allowed the utilization of ESPM as a reporting tool and the genesis of a reliable benchmarking process for multifamily properties. Large cities like Seattle, Denver, Washington, D.C., Boston, Atlanta, Orlando, Chicago and Los Angeles followed. And the number continues to grow today. The latest addition is the entire state of California. Finally, benchmarking for the multifamily industry has taken a strong foothold. Moreover, it is expected to continue this growth in the future.
Why is broad adoption of utility benchmarking so important to multifamily?
Utility expenses tend to be the second or third largest expense to a property, and being able to identify waste, improve energy and water efficiency and monitor improvements are important to a property’s performance. They assist in the reduction of operating expenses, increase of NOI and overall property value. For example, at a 5 percent cap rate, every dollar saved on utility expenses adds $20 to a property’s value. Additionally, these positive results are sustainable and repeatable, year after year.
Benchmarking standards are not necessarily a constant base. As properties improve their overall utility efficiency, the standards will adjust accordingly. On-going improvements, solid operational procedures and monitoring are essential as well for overall success and continued performance.
In an upcoming webcast from RealPage, I will cover the ins and outs of energy benchmarking. Attendees will learn about regional variations in mandates and penalties, along with benchmarking, reporting and data requirements related to Green Loans and EnergyStar Portfolio Manager. Register today!
This article originally appeared in the Journal of Utility Management.