A Bumpy Road to Green Building

Federal legislation can sometimes pose significant cost challenges to multifamily operators

By Eugene Gilligan, Contributing Editor

When President Barack Obama took office just over a year ago, moving the United States toward a greener energy future became one of the central goals of his administration. But reaching these goals can be elusive, with the devil very much in the details. One bill passed in 2009 by the House of Representatives was aimed at improving energy efficiency in buildings, but may have caused some owners a significant expense—particularly unwelcome in an already weakened economy.

The American Clean Energy and Security Act of 2009, otherwise known as the Waxman-Markey bill, would have required that all single- and multifamily properties undergo an energy audit, ultimately receiving an energy efficiency rating. Additionally, this energy rating would have to be disclosed at the time of sale or lease.

During a visit last year to Capitol Hill, lobbyists for the Institute of Real Estate Management (IREM) visited lawmakers to voice their concerns about energy labeling, according to Charles Achilles, the organization’s vice president of legislation and research.

Energy labeling puts owners of older buildings at a distinct disadvantage in relation to newer buildings, Achilles says, as many owners of new buildings typically market these advantages. But owners of older buildings have to spend significant capital for energy-efficient upgrades, which, while always a challenge, is an even greater one today.

“An owner would have to have deep pockets to spend half-a-million dollars on an HVAC upgrade,” Achilles says. And, with today’s nationwide apartment vacancy rate at 8.5 percent, the highest level in decades, owners are particularly challenged to find funds for these upgrades.

Also, new energy-saving technology is being introduced at a faster rate than ever before, so a building owner might spend significant money today to increase energy efficiency, only to see better, more cost-effective technology come online down the road. “They may have made a major upgrade, and then they see new cutting-edge technology introduced in 2012 that is
really something better,” Achilles points out.

Congress seems to have listened to IREM’s concerns. Senators John Kerry and Barbara Boxer have introduced a companion bill to Waxman-Markey, the American Clean Energy Jobs and American Power Act. The bill, which sets higher benchmarks to cut greenhouse gases, does not require building energy audits. Waxman-Markey’s final version also did not require energy labeling, except for newly constructed buildings.

The Kerry-Boxer bill has passed the Senate Committee on the Environment and Public Works and at press time was making its way through other committees. Voluntary standards, such as the U.S. Green Building Council’s LEED (Leadership in Energy and Environmental Design) program and the U.S. Environmental Protection Agency’s Energy Star Building program, can promote more energy efficiency in buildings, with other incentive methods such as energy tax credits and low-interest rate loans, also effective in encouraging energy conservation, Achilles says.

Bryan Howard, manager of congressional relations for the U.S. Green Building Council, was buoyed that President Obama addressed climate change legislation in January’s State of the Union address. Howard says that the organization is working to ensure that legislation provides rebates for green retrofits in multifamily properties.

Michael Weintraub, principal of the real estate advisory firm The Rosebrook Group LLC and a former property manager who says he was “green before it was fashionable,” sees a greater focus on energy efficiency throughout much of the multifamily sector. Several condominium boards have appointed green committees at their properties, although that practice is less prevalent at rental properties, since residents tend to stay for shorter periods and may not be as invested as owners.

The federal government has not been a major factor yet in helping multifamily properties go green. Instead, Weintraub sees local utilities companies and state agencies, such as the New York State Energy Research and Development Authority (NYSERDA), leading the charge.

Indeed, managers, owners and residents can take an important leadership role in cutting energy use at buildings, he says. But, costs can be a barrier, he admits. At a 40-year-old building he previously managed in the Boston area, where he installed such green building elements as low-flow toilets, wells for irrigation, cooling towers, lighting retrofits and a summer boiler, spending the money to obtain LEED certification proved too cost-prohibitive for the owner to go through with it.

But at many buildings, going green is starting to become second nature, Weintraub says. He knows one property where building workers will only install energy-efficient fluorescent lights in common areas and apartments.

Building owners and managers face a balancing act, as the time window for payoffs can vary significantly. For example, an older building in the Boston area recently installed two cogeneration units that supply electricity to common areas and hot water to the heating system. The new machines cost $393,000 but will save $60,000 a year, translating to a six-and-a-half-year payback period.

But, at a condominium project in New York City’s Battery Park, more patience is required, as solar panels installed during construction will save 5 percent a year in energy costs.

The bottom line for Weintraub is that “going green” makes sense on many levels. Property managers and owners can begin with various low-cost and easy-to-implement initiatives, such as light bulb replacements or retrofits; replacing cleaning, painting and other supplies with green alternatives; reviewing waste removal and recycling programs, as well as HVAC operating protocols; and communicating sustainability goals to all stakeholders.

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