Energy Audits Make Prudent Investments

Performed correctly, an energy audit will “uncover prudent investments in real estate assets,” says Tony Liou, president of El Segundo, Calif.-based Partner Energy, an energy efficiency consulting firm. An audit should include “basic projects that enhance the value of the asset, from both a cash-flow perspective and an overall value perspective.”

An energy audit reveals information about reducing energy consumption, including the financial feasibility of particular projects, as well as the estimated cost, energy savings, available rebates and incentives, and the payback period of said upgrade.

“There’s so much that multifamily owners and managers don’t know about their buildings,” points out David Unger, COO of the Fresh Meadows, N.Y.-based US Energy Group, a provider of building energy management systems. “There are so many hidden problems that go unseen that we find … that without those audits the owners wouldn’t know they are there,” adds Unger, suggesting that owners partake in a whole building audit every 10 years, with commissioning every five years to ensure everything is in working order.

Once the audit itself is complete, Liou suggests doing what he calls “the things that are tried and true—getting everything [to operate] the way it’s supposed to and getting common efficiencies that will get you to the point of maximum return.” More cutting-edge solutions, he adds, can be effective, but only once the basic measures are in place.

One of the biggest inefficiencies in many multifamily communities is the boiler, though improving lighting and adding controls are also common upgrades, and weatherization—such as adding weather-stripping and insulation—is effective in improving the tightness of the building’s envelope.

Assuming that the owner partakes in at least some upgrades, an audit can reduce the number of resident complaints, adds Liou.

Liou recommends conducting a benchmark on an annual basis to examine the building’s total energy cost, energy consumption and carbon emissions. And if a building owner does invest in energy efficiency projects, it’s important to track improvements to ensure that the upgrades are meeting their goals, he adds.

Driving forces

The challenges to making these upgrades in multifamily communities are the lease structure and how the building is metered. While the owner clearly realizes the payback for upgrades to common spaces, the split incentive often prevents him from making efficiency improvements to occupied units, since, as Liou notes, “there’s no direct quantitative payback [to the owner] for the investment.” But, he adds, an owner can “brand the building as a green building and charge a little bit more rent,” an increasingly feasible option as the “mind share of society for green is higher today than it’s been in the course of history.”

Unger believes that the government should provide incentives for both owners and residents in order to make improvements that will drive a reduction in energy consumption. He points out that New York, for example, provides incentives based on time-of-use and peak load for the entire building.

Low-income housing actually has an advantage in the incentive arena, since the federal government has provided grant money to improve the efficiency of the existing stock, Liou points out. Market-rate housing, however, may be driven by legislation and/or lending sources that require benchmarking. “We feel that there’s some indication that secondary markets that buy these types of loans will require some type of benchmarking, and these lending organizations are backed by the government, so there’s a double incentive there,” he points out.

Legislation, of course, only helps the cause, and many local laws, such as those in New York City and Washington, D.C., for example, are leading the way. “When states and cities start adopting these laws, it’s not unheard of that the rest of the country follows,” points out Liou, who expects mandated benchmarking to become a larger national issue within the next five years.

As these sorts of laws become more common—coupled with the growing prevalence of green branding—“people understand that green buildings are cheaper to hold,” notes Liou, adding that the general awareness of energy efficiency has increased in recent years as owners care more about expenses. In the past, he recalls, “no one really paid attention to costs, but today, with cap values in general decreasing, there is higher impetus to control costs.”

And for institutional owners, Liou says, “it’s a double bottom-line perspective. Investors aren’t only looking to make [a return]; they want to make sure they are sustainable while they’re doing it. We’ve had [institutional] clients that say they’re not worried about where they’re at today; they just want to [begin] the process to make sure we address these issues,” he notes. “It’s not only [whether] you have a good business plan for deploying capital into the multifamily industry, but part of that good business plan means good returns as well as doing it in a sustainable manner,” he says.

Moving forward

While the recession has, of course, driven the industry to focus more on expenses, “it’s a perfect storm,” adds Unger. “You have higher oil prices; you have a government that’s very supportive of getting off of foreign oil and reducing our carbon footprint; you have building owners looking to reduce their costs to save some money. We’ve gone through some pretty bad economic times, and everyone is really looking to save money; at the same time we have to do things to save the planet, too.”

But that doesn’t necessarily mean that the industry will forget these pains once the economy recovers. “I’ve seen some astounding results in work we’ve been involved in,” says Unger. “We’ve installed systems to improve the energy performance in some buildings, and we’ve seen savings of 40 percent in certain cases; you can’t ignore that. As energy audits are being conducted and they uncover some really serious opportunities to save and cut costs, no matter how [well] the economy recovers, I don’t think that will go away.”

In fact, he predicts that continuous commissioning will be a growing trend, “to actively monitor a building’s energy performance to identify issues as they occur, as opposed to looking at these things every five years.

“You can use automated monitoring control systems to better understand, on a real-time basis, how your building is performing and react to those through exception-based alerts to improve the performance,” Unger explains. “Auditors are putting in systems that will provide them all of the information and data they need on an ongoing basis, so it becomes more of an energy management position as opposed to an energy auditing position.”

This trend appears to be moving rather quickly through the industry. “If you look at the entrance into the real-time energy management dashboard space, these companies are driving in the direction of providing building owners and operators with all the information about the energy performance of a building in real time,” he says. And while these software platforms currently only “show a gross level of the energy in the building,” Unger believes that over time—perhaps within the next five years—as the systems become more sophisticated, “it will get very granular in detail of being able to actively measure a single circuit or a small space within a building.”

Identifying which properties to audit

Before conducting an energy audit on a property or a series of properties, it is important to benchmark the performance of your buildings, to identify precisely which properties would likely lend themselves to an energy audit.

It doesn’t always make sense to do energy audits across the entire portfolio, points out Robert Watson, co-founder of Benchmarx, a Web-based platform that monitors and manages utility costs by benchmarking average monthly usage.

“For most people,” says Watson, “it starts with, ‘Where were you? Where are you at right now, and where are you going?’ That dictates what type of work you need to do. If you have a property that is a high-performer, then you don’t need to dedicate a number of resources to that one property,” he points out.

Benchmarking always begins with collecting utility billing data, which the patent-pending Benchmarx (available at www.mybenchmarx.com) tool does either by obtaining hard-copy monthly utility billing from the property manager or data directly from the utility providers, which in some localities may be interval data. “What we’re able to do with smart meters is grab daily data of electricity use, and the sampling is at 15-minute intervals; it is a very high resolution way of looking at your property,” says Watson. Additionally, Benchmarx can tether into the data collected by certain submetering companies.

Benchmarx is automated to the EPA’s Energy Star rating system, so it can route utility billing data directly to Energy Star’s Portfolio Manager. While an actual score is not yet available for the industry, the information will likely facilitate the EPA in developing a multifamily database.

What makes Benchmarx different from other similar tools is in the presentation, says Watson. It presents the data in a visual interface that uses GIS (geographic information system) to present each property as a colored geographic circle on a map. (It is based on a relative scale, with red circles indicating problem areas and green circles highlighting good performers. A large circle represents a poorly performing building; a smaller circle represents a building that is performing better.)

“We are taking these disparate sources of information and rather difficult-to-consume calculations and presenting it in a format that’s very intuitive for the casual observer to understand,” says Watson. “You can benchmark all day long, but if you don’t have enough information to go on and it’s not intuitive enough, you’re not going to do anything with [that information].” Additionally, the tool provides automatic notification of excessive consumption, in real time.

As of press time, many localities, such as New York, Washington, D.C. and Seattle, for example, required multifamily owners to benchmark their buildings. Obtaining resident utility data for market-rate properties, however, is not only challenging due to privacy issues but also is not widely accepted because of the split incentive. Austin’s ECAD (Energy Conservation Audit and Disclosure) ordinance, however, goes slightly further, as it requires action to be taken in high-energy use buildings, or those buildings that use 150 percent of the average energy use per square foot by multifamily buildings in the Austin Energy service area. Consequently, multifamily property owners in Austin must take resident behavior into account.

To comment on this story, e-mail Erika Schnitzer [email protected].