6 Steps to Improve & Sustain NOI
- Nov 07, 2017
Multifamily real estate managers can signiﬁcantly improve NOI and asset value by controlling variable expenses. Making smart decisions on energy and water usage, repair and maintenance, and CapEx leads to double-digit savings and corresponding increases in NOI. Here are the six best ways for multifamily property owners and managers to get on the fast track to scalable and sustainable savings.
Picking a target and measuring performance against that goal is foundational to a data-driven energy management strategy. Portfolio-level goals serve to unite your team across regions and roles, and allow your asset and property management teams to align their efﬁciency efforts to common language and targets. Property-speciﬁc savings targets make corporate-level goals tangible for site staff, and enable on-site teams to communicate successes and setbacks to corporate or owners. Increasing NOI and asset value can be predictable. Your property’s P&L is a rich source of information on historical utility, repair and maintenance, and CapEx costs, providing a solid baseline. Benchmarking your
properties against themselves, within the portfolio, and against peers, uncovers quantiﬁable savings opportunities, leading to predictable increases in NOI and asset value. Depending on your motivations, you can set a variety of goals for your portfolio. Some owners follow industry momentum and target the Better Buildings Challenge’s 20 percent savings over 10 years. Others trade in property value, and set savings goals that will improve the property’s annual returns and asset valuation. No matter the metric, setting speciﬁc, measurable goals across your portfolio will give weight and predictability to your efforts.
Focus on Inefficient Buildings
Even the strongest portfolio has inefficient buildings. Whether the inefﬁciencies stem from electric, water, or gas, benchmarking helps you zero in on a starting point. Determine which buildings to focus on, and systematically tackle your inefﬁciencies. A study of buildings in the northeast revealed that the least-efﬁcient 25 percent of properties spends more than double the amount of top-performers, and 32 percent more than the median. If you measure the savings from one building and apply that knowledge to other buildings in the portfolio, your returns will get more predictable with each project. Take it one step further and apply those lessons during an acquisition to identify value-add potential in new properties.
Watch for, and Fix, Utility Spikes
Abnormally high usage, with associated high bills, occurs in any multifamily portfolio. A study of over 8.5 million utility bills found that in a given month, one out of 20 utility accounts spike above normal usage. With the average spike increasing the monthly bill amount by 50 percent, it’s clear that spikes are a pernicious and costly problem. While it’s easy to spot a bill 10 times higher than you expected, it’s not always feasible to catch spiking meters with simple month-to-month or year-over-year comparisons due to seasonal weather variation. A rigorous, weather-normalized, and “always on” detection system, is essential to ﬁnd the otherwise hidden spikes that can cost you thousands each month.
With building owners collectively spending tens of billions of dollars on energy and water annually, improving efﬁciency and reducing utility costs represent a large short term ﬁnancial opportunity. Homeowners Rehab, Inc. (HRI), a leading multifamily housing developer in Cambridge, Mass., paid approximately $1.7 million annually for heat and water utilities for their seventy-three buildings. Benchmarking their buildings allowed HRI to identify inefﬁcient buildings and was instrumental in qualifying for $850,000 in utility sponsored retroﬁt programs. Over 8 years, HRI reduced consumption by 22 percent, yielding $350,000 in annual savings. Applying a 5 percent cap rate to those savings reveals a $7 million increase in the value of their portfolio.
Extend Success Across Your Portfolio
To maximize savings, it’s imperative that you extend the knowledge you’ve gained to your entire portfolio. By monitoring ongoing spike reports and making smart decisions about retroﬁts, you can achieve positive results, and by applying the knowledge you gained in one building to others, those savings will scale. Benchmarking can help you discover patterns, make projects more predictable, optimize NOI, and increase property value. We looked at data in conjunction with operating income and expense information from the National Apartment Association’s 2016 Survey of Income and Expenses. We found that a single year’s energy and water savings of $69,700, and its corresponding increase in NOI, improved property value by over $1.2 million for the most efﬁcient property over the least efﬁcient, and by $610,000 over the median property. Compared to the median property, the property valuation rose 4 percent in just one year. The work of optimizing your operations is never done. Buildings are dynamic, and no building stays efﬁcient relative to its benchmark indeﬁnitely. Regularly monitoring the benchmarks of your buildings over time will enable you to identify the ones that need attention at any given moment in time, and allow you to apply the knowledge you gained from previous energy and water projects.
Leverage Savings into Better Financing Terms
Sustainable and scalable energy and water savings not only improve NOI and asset value, they can add ﬁnancial value by unlocking better ﬁnancing terms. Fannie Mae’s Green Rewards and Freddie Mac’s Green Advantage programs offer reduced interest rates to borrowers who benchmark and report wholebuilding energy and water use. You can make smarter capital, equipment, and investment decisions by leveraging the opportunity cost of capital to other buildings to improve performance, or even make additional property acquisitions.
Laila Partridge is the CEO of WegoWise, the nation’s leading energy and water benchmarking, building analytics and sustainability reporting company, transforming the way multifamily and commercial buildings leverage energy and water savings to increase operating income and asset value. Its software-as-a-service platform helps customers achieve environmental, economic, and social sustainability with a return-on-investment.