There are an increasing number of ways to make your existing multifamily property or your new construction development project more “green.” Yet if you’re unfamiliar with green energy building standards, you might think that this is a purely selfless decision made for the benefit of the environment. While it’s most certainly true that new technology and improved building practices allow for buildings that are much more environmentally friendly, there are also financial incentives for you as a property owner to consider going green.
The government wants to promote and stimulate more energy-efficient building practices and often will reward you for cooperating with their game plan. Indeed, you can score significant savings through direct incentives provided by the federal, state, and local governments. These initiatives aim to promote highly efficient new construction buildings, but also retrofit existing buildings to bring them up to 21st century efficiency levels.
The policies and initiatives the government puts in place to promote green energy standards vary widely and can be completely different from state to state. That’s why it would be of little use to you to create a sterile list of different green energy initiatives. You can go straight to the government for that information.
In fact, if you want to see specific federal initiatives, the best place to look is a publication prepared for Congress by the Federation of American Scientists that details all of this information, including the amount of funding each initiative receives. You will notice that green energy initiatives relating to building standards receive hundreds of millions in funding annually. The publication is titled Renewable Energy and Energy Efficiency Incentives: A Summary of Federal Programs and can be accessed on the Federation of American Scientists’ website (fas.org).
Another issue is that many of these initiatives are administered by the state or local government in the jurisdiction you’re investing in. It can be as simple as performing a Google search for your state or city with phrases like “green building” or “green initiatives.” Every state is different, but you’ll find that people involved in this field are genuinely passionate about making an impact and you’ll never have trouble finding the information you’re looking for if you push hard enough.
Rather than getting caught in the weeds and naming every initiative within the country, we’re going to focus more on the benefits of “going green.” There are a number of reasons to do so beyond just being a friend to mother Earth. That said, when you implement green energy initiatives, you are indeed helping the environment as well. Aren’t these win-win type of situations great for everybody?
1. Direct Incentives:
The most easily understood way to motivate people are through direct monetary incentives. This simply means that you build or retrofit your building according to the standards of the incentive programs and will be directly compensated for doing so. We have experience with direct incentives through Massachusetts’ passive house program.
This program provides direct payment to any multifamily developer that designs and builds up to the passive house standard. To simplify things, an easy way to understand the passive house standard means buildings that produce the same amount of energy as they consume.
While you will need to hire specialists to help you design this type of building and then to prove that you properly built to the passive house standard, these added costs are often picked up by the incentives. As you can see in the chart above, for example, 100% of the initial study and 75% of the final energy-efficient modelling are compensated by the state under the passive house program. This program in particular is becoming increasingly popular, especially for buildings with a large number of units.
This particular program is offered in Massachusetts, however there are many programs that provide monetary compensation for adhering to green standards. If the incentives are large enough, it can even help push the needle and make a project worth investing in when it previously hadn’t been.
For the average consumer, rebates are the more familiar cousin to direct monetary incentives. Rebates are provided to qualified households in many states when they purchase energy-efficient appliances and home systems. These rebates can actually be quite significant. Early in our career, we once received over $30,000 in rebates on a small multifamily rehabilitation project. Compared to the overall scope of the project, this was a very significant rebate check to receive.
That’s why you shouldn’t overlook the importance of rebates for energy efficient building systems and appliances. These rebates cover a wide variety of items, but the main factor is they are all comparatively energy intensive items where “going green” could make a sizable impact.
The most familiar product you can receive rebates for (or in some cases receive for free) are energy-efficient LED lights. Yet you might be surprised to find that there are many other potential rebates you could collect. You can earn sizable rebates for installing efficient heating and cooling systems, water heaters, washers and dryers, and even more surprising items like window A/C units. It’s worth checking into what items are eligible for rebates for your building or new construction project.
3. Utility Costs
People focus so much on the fact that energy efficiency is good for the environment that they sometimes skim over the direct benefits to our bottom line. Going green isn’t just good the environment, it can also mean that you’re paying significantly less every month in utility costs to operate your building.
When we finish a new development project, for example, a professional that is known as a HERS (home energy rating system) rater will walk through the property and essentially “test the defenses” of the building’s energy efficiency. They will look for gaps in windows and doors, test the appliances and systems, and basically put your property up to the test and see if it’s really all you’re claiming it to be (energy-efficient). You’d be surprised at just how much less energy is expended to heat and cool these buildings, but the test results don’t lie.
We strongly recommend that you only go after multifamily properties with separately metered utilities, as we discussed in more detail in our 5 Reasons Why Separately Metered Utilities for Tenants is Advantageous article. Yet even when the tenants are paying their own utilities, you’re still going to be on the hook for the utility bills for the common spaces of the property.
Depending on the size of the common areas and the climate the property is located within, you might still have to contend with some pretty sizable utility bills just for the common area. This is especially true when you’re dealing with heated common areas in climates that experience snowy and cold winters.
4. Property Desirability
A more efficient building is a more desirable building. Even people who aren’t particularly concerned with the state of the environment tend to be impressed and interested in a building with enhanced energy efficiency. Once you start telling them it means their monthly utility bills are reduced significantly, their ears really perk up.
Now, I’ll be the first to tell you that you’re wrong if you’re building green purely as a marketing angle or with the expectation that your potential renters or buyers will pay a premium for the finished product. It’s true that renters or buyers may be willing to pay a little extra, but you shouldn’t count on that when you’re budgeting for energy efficient systems.
That said, when someone is comparing two apartments to rent or two condominiums to purchase and one of the options is your typical home, while the other is claiming it’s going to slash your utility costs while protecting the environment, people will gravitate towards the energy-efficient option. It’s simply more desirable to rent or own an energy efficient living space for a number of reasons. Just keep in mind that the increased desirability alone doesn’t justify the added cost – you still need some assistance through rebates or direct incentives to truly make it worth your while.
This one is mostly relevant to new construction projects, but it might come in handy when retrofitting an existing building to a lesser degree if you want to build a good reputation politically within your property’s municipality. For new construction projects, however, politics are of paramount importance and every little advantage you and your project can demonstrate can push you closer to getting a profitable project approved.
When it comes to green energy building techniques, you’re going to get the most bang for your buck in politically liberal areas where this is culturally important and less so in areas that are more conservative or have economies reliant on less environmentally-friendly forms of energy.
That said, in those places where energy efficiency is culturally important, it can help you build a lot of goodwill by proposing an energy-efficient design. People genuinely care about this topic and many of the elected officials in these cities were sent with a mission to put more environmentally friendly regulations in place. We even had a project where a politician specifically told us he would publicly support our project if we announced it would be a green energy building. That should give you an idea how much this matters politically to some people.
As technology improves and we continually expand our methods to make building more energy efficient and more environmentally friendly, there will be more and more decisions to be made as multifamily owners or developers.
Some municipalities in northern states are already attempting to reduce or outright ban the installation of new gas lines in favor of going all-electric, which is more environmentally friendly. Keep your eyes peeled as the political situation shifts – this topic may become required reading for multifamily investors, rather than a bonus topic.