How You Can Afford to Retrofit Your Multifamily Property with Submeters
I’m embarrassed to admit how many plates of food I consumed the last time I dined at a buffet.
It’s always the desserts that lure me in. Chocolate tortes, soft serve ice cream, cake… I will sample all.the.things. If it looks remotely sweet, it goes on my plate. If I try it and it doesn’t appeal to my sweet tooth, no big deal. After all, I’m not paying per item and I gotta get my money’s worth, right? If you spotted me at a regular restaurant where I was paying per item, I’d definitely be more mindful about overdoing it.
Residents in multifamily properties who aren’t being held accountable for their utility consumption usually have the same gluttonous mindset that buffet diners do. If they aren’t being billed for their actual utility consumption, they are far less conservative with their usage. In fact, according to Fannie Mae’s Multifamily Energy & Water Market Research Survey, when apartment owners paid for all energy costs, median annual energy use was 26% higher than when tenants were held accountable for their usage.
That’s why so many apartment operators (and lawmakers) are turning to submeters. Submeters precisely track each apartment unit’s utility consumption, allowing property management companies to accurately bill their residents for their share of the bill. Submeters are so effective at driving water conservation that drought-sensitive California recently passed a law requiring water meters to be installed at individual apartments starting with new developments in 2018.
Even though the law doesn’t apply to existing multifamily structures, older apartment buildings that are master metered can be retrofitted to accommodate submeter installation. The conversion process is not difficult and leads to long-term savings. However it requires an up-front investment that can deter many property owners from making the upgrade. Luckily, as many organizations have realized how submeters aide with conservation, there are several programs multifamily operators can leverage to help with the retrofit process or to install other green upgrades. Here are a few ways you may be able to finance your submeter retrofit.
Energy Services Agreement
An Energy Service Agreement (ESA) is a pay-for-performance, off-balance sheet financing solution that allows customers to implement energy efficiency projects with zero upfront capital expenditure. Lease payments are designed to be less than the cost savings created by the project, thereby providing customers with cash flow savings in addition to avoiding upfront capital costs. The services contract doesn’t impose any liens or debt on the building, preventing the problem of the primary mortgage lender. At the end of the contract, the building owner owns the energy-efficiency equipment and inherits substantially reduced energy bills.
Multifamily Green Loans
Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) have all instituted lending programs to give apartment operators additional loan proceeds, and better pricing, to make energy- and water-efficiency improvements on their properties. Each program offers its own unique benefits and comes with its own requirements.
There are several offerings currently on the table for qualified properties. Fannie Mae’s Green Rewards, for example, provides additional loan proceeds and preferential pricing to multifamily property owners who make their properties greener. The program, which can be used with any Fannie Mae loan, offers a pricing discount and up to an additional 5% in loan proceeds. To qualify, you need to demonstrate a capital plan to reduce energy or water usage by at least 20%. If approved, you’ll be awarded the pricing discount. The loan can be upsized by underwriting up to 50% of the anticipated utility cost savings.
Fannie Mae also offers Green Preservation Plus, which helps owners transform their aging affordable housing into smart long-term investments. With flexible terms, owners can access extra loan proceeds for property improvements that prevent deterioration and cut energy and water waste, all while keeping the property still affordable.
Those with Freddie Mac loans can choose either Green Up or Green Up Plus to finance the improvements. Under Green Up, borrowers with qualifying properties can increase the amount of their eligible Freddie Mac Multifamily loan by up to 50% of the projected energy and water savings. With Green Up Plus, borrowers can increase the loan amount by up to 75% of the projected savings.
Some states also offer rebate programs to property owners that are looking to conserve energy through energy efficient upgrades, including adding submeters to your property. For example, in New York, the Electric Reduction in Master Metered Buildings (ERMM) Program, will provide up to 50 percent of the cost for buildings to install advanced meters. The California Multifamily Energy Efficiency Rebate Program (MEERP) is another statewide program that has been a successful in offering energy efficient rebates. The collaboration between the state’s four major utility companies allow owners of multifamily properties to receive rebates on energy efficient upgrades ranging from lighting and insulation to window and HVAC improvements.
For a full list of opportunities available in your state, visit the Database of State Incentives for Renewables & Efficiency (DSIRE) website.
Water agencies and utilities have begun to subsidize submeter installation through rebates, so it is worthwhile to check with your providers for any special programs.
Although the initial investment to retrofit may seem steep, with the proper balance of incentives and long-term savings, the effort will ultimately save your property management company money and save the environment.
Thinking about retrofitting your properties? PayLease will walk you through everything that a retrofit will entail and put together a detailed plan about how that can be accomplished. We’ll also offer guidance about submetering laws in your state, as well as any programs that might be able to provide you any savings. If you have questions about retrofitting your multifamily properties, please contact our submetering team. We’ll help you stop the buffet mindset.