Last week’s Blog # 3, “Making the Business Case for More Affordable Housing” focused on making the business case for affordable housing using custom utility allowances. In the case of new developments, utility allowance modeling represents a wise choice, offering the opportunity for a property owner to increase both the value of the property at underwriting and the net operating income.
But, what about older existing properties that may not be as energy and water efficient? In Blog #2, “Connecting the Owner and the Tenant Through Utility Allowance Modeling” we discussed the disconnect that typically exists between owner and tenant where one or the other is responsible for paying all utilities. For an owner of an affordable multifamily property, where tenants pay for all utilities, justifying expenditures aimed at reducing energy and/or water use may not be so easy, especially when there is no defined payback on the investment.
However, if the property were to switch from using the published utility allowance to using a custom utility allowance, then the math becomes really easy! Imagine a 170-unit apartment complex built during the mid 1980s. The toilets all flush at 3.5 gallons per flush, the showerheads use 2.5 gallons per minute, and all faucet aerators use 2.2 gallons per minute. A retrofit project to upgrade all fixtures to high efficiency would yield annual savings of approximately four million gallons. The estimated project financials are included in the table below.
Under a custom utility allowance scenario, the $28 per unit monthly savings would be deducted from the utility allowance and added to the monthly rent, in a one for one offset. For the tenant, there would be no noticeable change, as the increase in rent would be equally offset by the decrease in the monthly utility bill. For the owner, the subsequent change in the utility allowance would yield an additional $57,000 per year in net operating income and a payback period on their investment of 1.4 years.
The final result is a win for both the tenant and the owner, as well as a framework for continued investment in water and energy efficiency upgrades that will benefit both the tenants and the owner for many years to come.
Eddie Wilcut, Plummer’s Water and Energy Efficiency Practice Leader, has 6 years of experience conducting energy consumption modeling for Low Income Housing Tax Credit (LIHTC) properties and HUD regulated properties. Eddie also has 22 years of experience in Program Development, Project Management, Program Management, Contract Administration, Scheduling, Facility Assessment, Programming, Cost Estimating, Energy and Water Conservation and Sustainability. To date, the Plummer team has successfully provided energy consumption models for more than 200 properties across 28 states.
The Plummer team includes a group of highly skilled project managers, engineers and energy modelers. The significant expertise, experience and knowledge base of the team acquired by successfully conducting utility allowance modeling for a large number of properties across the United States will help them quickly determine the best and most cost-effective platform and methods required to achieve the best and most reliable results. A proven and collaborative process involving the modeling team and the developer will result in identification of the most important elements that will lead to decision making that will ultimately provide the greatest and most cost-effective results for both the tenants and the owner.
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