When New York State’s new rent regulations were passed in June 2019, the impact reverberated throughout the real estate industry. Among other things, the new rules limit a landlord’s ability to raise rents on stabilized apartments through periodic rent increases and targeted building improvements (Major Capital Improvements or “MCI” and Individual Apartment Improvements or “IAI”). This has left multifamily owners looking elsewhere to generate value across their portfolios.
A New Strategy To Generate Value
To increase net operating income (NOI), and therefore property value, building owners need to shift their approach from raising rents to reducing Operational Expenses (OpEx).
After personnel and property taxes, utilities—especially electricity, gas, oil, and water—are the largest and most variable OpEx components. This is especially true in New York City, which has some of the highest utility rates in the country.
Additionally, properties with inefficient HVAC systems are likely to incur excessive maintenance and repair costs. Building staff gets distracted troubleshooting operational issues instead of pro-actively managing the property. Uncomfortable tenants are unhappy tenants who are more likely to move out—and now without the ability to significantly raise rents on apartment turns, losing tenants is a real cost.
Improving building systems to reduce energy and water consumption and increase resident comfort is now one of the most viable and proven strategies for generating value in multifamily properties.
Generating Value Through Energy Efficiency
There are three powerful solutions that can generate increased property values through energy efficiency:
- Reduce Energy Loads: Eliminate waste and reduce OpEx through energy retrofits—primarily of lighting, heating, cooling and ventilation systems—equipment repairs, and systems optimization.
- Generate and/or Store Your Own Power: Install on-site generation technologies such as solar photovoltaic (PV) and battery storage to generate and/or store your own power and avoid high electric bills
- On-Going Energy Management Services: Optimize existing systems and maximize operational effectiveness, without the hefty cost of a major capital improvement project. Bright Power’s MoBIUS® (Management of Building Information, Utilities, & Systems), takes on-going energy management to the next level by using predictive analytics to identify potential issues, such as heating system imbalances or ventilation anomalies, and resolving them before they become serious problems for site staff and residents.
From Theory to Practice
Most building owners we know want proven solutions. Rather than asking you to take our word for it, here are a few examples operating in the real world and the value that they are creating:
Park Terrace Gardens
Park Terrace Gardens’ Green Committee brought on Bright Power to complete a Local Law 87 energy audit. Bright Power’s comprehensive energy audit pinpointed long-term issues and identified opportunities for sustainable savings through cost-effective energy and water savings measures like installing LED lighting, steam balancing, weatherstripping, and insulating boilers and piping, among others. The Park Terrace Gardens board and Green Committee turned their compliance obligation into value-add opportunities, creating ongoing savings and dramatically increasing comfort. The property saw a 17% energy reduction and $179,000 in savings the first year after project completion. You can also read more about this project on Building Energy Exchange’s website.
River and Gerard Court
Having analyzed Related Companies’ New York portfolio in EnergyScoreCards, Bright Power determined which properties would benefit most from solar photovoltaic (PV) systems. We then assessed each property’s ability to monetize tax benefits. We then designed and installed a solar PV system for each building that met budget and savings goals and maximized the solar potential of the roof space. These systems reduce common area electricity bills by 20%.
Selfhelp Community Services
Through MoBIUS, an integrated and holistic approach to energy management, Bright Power provides Selfhelp Community Services with operations and maintenance education and training across 8 buildings in Queens. To date, we have created equipment manuals, tracked repairs, trained site staff, deployed digital maintenance rounds, filed compliance reports, piloted a remote monitoring system, and regularly reported on savings and operational improvements. Throughout the partnership, Bright Power continues to help Selfhelp Community Services reduce maintenance issues, identify and fix technical problems, and improve organizational capacity. As a result, Selfhelp Community Services has realized a consistent 5% annual utility consumption savings.
MoBIUS has proven to significantly reduce building utility consumption, as shown in the chart below, calculated from actual utility data over a four year period. This OpEx savings directly contributes to increased property value—at a cap rate of 5%, $25,000 of energy savings increases property value by $500,000!
Political winds change, and while new regulations make some old strategies less feasible, they also open up new opportunities. The confluence of new carbon emissions limits and new rent regulation in NYC makes this a particularly attractive time to generate value through energy-saving improvements.
Bright Power has already deployed this approach with notable leaders in multifamily real estate.
Contact us if you would like to learn more.