On March 18, the National Association of Home Builders (NAHB) began selling copies of the National Green Building Standard, capping off a collaborative effort by NAHB and the International Code Council (ICC) to issue the first ANSI-approved green building rating system in the country. The next day, the U.S. Green Building Council (USGBC), a Washington, D.C.-based group that oversees the (somewhat) competing LEED green building rating system (that’s Leadership in Energy Efficiency and Design, for the last time), announced that it had made its own significant achievement: It had nailed certification for its conferences and events team under BS 8901:2007, the new British standard purported to be the world’s first sustainability rating system for the events industry. Applauded by the National Multi Housing Council and the National Apartment Association, the National Green Building Standard supposedly goes a long way towards addressing an alleged lack of multifamily centrism in the design and administration of other rating systems. That doesn’t mean, though, it’s multifamily specific. In fact, as currently written, the standard applies not only to multifamily low-rise, mid-rise, and high-rise developers, but also to single-family home builders and homeowners; remodelers; and motel and hotel developers and operators. In the few short weeks since it’s been available, the NAHB estimates that 173 multifamily projects have been initiated based on the new ANSI guidelines.
LEED’s recent announcement, meanwhile, speaks volumes: The USGBC clearly sees marketability and bottom-line net worth in having a green rating system for the events industry, but the necessity of creating a green building standard specific to multifamily? Well, that’s still being evaluated. Even with the launch of its revamp in late April, USGBC’s LEED Version 3—and its LEED 2009 component—do not have separate, dedicated multifamily tracks. However, the USGBC has begun a pilot program for “mid-rise” projects, under the LEED for Homes certification standard, that is intended to address some multifamily disparities. The pilot program—which runs through 2009—applies to projects between four and six stories that include two or more units. Still, this hardly seems inclusive of the scope of multifamily development in the landscape today.
If you’re lost between all of these numbers, acronyms, systems, and certifications, you’re not alone. Even the USGBC feels your pain—sort of. “As we have this proliferation of LEED for different markets, we don’t want people to have to think about what rating system that they have to use—it should be easy and obvious,” says Joel Todd, chairperson of the LEED steering committee, which largely decides which real estate sectors deserve their own LEED standard. “One of the things we have tried to do with LEED 2009 is to get a better alignment of credits to make the differences clear for different markets. We will be pursuing that over the next couple of years, and, hopefully, multifamily residential will be one of those markets [that are clarified]—but I cannot guarantee it.”
“No guarantees” pretty much sums up the current end game for green efforts in multifamily real estate. Despite the relative commonality of green building and operating practices in the industry, the payoff—economic, social, or environmental—for engaging in one sustainable initiative or rating program over another remains uncertain. Feel-good proponents backed by anecdotal evidence abound, but empirical comparative analysis about the value of green to multifamily owners and operators remains elusive. At first blush, certifications seem highly marketable, but they nevertheless remain multifamily-obtuse. Meanwhile, green hungry consumers who seem to marinate every decision in the sustainability zeitgeist still seem paradoxically blasé to the green marketing of multifamily real estate and reticent to pony up for green rent premiums. Yet none of this matters: Green is careening towards multifamily development in an unavoidable—and unstoppable—way.
An Elusive Endeavor
That’s not to say there are no multifamily green success stories. The industry is replete with examples of apartment and condo projects that have done everything from launching recycling programs to achieving zero energy consumption or even pumping energy back to the municipal power grid. Hundreds of projects have gained various green certifications by implementing a wide variety of green features involving new techniques, products, and processes for managing electrical consumption, HVAC, lighting, water and sewer systems, indoor air quality, and the use of recycled and/or sustainable materials in construction and development. Consider 5600 Wilshire, the latest green community from BRE Properties, a San Francisco-based REIT. From a marketing standpoint, virtually all new multifamily green developments are the “first” to do something—whether it’s the first green high-rise on the street or the first to achieve LEED Silver, Gold, or Platinum certification in the city or state—and 5600 Wilshire is no different. Boasting access to public transportation and bicycle storage; water-efficient landscaping and water-use reduction; high-performance thermal windows; recycled content in construction materials; low-VOC paints, coatings, and carpets; and innovation in building design, 5600 Wilshire was the first multifamily property in Southern California to receive both LEED-NC (version 2.2) Silver certification and a GreenPoint-rated certification by California’s Build It Green nonprofit when it opened last year.
“5600 Wilshire represents our vision for energy-efficient, environmentally-conscious multifamily development,” says BRE chief investment officer Stephen Dominiak. “Everyone involved—our neighbors, our residents, and our BRE associates and shareholders—benefits from sustainable, green development.” Indeed, by all indications, 5600 Wilshire stakeholders will likely love their new community. In fact, the company says the building is stabilized, but if you’re looking for actual metrics, think again. There are no real numbers to back the claims—as is the case with most green multifamily projects. That’s despite the fact that sustainability proponents swear that buildings such as 5600 Wilshire lease up faster, retain residents longer, operate more efficiently and less expensively, command a higher rent premium, and realize greater disposition gains than their nongreen peers.
But do they really? While statistical analysis of green versus traditional buildings are now becoming available in the single-family, master-planned, and commercial/office sectors, there’s an acknowledged lack of empirical heft on the multifamily side of the fence. A March survey of Energy Star-rated commercial office buildings by the Royal Institution of Charted Surveyors (RICS), for example, found that buildings with a higher Energy Star rating commanded effective rent premiums of more than 6 percent per square foot compared with nongreen buildings of the same size, location, and function. The study further determined that Energy Star buildings realized a 16 percent premium on the disposition market.
Search all you want, but you won’t find similar studies analyzing multifamily green savings, likely a result of too few green multifamily projects in the landscape now. When it comes to determining greater disposition gains for green in multifamily, “we’re just not there yet,” says Doug Walker, senior vice president of asset quality and green initiatives for the Denver-based REIT UDR. In addition to a relatively small percentage of existing multifamily housing stock qualifying as green from a certification standpoint, the total lack of deal flow in the industry makes such a comparison impossible in the current operating environment. “When we get back into buying and selling mode—and have been able to track lower operating costs for these green buildings—over time, from a value standpoint, I think it would be hard not to generate some additional gains.”
Walker—and UDR—are banking on that. The company has spent approximately $250,000 across its 44,571-unit portfolio installing compact fluorescent light bulbs and programmable thermostats. This month, UDR will begin a year-long test of its occupied apartments, comparing those that have seen various levels of green retrofitting (some have received lighting or HVAC upgrades; others have had Energy Star appliances installed) against a control group of apartments. The goal is to allow UDR to “measure consumption with the same type of units in the same type of exposure,” Walker says. “We want to know exactly what the differences are, what impact the changes have independently. We should be able to share that information and provide real, live multifamily data that, to our knowledge, no one has produced.” Walker says that until multifamily players can quantify the precise savings of green versus nongreen, it will be difficult to determine accurate premiums when it comes to disposition.
On the property management side, multifamily Internet listing service Apartments.com annually queries a database of some 500,000 renters nationwide to determine their green preferences and practices. According to survey results released in March, 60 percent of renters said they search for apartments that offer environmentally-friendly amenities such as recycling programs, energy-efficient light bulbs, low-flow water devices, and paperless transactions. Twenty-five percent—a sizeable number, but still only one out of four renters—say that they would pay a rent premium to live at a green apartment community, although they were not asked to quantify the premium. That premium-minded percentage of renters has not changed since 2007.
Judi Schweitzer, president of Irvine, Calif.-based sustainable development consultant Schweitzer + Associates, has conducted similar research with comparable results for private clients in the multifamily space and says she’s been surprised to see those clients breeze over the data. “I don’t know if multifamily doesn’t believe what these surveys are saying or what, but there is clearly a huge pent-up demand among renters for green apartments,” Schweitzer says. “It’s likely the split incentive dilemma—a disconnect between the investor and the beneficiary and/or a disconnect between the investment and the return on the investment at widely differing points in time.”
Proving Out
That disconnect can occur more than once across the multifamily life cycle, as well. Solar energy, for example, could be an investment made by a multifamily builder that’s not realized in a disposition, provides little or no return on investment to successive owners of the real estate, and only benefits property operators and residents after the cost of the technology has been amortized over a 20-year hold. [See “Hot Stuff,” below.] “You’ll probably have to quantify some of the cost savings of green in your rearview mirror, that’s true,” Schweitzer says, “but remember some of the benefits are certainly qualitative as well, and finding that balance of economic costs and environmental and social benefits is the art of sustainability.”
Perhaps optimistically, it’s among the builder set where green—and particularly the use of LEED and other certification programs—seems to be gaining the greatest traction, despite the lack of a complete philosophical buy-in to sustainability dogma. This is likely the result of their wanting to leverage existing programs and financial incentives, politics aside. “I don’t need a score, and I don’t need a piece of paper that says I am a platinum or gold or green or tin,” Walker says. “If the main focus is to become greener and more aware of the sustainability of our product, that’s where we should be headed.” Like a growing number of developers, Walker nonetheless supports rating systems for three reasons: the programs demand collaboration among stakeholders that lead to a better quality product; they result in easily quantifiable savings to energy expenditure line items; and doing something—anything—is better than doing nothing at all.
“When you can get behind something like green building, it provides a force that motivates people to come together on a project even more,” attests Jeff Bunker, president of San Diego-based multifamily builder Wermers Cos., which just completed construction of a 42-unit affordable apartment community for Wakeland Housing that is expected to get LEED Platinum certification. “Regardless of what type of certification it is, the more projects that get built and the more architects and developers who get experience going green, we can begin to determine where we’re getting real benefits versus the bullet points that just sound good on paper.”
Bunker says multifamily as a whole can grin and bear such changes or proactively jump into the evolution of green. Either way, he suggests the development and deal flow downturn in the industry is a no-more-excuses time for multifamily to finally apply themselves to green, whether there’s immediate proof of its payoff or not. “More and more projects are heading that way, which is good for all of us in as much as we are sensitive about [local and global] environmental conditions,” Bunker says. “Beyond that, I think green and sustainability will be mainstream within the next 10 years. There will be a time when it will quite simply be ridiculous not to incorporate most of these aspects into a project.”
Data-supported or not, it seems to all involved as if that time is coming sooner rather than later. [M]
8 Editor’s Note: For expanded green coverage, including a look at net zero energy, visit www.multifamilyexecutive.com.
Hot Stuff
Is solar power the next big thing, or just the next big expense?
The sun’s surface is 5,500 degrees centigrade, and although solar rays travel some 93 million miles before burning through the atmosphere and hitting the Earth’s surface, there’s still plenty of energy left in all of that heat to power the entire planet, if not a couple of apartment communities. “It just makes sense to me that eventually every community will have photovoltaic panels on it and be able to generate its own electricity,” says Jeff Bunker, president of San Diego-based multifamily builder Wermers Cos. “It seems like the industry is moving towards solar. It makes a lot of sense and pays for itself over the long run.”
Over the very long run, say critics, who point to the huge upfront costs of purchasing and installing photovoltaic panel arrays that typically need to be amortized over a 20-year period before providing a return on investment.
That lengthy time frame has made solar an attractive option for affordable housing projects requiring a long-term hold for tax credit funding, but when it comes to merchant building and market-rate multifamily owner/operator models, solar “just isn’t there yet,” contends Martin Sprang, a group and division director at Denver-based REIT AIMCO. “I am not an advocate of programs that don’t provide a return. Why would you spend 25 cents a kilowatt-hour for solar when you can conserve energy and work with what you already get off the grid for 10 cents to 12 cents per kilowatt-hour?”
Solar fans recognize the high up-front investment but emphasize the value of fixing energy costs and say incentive programs can drastically reduce the cost of hot-wiring.
“We realize there are some very basic concerns—we spend our time educating people about them,” says Richard Raeke, director of project finance at San Diego-based Borrego Solar Systems. “In California, the Multifamily Affordable Solar Housing (MASH) program has carved out $108 million for affordable housing. With an average common load of 15 kilowatt-hours, MASH could feasibly fund 600 systems. Even for market-rate developers, there are programs out there.”
Numbers Don't Lie
0.95%
Portion of U.S. man-made greenhouse gas emissions in 2007 contributed by all equipment used in the construction industry
Source: Associated General Contractors of America
180 million
Tons of structural and reinforcement steel and asphalt annually recycled by the construction industry, offsetting 75.7 million tons of annual CO2 emissions
Source: Associated General Contractors of America
41%
Portion of Americans who think the severity of global warming is exaggerated
Source: 2009 Gallup Environment Survey
$5.5 million
Average increase in capital value of Energy Star-rated commercial office buildings
Source: Royal Institution of Charted Surveyors
25%
No. of renters who say they are willing to pay more rent to live at an apartment property that considers the environment in day-to-day operations
Source: Apartments.com
$930K
Entry price for a unit at Riverhouse, One Rockefeller Park, a 264-unit luxury condo tower in New York City being advertised as the East Coast’s “greenest” condo community
Source: Sheldrake Organization
3
No. of versions of LEED that have been issued thus far without a dedicated track to multifamily construction and development
Source: U.S. Green Building Council
39%
Portion of total CO2 emissions in the United States generated by existing buildings
Source: U.S. Green Building Council
How Much is Net Zero?
The need for complete life cycle analysis makes energy consumption claims difficult to verify.
This summer, Oakland, Calif.-based ZETA Communities will open models of the company’s modular, manufactured multifamily product intended to produce net zero energy consumption for urban and sustainable communities. Like many at the forefront of real estate sustainability, ZETA company founders are driven by a perceived environmental crisis, and advocate that green building leads to less waste, improved energy efficiency, and overall better quality of the finished product. “As urban infill consultants for public-private partnerships, economic development agencies, and affordable housing developers, we have long realized that there is a better way to build, and there is a way to build where we are not energy dependent,” says company CEO Naomi Porat.
ZETA’s better way involves “rapid-production” housing: from floors and walls down to the towel racks, each of ZETA’s 12-foot-by-40-foot modular units are 90 percent built in the factory using optimized framing technologies and then transported and completed onsite, replete with uber green features such as photovoltaic solar panels, air to air heat exchangers, heat pumps, and a wastewater heat recovery system. Due to a more efficient design and tighter building envelope, ZETA claims to have reduced the average energy consumption load by 60 percent, while generating another 40 percent of unit energy via photovoltaic panels. The result is a multifamily unit with an annual net zero energy consumption, Porat says.
Of course, the ZETA factory, or Z-Lab, as Porat calls it, is still on the municipal power grid, and daily employee travel, not to mention the transport of building materials and the finished ZETA units, all come with their own carbon and energy footprints that realistically need an amortized offset as well. The challenge isn’t lost on Porat, who says ZETA will continue to emphasize energy usage and emissions reductions as the company grows. “The Z-Lab is our startup facility and since we are not off the grid, it’s obviously not a good demonstration,” she says, adding that the company has tried to compensate by providing transit passes to employees, and hopes to move into a solar powered factory in 2010.
With several projects in the pipeline ranging in density from 30 units to 50 units, and an advertised cost savings over site-built construction between 10 percent and 20 percent, Porat thinks the economics are there to hit net zero marks across the ZETA operation. It’s not just the finished product, she acknowledges, but “a consistency across the business model that remains the key aspect of any net zero or green initiative.”