Between climate change, rising energy costs, and ESG incentives, there is no shortage of incentives for multifamily operators to make their MDU properties more energy efficient. Indeed, in doing so, not only can they increase their profitability, but also support occupancy goals, attract additional investment, and even access advantageous financing that is unavailable for less sustainable properties.
Inflation & Energy Costs
Persistent inflation in recent years has been a challenge for both businesses and consumer alike. Indeed, global inflations is forecasted to “to rise from 4.7 percent in 2021 to 8.8 percent in 2022.” And energy prices are far from immune to this trend.
While the war in Ukraine caused “European gas and electricity wholesale prices [to increase] by 115% (109%) and 237% (138%), respectively,” the US Energy Information Administration is predicting “wholesale electricity prices at major power trading hubs [to] be about 20-60% higher on average this winter.” So MDU managers (and their tenants) are facing a significant increase in their energy costs. Fortunately, whether you are sole proprietor or represent a REIT, there are a number of technologies that multifamily managers can leverage to not only reduce energy costs and improve revenue, but also improve tenant retention and occupancy.
1. Demand Response Programs
One of the most dynamic ways that MDU operators improve the energy efficiency of their properties also involves turning their energy consumption into a source of revenue. Specifically, Demand Response Programs allow multifamily property managers to receive credits against their energy bill (or even outright cash incentives) whenever they choose to curb their consumption during peak demand times.
Typically offered by utility providers (but sometimes by independent, third-party commercial entities), Demand Response Programs operate on an opt-in basis. Essentially, as a member of a Demand Response Program, property managers will receive notifications prior to a forecasted peak usage period (referred to as an “event”), and unless they opt-out of that event, their various energy appliances (e.g. thermostats, water heaters, etc.) will adjust to draw less energy, allowing MDU operators to “sell it back” to the grid. This revenue can then be applied against their energy bills, significantly reducing their overhead energy costs.
2. Installing Smart Thermostats
Another way that multifamily operators can improve their energy efficiency of their property is by installing smart thermostats in both common areas and private units. Specifically, smart thermostats allow both property manager and tenants to pre-program temperature settings around established occupancy patters.
For example, a tenant can set their thermostat to reduce energy consumption while they’re at work, and return the unit to their desired temperature just prior to their return. This not only improves tenant comfort, but allows tenants to save on their own energy bills, which is a value-add that both improves tenant retention and support occupancy goals. Similarly, property manager themselves can program thermostats in common areas to adjust temperatures to align with high-traffic or occupancy times.
MDU operations, however, should keep in mind that not all smart thermostats are created equal. Whereas consumer-grade brands (such as Nest and Ecobee) are suitable for single family properties, larger multifamily properties require commercial-grade smart thermostats that are capable of managing multiple units as well as common areas.
3. HVAC Energy Management
Climate control energy management, moreover, is not limited only to smart thermostats. MDU operators can also install a smart HVAC system to help them automate how they optimize their energy consumption and minimize their energy costs throughout the year.
Indeed, by installing an HVAC energy management system alongside smart thermostats, occupancy sensors, and door/window sensors, multifamily property managers can reduce their HVAC runtime by up to 40% by ensuring that any given space is not overheated or overcooled when no one is occupying it. Verdant’s EI energy management system, for instance, integrates with smart thermostats and occupancy sensors to aggregate data on occupancy patterns, peak demand loads, seasonal weather trends, and historical thermodynamics, and then uses machine-learning algorithms to analyze those data sets and patterns to continuously optimize energy consumption throughout the year in real-time.
It’s worth noting, moreover, that smart HVAC systems have the lowest payback/breakeven period of any energy management period, with some commercial property managers recouping their investment in as little as 12 months. And that ROI from smart HVAC technology is so significant that it increases the resale value of residential and commercial properties alike. Indeed, this energy management technology is already a standard practice in the hotel industry.
4. Air Source Heat Pumps
Smart HVAC technology, moreover, is not limited only to energy management software. There is also HVAC hardware upgrades that MDU operators can invest in to improve the energy efficiency of their multifamily properties.
Specifically, MDU operators can install Air Source Heat Pumps (ASHPs) which reduce energy costs by transferring cold or warm air from outside a facility to the interior. This allows multifamily property managers to further reduce HVAC runtimes, and ultimately reduce their energy consumption. An added advantage of ASHPs, moreover, is that they can be used as energy efficient space heaters (or coolers), further removing the need to rely on a central HVAC system to manage areas of a property that are thermodynamically problematic – e.g. common areas that are either more poorly insulated or particularly high-traffic.
5. Smart Lighting
Of course, HVAC and climate control systems are not the only energy overhead costs related to managing a multifamily property. In both resident units and common areas, MDU operators must quite literally keep the lights on. And in this sense, smart lighting systems can help multifamily property managers reduce their energy consumption and costs.
Similar to smart HVAC energy management systems, smart lighting allows MDU operators to optimize lighting energy consumption on their properties by responding to real-time lighting needs. Essentially, smart lighting systems employ occupancy sensors to adjust lighting according to both occupancy and time of day. They also help create a more seamless and comfortable experience for residents and guests alike.
It’s worth noting, moreover, that many smart lighting systems, moreover, are compatible with third-party energy management technology, allowing multifamily operators to integrate them with their pre-existing energy management system. For instance, Verdant’s own occupancy sensors can not only integrate with many smart lighting systems to adjust lighting to real-time occupancy patterns, but also enable property managers to both monitor and optimize their lighting energy consumption through the same platform interface they use to optimize HVAC runtimes.
6. Energy Efficient Windows
While there are several energy management technologies that MDU operators can install to reduce their energy consumption, there are also technologies that multifamily property managers can install to reduce their need for energy. Namely construction materials such as energy efficient windows can help both MDU managers and their tenants better insulate their spaces so that there’s less of a need to expend energy on either heating or cooling – and consequently reduce HVAC loads and runtimes.
Indeed, as the US Department of Energy points out, “ENERGY STAR® qualified windows […] filter out ultraviolet light [which saves significantly on] heating and cooling costs.” And these financial incentives for installing energy efficient windows extend beyond mere energy cost savings. As Modernize illustrates:
energy savings are not the only way to calculate the worth of a new window installation. New windows also increase […] property value. In fact, installing a set of new vinyl windows could add as much as $12,000 to [a] home’s selling price,
In other words, in addition to energy efficient windows reducing HVAC energy costs for MDU operators and their tenants, they also increase the value of the multifamily property itself. After all, if energy efficient windows can increase the value of a single-family home $12,000, the potential to increase the value of a multifamily property will be nothing short of significant.
7. Automatic Shutdown Sockets
Of course, multifamily operators (and their tenants) incur superfluous energy consumption (and costs) beyond heating, cooling, and lighting. Specifically, a significant source of inflated energy consumption stems from what’s commonly referred to as “standby power” or “vampire power draw”, which occurs when electrical appliances consume energy even while they are switched off (but still plugged in).
Enter Automatic Shutdown Sockets.
Essentially, Automatic Shutdown Sockets are the equivalent of smart power outlets, which employ either timers or infrared sensors to cut power to connected devices when (1) those devices are not in use, or (2) the space in which the devices are connected is outright unoccupied. In other words, by installing Automatic Shutdown Sockets, multifamily property owners can ensure that both themselves and their tenants reduce energy consumptions whenever common area appliances are not in use or residents are not occupying their units.
8. Solar Panels
Of course, many energy management technologies help MDU operators (and their tenants) reduce energy consumption, while Demand Response Programs helps them monetize their energy management. However, both these approaches are still nonetheless reactive – i.e. still dependant on curbing their reliance on third-party energy suppliers.
But multifamily property operators also have options that allow them to be less reliant on third-party energy utilities.
Specifically, solar panels offer multifamily properties a two-fold opportunity to reduce energy costs: to (1) reduce their energy consumption from mainstream power grids, and (2) sell back additional energy production to that grid. So not only can MDU operators reduce the energy costs for both them and their residents, but they can also create new revenue streams or energy cost saving through Demand Response Programs that they’ve already opted into.
9. Predictive Maintenance
Finally, multifamily property managers can further reduce their energy consumption by preventing infrastructure decay that results in both unnecessary energy consumption as well as costly repairs. Specifically, just smart energy management systems allow property managers to monitor, measure, and optimize their energy consumption, Predictive Maintenance allows them to leverage sensor data to track energy usage, identify wasteful energy consumption trends and malfunctioning hardware, and alert maintenance staff before those malfunctions (1) inflate energy costs, and/or (2) escalate into a much more problematic and costly energy infrastructure issue.
For instance, HVAC systems fluctuate through varying levels of performance based on occupancy and thermodynamic parameters, and accordingly undergo wear-and-tear on their physical components. However, rather than waiting for a component or entire system to break down or fail completely before being serviced or replaced, Predictive Maintenance allows engineering staff to identify system failures based on system performance, diagnose their causes, and ultimately prevent critical system failures as well as reduce the costs of having to replace components or systems that were allowed to deteriorate beyond repair.
For example, Verdant’s online management platform analyzes HVAC runtime performance data in real-time, and then assigns a system efficiency rating. Subsequently, this rating serves as an indicator of how quickly a space can be cooled or heated according to an occupant’s preferred (or preprogrammed) temperature, providing MDU engineering teams with both crucial insight and automated alerts whenever HVAC infrastructure is in need of maintenance. The result is that multifamily property managers can ensure that their HVAC systems are operating within peak energy consumption parameters, as well as predict and/or prevent critical (and costly) malfunctions or failures.
Energy Management & Property Investment ROI
Property management is as old as real estate itself – i.e. as old as civilization. However, at the end of the day, real estate is an investment, and the goal of any investment is to generate a return by maximizing profitability. And to maximize the ROI of a real estate (or any) investment, it’s crucial that that investment is properly managed.
And a significant part of properly managing an investment, is reducing the overhead costs required to operate that property.
Of course, energy costs are an unavoidable overhead cost for any modern business. For multifamily properties, moreover, the challenge of energy costs is doubly complex.
On the one hand, MDU property managers have their own energy costs that are required to maintain a property in good (and functional) standing. On the other hand, the costs that are tied to tenant energy consumption are (often) somewhat out of the hands of property managers, but nonetheless effect operators’ bottom-line insofar as energy costs impact tenant retention and occupancy rates.
Fortunately for multifamily property operators, there are no shortages of technologies and best practices to help curb energy consumption and costs on both sides of the equation.