Energy Retrofits: Why Not?

Multifamily landlords talk about the benefits of The Preservation Compact’s Energy Savers program—and what’s holding some of them back

Read more about the panel sessions:
Staying Subsidized
Small Buildings, Big Impact
The Neighborhood Factor

By Ed Finkel

The Preservation Compact’s Energy Savers Program has provided energy assessments to 35,000 multifamily units in 900 buildings and helped to retrofit more than 12,000 units in 300 buildings in the seven county Chicago region during the past five years.

John Brauc, Checkmate Realty

During the “Expanding Energy Retrofits” breakout session, a pair of owners who have used the program, administered by the Center for Neighborhood Technology (CNT) and the Community Investment Corporation (CIC), testified how it had helped them. Others in the audience speculated about or gave their own reasons why some owners have hesitated to invest in energy savings.

Energy retrofits mean saving money on utility costs, and that helps preserve affordable housing by enabling a building owner to continue to earn an adequate return without necessarily raising rents, said Jim Wheaton, program manager at CIC, who served as co-moderator for the panel. Where units are individually heated, the retrofit can save on tenants’ utility costs.

Although Energy Savers Program participants represent only a small fraction of the thousands of multifamily dwellings in the Chicago area, the program is very successful compared to similar efforts around the country. “However, we’ve barely scratched the surface,” Wheaton acknowledged. “Why is that?”

How It Works

Energy retrofits typically cost $3,000 to $4,000 per unit, sometimes offset through rebates and incentives, but provide both financial benefits to an owner—averaging 30 percent savings in utility usage and costs—and environmental benefits to society at large.

The Energy Savers Program is simple to use and requires less bureaucracy than building owners often imagine, said Anne Evens, CEO of CNT Energy, who co-moderated with Wheaton. Program staff perform an energy audit benchmarked against similar buildings, and they ask the owner where problem areas exist and what investments they’re considering.

“Energy Savers provides building owners with a one-stop shop,” Evens said. “We provide ways to make buildings more energy-efficient and water-efficient. We’re not asking you to do a lot of paperwork or spend a lot of time.”

The program staff provide a pool of contractors from which to get bids or, if the owner prefers, they can use their own contractor. The program also helps owners figure out what rebates and incentives might be available from government or utility companies, and loan officers from CIC can help obtain low cost financing. And Energy Savers stays involved to see whether expected savings are materializing, and if not, figure out why. “We want a long-term relationship with the building owner,” Evens said.

So how has this succeeded for individual owners? CNT handed out three case studies at the session that showed post-retrofit natural gas usage cut by 33 percent at one 12-unit Chicago building, and projected savings of 44 percent and 49 percent at two other buildings, in Evanston and Chicago, respectively, that undertook audits.

“I would ask the question, ‘Why not do Energy Savers?’” said panelist and building owner Sandeep Sood, principal at Nautilus Investments LLC, who had never heard of CNT before Energy Savers helped him undertake a “complete retrofit” of a 55-unit building that required upfront capital expenditures he’s not sure a traditional lender would have approved.

Testimony From Satisfied Customers

Energy Savers provided Sood with engineers who performed the audit and fiscal analysts who helped lower the loan-to-value ratio and find utility rebates. Sood might have hesitated to use another third party, he said, but he said he found Energy Savers to be “friendly, pretty straightforward—they bring savings and they follow up. It’s been very beneficial.”

John Brauc of Checkmate Realty, who’s been using the program for “seven or eight years,” said it’s meant he’s typically needed only 15 percent down instead of 20 percent when purchasing properties. Wheaton said owners typically get those savings by combining a standard 80 percent loan-to-value mortgage—either from CIC or a commercial lender—with a second mortgage through Energy Savers that can finance up to 90 percent LTV.

Brauc said he started with “simple stuff” like windows, doors and boilers, then he discovered the benefits of retrofitting roof and steam-pipe insulation. “It allows me to take a troubled asset, come in with less cash, save myself money and makes my tenants more comfortable,” he said. Down the road, he added, not only are fuel and electric bills lower, but also the building will be worth more “because it’s going to cash flow better.”

Savings on water consumption is another issue that Brauc has been focusing on more and more, as his average bills have skyrocketed from $500-$600 per building per year to more like $1,300-$1,400, which Wheaton says has been typical for the city and suburbs that get their water from Chicago. Brauc has installed some low-flow showers and toilets, and trained his staff to monitor for leaky faucets—and asked tenants to do the same.

Sood received a 50 percent rebate on a boiler and paid “a fraction of what I would have on my own” for steam-pipe insulation, he said. “I want to keep utility costs as low as possible because that’s money out the door.”

Why Not?

In a discussion of what hurdles keep landlords from using a program like Energy Savers, audience member Chris Wheat of  the Mayor’s Innovation Delivery Team, which created Retrofit Chicago, a program housed in the mayor’s office, said owners might not quite trust the projected savings numbers and might not know anyone else who has participated in the program. “That leap of faith is hard to do,” he said.

Past building owner Andrew Geer, now director of relationship management at Enterprise Community Partners, said “the issue of not knowing anyone was a big one” for him and added that he was concerned about becoming over-leveraged. “We weren’t sure we had the capacity,” he said. Wheaton noted that’s a common concern among longer-term property owners: With little equity in the deal and borrowing from multiple sources, they feel too encumbered by their mortgages and pressured to “watch cash-flow like a hawk.”

A current building owner named Mike said the scope of the investment intimidated him, and he concluded that “the economics wouldn’t quite work in my building.” He also said that while the savings numbers seemed believable, energy retrofits never rose to the top of his priority list. “This was never the most important thing to do,” he said. “We’re always fixing the crisis in front of us.”

Indeed, Evens said that in her experience, the most common reason why people don’t follow up after an audit is essentially: “I just didn’t get around to it.” Others associate the effort with tangled government bureaucracy and figure, “anything that’s free must be too much of a hassle.” But, she added, “We’re not government.”

Energy retrofits are more of a no-brainer when you’re first purchasing a building because they allow you to come in with less cash, Brauc said. But over time, as long as you’re in the market for the long haul, he’s come to realize that they make sense even for buildings you already own.

“It took me a little bit to see the light,” he said. “I’m not in the market to fix-and-flip.” Sood agreed: “If you’re in the market for the long term, the economics change.”

Spreading the word to other owners, possibly through organizations like realtors and commercial property brokers, might help. But Brauc said selling the service to his fellow building owners can be frustrating and takes repetition. He remembered being out for drinks with another owner and enthusiastically recounting how he had saved $80,000 on steam-pipe insulations through rebates.

The reaction? “Yeah, whatever,” Brauc recalled, making a hand motion that signified guzzling another mouthful of beer.