Oct 4, 2011
SETP 04, 2011
Quantifying Energy Efficiency in Multifamily Rental Housing
Confronting the Future: Case Studies in Regional Planning and Consensus-Building
Efforts are underway across the multifamily housing sector to collect the data necessary to spur private investment in retrofits. Recent multifamily green building and retrofitting programs demonstrate the federal government’s commitment to providing concrete examples of multifamily housing’s potential for cost and energy savings. In 2009 the Department of Energy’s (DOE’s) Weatherization Assistance Program (WAP) received $5 billion as part of the American Reinvestment and Recovery Act (ARRA). WAP has been making grants to low-income households for home weatherization measures such as sealing ducts, caulking, and insulating since 1976. DOE used the opportunity afforded by the new infusion of funding to collaborate with HUD to provide weatherization assistance to owners of federally subsidized public and multifamily housing.20 WAP has already helped weatherize more than 82,000 multifamily units since its inception; Stockton Williams, senior advisor for urban policy at DOE, says that this infusion of funding has doubled the percentage of weatherization funds allocated to multifamily housing, from 8 to 10 percent of WAP funds to up to 20 percent of ARRA weatherization funds.21,22 DOE expects a 10- to 20-percent improvement in energy efficiency, with an average first-year heating and cooling bill reduction of $437.23,24
HUD’s Green Retrofit Program is another ARRA-funded program aimed at creating scalable solutions to the multifamily retrofit problem, injecting capital into the areas of the market most in need while preserving affordable housing for the most vulnerable populations. The program has awarded nearly $250 million in retrofit grants for Section 8 and HUD-subsidized elderly and disabled housing to fund energy upgrades for 20,000 affordable units at an average cost of about $12,000 per unit. To accept the funds, building owners must allow thorough audits of energy consumption both before and after the retrofits to create benchmarks for expected energy savings.25 The Office of Multifamily Housing is currently projecting that this investment will produce an average annual energy savings of 27 percent per unit.26
In addition to efforts to directly subsidize multifamily retrofits and data collection, two new HUD programs aim to make energy efficiency attractive to investors. The Energy Innovation Fund was created to overcome barriers to residential energy efficiency by catalyzing private investment, with the eventual goal of creating a flourishing home energy retrofit market in the United States. The fund will award $25 million in highly leveraged funding by the end of 2011 through a competitive grant process that will seed up to $200 million in investment in revolving loan funds, loan guarantees, and energy-efficiency mortgages. The second program, Green Refinance Plus, is an enhancement of the existing Risk-Share program in which the Federal Housing Administration (FHA) assumes half of the risk of loans for refinancing or property acquisition underwritten and issued by Fannie Mae’s lending network. In Green Refinance Plus, at least five percent of these loans is dedicated to renovations or green retrofits, and FHA insures this portion of the loan under relaxed but still responsible underwriting standards. This way, FHA can demonstrate the cash-flow benefits of green retrofits, but borrowers will not default even if the improvements do not yield the expected savings, says Chris Tawa, senior advisor in the HUD Office of Multifamily Housing Programs, who helped design the program.27 Ted Toon hopes that this program will show that “green retrofits can be financed. When FHA insures it and Fannie Mae underwrites it, private borrowers can go to private lenders and let the market work.”28
The private sector is starting to recognize this potential market. Bank of America recently announced the availability of $55 million in low-interest loans to community development financial institutions (CDFIs) for energy-efficiency programs. The financing is intended for CDFIs that have started pilot programs to finance energy savings in multifamily retrofits. Most of these funds will provide long-term financing to 12 CDFIs judged to have the most effective, nationally applicable solutions for funding energy-efficiency improvements.29 Amy Brusiloff, senior vice president of CDFI lending and investing at Bank of America, explains that CDFIs have “lending expertise and can aggregate resources to mitigate risk and credit enhance loans. They can also use government and philanthropic resources to help defray the costs of marketing to building owners, data collection, and energy-efficiency underwriting training.”30 Bank of America will work with Bright Power to track the energy and water savings post-retrofit in buildings funded through the program.
One area of focus for the Bank of America’s program will be finding a scalable model for stand-alone retrofits (that is, retrofits not connected to mortgage initiation or refinancing). These investments are particularly difficult to finance because the risk for the lender is not bundled with other, less risky investments. In addition, because loans for retrofits are relatively small compared with the mortgage for an entire building, underwriting costs will be much larger relative to the expected return, making the loan comparatively more expensive. Moreover, owners of properties with individually metered utilities do not capture the energy savings from retrofits, which limits the revenue that can be applied to debt payments. However, stand-alone retrofits have the benefits of stabilizing tenants through decreased utility costs and increasing owners’ solvency because of the net increase in cash flow.
The Cook County Energy Savers program is providing a model of how the difficulties of stand-alone retrofits can be overcome. Designed and managed by the Center for Neighborhood Technology (CNT), a Chicago-based think tank that works on sustainable development issues, the program targets affordable housing in Chicago not already going through major recapitalization. Using funds from various public and private sources, CNT is a one-stop shop for all of the technical information, capital, and skilled workers necessary for stand-alone retrofits. This centralization substantially lowers the high transaction costs of retrofits for individual owners. In addition, CNT ensures the quality of the retrofit and monitors the results. Community Investment Corporation, a local CDFI, provides the financing (used by about 50 percent of participants) as well as financial advice to participants. Since 2007 Energy Savers has retrofitted 5,000 units in Chicago at an average cost of $2,500 per unit; the program has 2,500 more units in the pipeline and estimates that an additional 4,000 to 5,000 units will be finished by the end of 2011. The retrofits have resulted in a 30-percent reduction in energy consumption; other benefits include a 5,000 metric ton reduction in greenhouse gas emissions and 75 new jobs.31
The innovation and collaboration currently underway in the multifamily green retrofit market are encouraging. These developments may soon make capturing the untapped energy savings in the multifamily sector a reality.
- The Benningfield Group. 2009. “U.S. Multifamily Energy Efficiency Potential by 2020,” 3–9.
- Energy Information Administration, Office of Electricity, Renewables & Uranium Statistics. Electric Power Monthly, July 2011, table 5.3; Energy Information Administration, Office of Electricity, Renewables & Uranium Statistics. Natural Gas Monthly, July 2011, table 19. 1 therm = 100 cubic feet of gas.
- Joint Center for Housing Studies of Harvard University. 2008. “The State of the Nation’s Housing 2008,” 33; The Benningfield Group, 7, 15–6.
- Matthew Brown and Mark Wolfe. 2007. “Energy Efficiency in Multi-Family Housing: A Profile and Analysis,” 3, iv.
- The Benningfield Group, 4, 16.
- Joint Center for Housing Studies of Harvard University. 2011. “America’s Rental Housing: Meeting Challenges, Building on Opportunities,” 43.
- Interview with Ted Toon, August 2011.
- Interview with Ben Metcalf, July 2011.
- Interview with Paula Cino, July 2011.
- Interview with Mijo Vodopic, June 2011.
- Interview with Michael Zatz, August 2011.
- Annual Payback on Investment = Total Investment/Payback Period.
- Interview with Louis Schotsky, August 2011.
- Interview with Debra Schwartz, June 2011.
- Correspondence with Lindsay Robbins, project manager, New York State Energy Research and Development Authority, July 28, 2011.
- Interview with Michael Bodaken, July 2011.
- Interview with Dan Levine, June 2011.
- Interview with Nathan Taft, June 2011.
- U.S. Department of Housing and Urban Development and U.S. Department of Energy. 2010. “Fact Sheet: HUD-DOE Weatherization Partnership — Streamlining Weatherization Assistance in Affordable Housing.”
- Interview with Stockton Williams, June 2011.
- “Weatherization Assistance Program — The American Recovery and Reinvestment Act of 2009.” U.S. Department of Energy, Office of Energy Efficiency and Renewal website. Accessed 1 June 2011.
- Joel F. Eisenberg. 2010. “Weatherization Assistance Program Technical Memorandum: Background Data and Statistics,” 7.
- “Green Retrofit Program for Multifamily Housing.” U.S. Department of Housing and Urban Development website. Accessed 10 June 2011.
- Savings estimate courtesy of Ted Toon.
- Interview with Chris Tawa, August 2011.
- Interview with Ted Toon, June 2011.
- “Bank of America Announces New Energy Efficiency Finance Program,” Bank of America press release, 25 May 2011.
- Interview with Amy Brusiloff, May 2011.
- American Council for an Energy-Efficient Economy. 2011. “Case Study — Chicago Area Energy Savers Program,” 3.
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