Retrofit solutions can range from changing out lighting to replacing building insulation
Everything to Know About Multifamily Retrofits
According to Cushman & Wakefield, retrofitting is “the process of making alterations to an existing property to improve its energy efficiency and reduce energy consumption.”
Retrofitting involves a lot of forethought, analysis and research regarding multifamily improvements. Or, as EcoSmart Solution’s CEO Chris Gray told Connect CRE: “Retrofitting starts with stepping back, determining where energy consumption is going and what’s feasible to implement.”
Other issues to consider include:
- The building’s construction and age
- The existing energy envelope (insulation and windows)
- Cost of utility bills and improvement trade-offs
“There are dozens of retrofit options,” Gray explained. “You want to look at the entire study, determine the highest benefit and return, then overlay it with your goals.” He added that EcoSmart’s first step when working with a multifamily client is an energy audit. “From there, we build energy models that help with solutions,” he said.
Those solutions can range from changing out lighting to replacing building insulation, depending on the situation and the building owner’s goals. As such, “you have to have someone work with you to determine where the opportunities are, then guide you on what to do and how to access the money,” Gray said.
Financing the Fix
One goal of retrofitting is to save operating expenses through developing and incorporating sustainable practices. However, those savings occur down the line. Retrofits generate upfront costs, which could require access to equity through recapitalization or partners.
Then there’s the potential for debt. “Traditional lenders have goals to lend a certain amount of funds to climate-related actions,” Gray said. “Agency lenders also have existing green loans.” Then, there is Commercial Property Assessed Clean Energy (CPACE), a low-cost, long-term financing structure that allows multifamily owners to borrow money for energy efficiency projects.
However, Gray cautioned that securing the right debt financing for retrofits involves much effort and attention. “You have to have someone who can walk the lender through the process and model,” he said. “That provides better prospects for securing the loan.”
Benefits of Retrofitting
Aside from operating expenses, multifamily retrofits can offer other benefits, including boosting the competitive advantage. “If you have a 1960s property competing with a brand-new one down the road, retrofitting can improve that vintage property, make it more environmentally sound, while offering lower rents,” Gray said. “That can maintain high occupancy rates.”
Retrofits that replace systems can also increase tenant comfort. “Retrofits can make the property easier and cheaper to maintain while reducing operational complexity,” Gray explained. “All that can help reduce those middle-of-the-night tenant calls concerning no heat or water.”
Then there is the appeal of the property to other investors. Gray explained that an apartment building owner can increase a buyer pool if that owner can prove an increase in energy conservation and carbon footprint reduction. “This opens the property to institutional buyers with green mandates, who are looking for sustainable products,” Gray said.
Pursuing Best Practices
One takeaway is that not all retrofits are the same. Some involve opening walls to deal with insulation, while others might focus on upgrading HVAC systems.
“While the typical rehab is vacating, most deals can’t handle this,” Gray said. “It’s better to plan a retrofit in a way that works through vacant units. Figure out ways to work in stages that can work around tenants—either move them to other units for a short period or keep them in place and protect them.”
Starting with the low-hanging fruit could also be an ideal strategy. “Focus on improving lighting or reducing water consumption,” Gray advised. “As units turn, you could access them to install systems upgrades.”
Retrofits should be planned as systems and buildings age. “If you’re starting to get more repair calls and the costs are going up, it’s probably time to think about replacements,” Gray said.
Above all, retrofits shouldn’t be thought of as “one-and-done.” Gray said that the process is ongoing. As such, “It’s a good idea to have someone on your team that can help you pinpoint and plan retrofit strategies,” Gray said.
Source: ConnectCRE
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