Managing Energy Costs in Multifamily Residences

Multifamily

Reducing energy consumption is one way to improve both the profitability and value of any property. To illustrate the benefits of such improvements, the National Apartment Association (NAA) developed a scenario in which a property manager of a typical 20-unit apartment community with an annual operating income of $98,000 retrofitted common-area lighting and upgraded the laundry room. Just these changes increased annual net operating income by $3,000 and increased the property value by $46,154 (assuming a 6.5 percent capitalization rate).

As attractive as such benefits may seem, energy management in multifamily residences does present its challenges. The most prominent is the complexity that arises due to the different—and sometimes conflicting—interests of property managers and their tenants. Nevertheless, there are still plenty of opportunities for property managers to reduce energy consumption and improve the bottom line for their properties and clients. The U.S. Energy Information Administration (EIA) estimates that, as of 2005, multifamily units accounted for 15 percent of U.S. energy consumption, and that owners and tenants pay over $30 billion a year to purchase that energy. According to the U.S. Department of Energy (DOE), utilities typically are 25 to 35 percent of overall operating costs, making them the single largest controllable cost in multifamily housing (Figure 1).

Average energy use data

Figure 1: Energy consumption by end use
Space heating is the single biggest energy consumer in multifamily buildings.

When it comes to reducing energy consumption in common areas, property managers typically face a relatively simple situation: They need only to gain the support of either the building owners or their investors. Reducing energy consumption in individual units is more complex and requires different strategies depending on whether energy costs are included in the rent—which, according to the National Bureau of Economic Research, is the case in more than a quarter of U.S. apartments.

Property managers for buildings where rent includes utility costs have a clear interest in investing in efficient building shell components, heating and cooling equipment, and appliances. Energy use in these units represents an uncontrolled expense for managers because there are typically few limits on the energy such tenants may consume. Retrofitting submetering equipment into such units is one way to encourage those tenants to take control of their own energy expenditures. In buildings where tenants pay their own energy costs, offering “green leases” is a way to enable tenants to share in the costs of those energy-efficiency upgrades that they benefit from (see the “Get Tenants Involved” section).

A good place to start with any energy-reduction program is to observe the patterns by which your building systems and tenants use energy (Figure 2). Armed with such knowledge, a manager can improve how the common areas, lighting, HVAC, parking areas, vacant units, pools, and hot tubs are operated. For example, schedule common area services to be fully functional during peak demand and reduce their availability during low-demand periods.

Figure 2: Multifamily load patterns exhibit early and late peaks
The electrical load profile of a typical multifamily residence exhibits two distinct peaks. The first, smaller one occurs in the early morning and tops out around 9:00 a.m. The second, larger one is much higher, lasting until about 8:00 p.m.
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