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What are the most promising opportunities to promote greater residential energy efficiency? Is there a role for the federal government?

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By Rick Samson

Five years ago, we at Stewards of Affordable Housing for the Future (SAHF) launched SAHF Energy in recognition of the fact that energy and water bills were often the single largest controllable operating cost faced by affordable multifamily property owners, while gains in efficiency would have a direct and immediate impact on SAHF’s core mission, the preservation of this precious housing resource. Since that time we, have generated a number of member focused demonstrations to identify obstacles to greater efficiency and potential solutions.

The obstacles can be summed up as “3 C’s”:

  1. Competence – the lack of energy and water efficiency expertise within even the most sophisticated affordable owner organizations. When we started SAHF Energy, no SAHF member (11 of the largest nonprofit owners of affordable multifamily housing) had anyone on staff qualified to evaluate the energy opportunities within its portfolio.
  2. Capacity – everyone associated with developing and operating these multifamily portfolios already has a full time job so the staff time is not available to focus on energy and water efficiency.
  3. Capital – owners generally lack equity and for regulatory reasons cannot recoup an investment in energy and water efficiency. Nor are there loan products, apart from infrequent full property refinancing, that enable an owner to borrow funds to pay for retrofits and service them from energy savings.

While SAHF Energy has not “cracked the code”, five of the key lessons we’ve learned are:

  1. HUD regulatory constraints and lack of owner incentives must be revisited. The DOE/HUD recent announcement of the implementation of the Better Buildings Challenge for multifamily properties and the associated incentives is a huge step in the right direction.
  2. In other commercial real estate settings, financing strategies have to address split incentives between owners and tenants. In contrast, the financial benefits of energy and water efficiency in the assisted property cohort flow primarily to HUD and not the owners or residents. This suggests that a “pay for success” approach might be appropriate.
  3. Most properties need a surprisingly small amount of investment ($2,000-4000/unit) to generate as much as 20% savings. Ironically, this complicates financing. The small total loan amount ($150,000-300,000) is not economically attractive to potential lenders, and transaction costs eat up much of the savings.
  4. Energy performance contracting with a savings guaranty would be an attractive option if a way can be found to deal with the relatively small project sizes and associated costs.
  5. Avoiding the need to deal with the existing, often complex capital stacks associated with affordable multifamily properties (e.g. tax credits, first mortgage loan, soft secondary notes) would ease the financing challenge. On Bill Repayment and On Bill Financing, where the monthly utility bill is the vehicle for loan collection, are promising alternatives.

Acting on these lessons learned will dramatically increase energy and water savings opportunities with the assisted multifamily portfolio.

Rick Samson is president of Stewards of Affordable Housing for the Future Energy

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