When Greystar recently teamed with NWP for a landmark case study on the fiscal performance of the properties under my review which using utility expense management programs, the results created quite a stir. Outperforming the market by 43 percent is definitely something to write home about.
The study titled, “Reducing Utility Costs in the Apartment Sector,” is an analysis of the net utility costs of properties owned and/or managed by Greystar compared to those of similar location and product type included in the National Apartment Association’s (NAA) 2013 “Survey of Operating Income and Expense in Rental Apartment Communities.”
While the national average of net apartment utility expenses per unit was $535 annually according to the 2013 NAA survey, Greystar-managed apartments came in at $303 per unit, per year (see the full report at www.nwpsc.com/whitepaper/greystar-outperform/) for a savings of $232.
How did Greystar do it? I recently drilled-down on the operational practices that we implemented in order to perform better than market. The savings broke into three category gains: billing residents, consumption savings and rate savings in that order. Making headway in each of these is predicated on consistent benchmarking and a property manager’s ability to track fiscal performance and expense.
Begin with consolidated reporting. It is important to catch outliers, irregular utility use and to compare properties within a portfolio. Regularly measure the performance of your billing provider(s) to compare results and maintain the best-possible fiscal return; pull and review property reports on a regular basis to monitor how well a property is performing including its average utility expense and recovery; visit with regional managers on a regular basis to review performance and get a detailed handle on each property’s situation to find obvious needs for improvements or upgrades.
Once these methods of measurement are in place, my first and most significant recommendation: bill residents for the utilities they use. Simple, impactful, but still not a universal practice across the industry.
As these costs rise, it will be nearly impossible to contain them and keep an apartment operation fiscally solvent when a landlord is responsible for paying for utility use they have no way of controlling. According to my portfolio metrics, Greystar is able to recover more of its utility costs per-year-per-unit, because we are diligent about accurately charging residents based on their consumption.
The pay-for-what-you-consume model compels conservation among residents based on comparisons of utilities included vs. rebilled. To the Greystar portfolio, conservation (including retrofits and other management efforts along with resident conservation) equates to annual savings of about $6 million in electricity and water.
The final proficiency that helped Greystar beat the national average in market performance relates to rate monitoring; assuring utility rates for your properties are accurate and efficient has a significant impact to cost containment.
Regarding rate procurement, relying on experts can be a no- or low-cost exercise when it’s averaged over a wide number of units, or if properties are located in particularly stressed regions such as the southwestern states and its severe drought conditions. Stressed jurisdictions usually come with their own restrictions, premium rates, even penalties, depending on the consumption patterns. Rate procurement is not so complex as it is tedious. It’s nearly impossible to stay current with rates and discounts available to larger utility customers such as an apartment community.
Rebates and retrofits
Conservation is on the hearts and minds of apartment owners and operators these days, as well as utility providers and legislatures, and there are plenty of rebates to prove it. Such rebates can come from utility companies, local, state and federal jurisdictions, manufacturers and more.
I ran the numbers on five Maryland properties, spanning 2,132 units, which we retrofitted for energy efficiency. This particular retrofit was a rather dramatic example because all-in, the cost on the project after rebates and credits totalled zero. The state-paid program meant that installation and labor were free, as well as product including light bulbs, showerheads, and aerators. The program almost immediately yielded a profit.
Year-over-year, the gross savings after upgrades was at least $57,000 in gas; $33,000 in water and $59,822 in electricity across all properties. That meant $70.23 in total savings per unit for a total of $150,000.
We are now trying our hand at replacement toilets in Seattle—where water/ sewer costs are some of the highest in the nation and a local county rebate of $150/fixture helps it makes great sense. The low-flow toilet initiative including installation retrofit and tax will run about $93 per toilet net after rebate. At 1 gallon per flush, versus the 3.2 gpf currently on site, the predicted savings is 6,000 gallons a day—$40,600 a year in water savings—and a sub-9 month payback, and over $15 per unit per month. The project delivers a three year savings of $93,120.
In Phoenix, I am delighted to share that we added smart irrigation controllers to one of our properties. The retrofit has saved ownership $60,797 over a two-year period and has slowed the rising cost of water billed back to residents.
Mesa, Arizona, is a perfect city to try one’s hand at solar and Greystar helped with a $1.4 million solar installation up and running. The ownership is expected to cash flow $127,151 by year five using tax incentives. Without tax incentives, it cash flows approximately $21,969 in year ten. The net up-front cost of the project was $563,000 which is 80 percent of the system cost before incentives.
For this project, the owners assumed a 6 percent cap rate, and a 4.4 percent annualized increased in utility costs.
Finally, my favorite current project is that of the great toilet flapper. Beginning in 2013, Greystar established the company-wide policy that upon every unit turn, on every toilet, the flapper would be replaced (at an average cost of $2.41 per flapper). In 2013 we changed 37,000 toilet flappers and hope to double that number in 2014.
As I collect the data on the great flapper program for my next case study, I will only say that I predict an immediate and most significant return will be found in the thousands of dollars in water savings. It is a well-reported fact that toilet flappers are one of the greatest causes of undetected leaks in homes of any type. I look forward to providing details of my findings at Energy Summit 2015. Stay tuned.