APARTMENT NEWS

ARCHIVES 2009:

Climate Change Bill May Impact Multifamily Retrofitting incentives, stricter building codes, and energy labeling are on NMHC's radar - 050809

By: Jerry Ascierto

The climate change bill currently before Congress has several provisions with big implications for the multifamily industry.

The good news is that the bill, which was first introduced by the House in the form of the Waxman-Markey draft bill last
month, calls for federal incentives to be available to market-rate multifamily owners for retrofitting existing buildings to
improve their energy-efficiency. But as currently written, it’s unclear whether multifamily buildings would be considered a
residential or commercial building. The distinction is critical in determining how much federal aid multifamily owners could
receive.

“Under the residential program, the monetary incentive has a fixed limit that wouldn’t compel a multifamily owner to make any
changes,” says Paula Cino, director of energy and environmental policy for the Washington D.C.-based National Multi Housing
Council (NMHC). “But if multifamily were considered commercial, the funding would be per-square-foot, which is much more
beneficial.”

Building Code Revisions: The NMHC’s biggest concern with the draft bill is a mandate that each state adopt aggressive
energy-efficient measures in their building codes for new construction and substantial rehabilitation projects. The bill
requires the adoption of codes that exceed current codes by 30 percent, while mandating a 50 percent improvement over codes
released after 2015.

Achieving those levels of energy-efficiency so quickly is largely undoable, the NMHC says. Those standards only measure the
building’s envelope—the walls and windows, and sometimes the HVAC system—but the envelope only tells a small part of the
story. According to the NMHC, 70 percent of the energy used on a property is outside the scope of the code. So those
improvements would have to come from that 30 percent of what the code controls, which is very difficult.

“It’s very aggressive,” Cino says. “We’re hoping for recognition that the existing targets are somewhat arbitrary, and our
research and the research of other trade associations show that it’s not really achievable. We’re hoping to see longer
timelines.”

Energy Labeling: Another aspect of the bill is an energy disclosure/labeling provision that would force all multifamily
buildings to have an energy grade, akin to the miles-per-gallon sticker on a car. But there are several big questions yet to
be answered regarding energy labeling. The first is whether a property’s energy efficiency will be measured “as designed” or
“as operated”—a critical distinction. The energy-efficiency of a multifamily building is heavily dependent on how the
building is operated. Consider a study done late last year by engineering firm Steven Winter Associates, which looked at the
efficiency of the Peter Cooper Village and Stuyvesant Town (PCV-ST), an 11,200-unit affordable housing complex built in New
York in the late 1940s.

The study found that the 60-year old complex is one of the city’s most energy-efficient, using about 7 percent fewer kilowatt
hours per month, less than half the British Thermal Units (BTUs) to provide heat, and more than 30 percent fewer BTUs to
provide hot water, than a typical Manhatten property. The management of the complex was largely the source of these
improvements, the study found.

Another significant roadblock to labeling is the lack of a standard for measuring a multifamily property’s efficiency. The
NMHC has urged Energy Star for more than five years to come up with such a standard, since it already provides ratings for
single-family homes and commercial buildings. Earlier this year, Energy Star kicked off its benchmarking process for
multifamily buildings, but the process of collecting data that would lead to a rating system for multifamily may take several
years.

“While we support voluntary labeling programs, we have some concerns that the bill could lead to a mandatory labeling
requirement,” says Eileen Lee, NMHC’s vice president of energy and environmental policy. “The problem with mandatory labeling
is that there’s no rating system for multifamily properties yet.”

Some developers, though, can envision a day when energy efficiency scores will become a key metric in valuing an apartment
building. “You’ll be buying and selling your properties with this number, and the theory is that buyers would want the
highest energy rating because they’ll be more valuable,” says Doug Walker, vice president of asset quality and green
initiatives at Highlands Ranch, Colo.-based UDR. “People that don’t have a high rating will have to upgrade their properties.
I’d be looking for low scores, rework them, and create huge amounts of value.”

Still, labeling requirements are probably a few years away. The NMHC expects the requirements not to pass in their current
form but to be taken up again once Energy Star has finalized its multifamily benchmarking program.