1. Green Capital Needs Assessments
Financing Green Improvements with Energy Savings
Presented at the Partners in Innovation Conference
Ethan Handelman
ehandelman@recapadvisors.com
617.338.9484 x5904
April 14, 2010
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2. Recap Real Estate Advisors and On-Site Insight (OSI)
Solutions to complex multifamily asset problems
Track record
• Over $4 billion in multifamily
assets under management
• Completed over 6,000 capital
needs assessments
• Closed $2.7 billion in
transactions on nearly 800
properties nationwide
Services
• Asset management, transactions, advisory, asset resolution, capital planning
Clients
• Investors, lenders, public agencies, for-profit and non-profit owners
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3. Challenges for Greening Existing Multifamily
• Cost Issues
– Existing building systems may have a remaining useful life
– Funding is finite and often has time limits
– Components of cost: initial and ongoing
• Operating Issues
– Units are occupied
– Cash flow must be maintained
– Replacement systems interact
• Other Issues
– Cost of capital varies (grants vs. debt vs. equity)
– Funding sources may require green rehab
– Efficiency savings can be difficult to underwrite
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4. Green Decisions are Financial Decisions
• Need for financial metrics
– Make financial decisions connected to environmental impact
– Prioritize limited capital
– Compare options consistently
• Tools in the GCNA
– Simple payback analysis (SPA)
– Life-cycle cost (LCC) analysis
– Net present value (NPV) of potential savings
– Investor rate of return (IRR) for capital invested
– Savings-to-investment ratio (SIR)
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5. The Audit – Life Cycle Cost Analysis
STEP ONE: PRODUCT COMPARISON Calculated Life Cycle 25
Conventional: Atmospheric Low-Pressure Steam Cost over Life Cycle (EUL)
Action Quantity Unit Cost Total Cost EUL First Year Inflated Discounted
Install/Replace 1 $6,300 $6,300 20 1 $8,074 $7,227
Maintain 1 $500 $500 1 2 $17,730 $6,998
Utility Cost 5,134 $1.55 $7,958 1 1 $290,132 $119,336
Total Life Cycle Cost $315,935 $133,560
Green: HE Condensing Hydronic Cost over Life Cycle (EUL)
Action Quantity Unit Cost Total Cost EUL First Year Inflated Discounted
Install/Replace 1 $14,900 $14,900 25 1 $14,900 $14,900
Maintain 1 $250 $250 1 2 $8,865 $3,499
Utility Cost 4,370 $1.55 $6,774 1 1 $246,957 $101,577
Total Life Cycle Cost $270,722 $119,976
ECONOMIC RETURN ANALYSIS PRODUCT RECOMMENDATION
Green NPV $13,584 Green:
Green IRR 22.9% HE Condensing Hydronic
Green SIR 2.77 Override with Green Product?
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6. The Audit – Life Cycle Cost Analysis
STEP TWO: REPLACEMENT TIMING
Remaining Useful Life 8 Final Product Choice
Replacement Year 9 Green: HE Condensing Hydronic
Immediate Replacement 1 Cost over Life Cycle (EUL)
Action Quantity Unit Cost Total Cost EUL First Year Inflated Discounted
Install/Replace 1 $14,900 $14,900 25 1 $14,900 $14,900
Maintain 1 $250 $250 1 2 $8,865 $3,499
Utility Cost 4,370 $1.55 $6,774 1 1 $246,957 $101,577
Total Life Cycle Cost $270,722 $119,976
Replacement at End of Remaining Useful Life 9 Cost over Life Cycle (EUL)
Action Quantity Unit Cost Total Cost EUL First Year Inflated Discounted
Install/Replace 1 $14,900 $14,900 25 9 $9,183 $8,669
Maintain 1 $250 $250 1 10 $6,575 $1,874
Utility Cost 4,370 $1.55 $6,774 1 9 $186,725 $55,402
Expenses for Current Product Through Useful Life
Utility Cost 5,738 $1.55 $8,894 1 1 $79,088 $60,630
Total Life Cycle Cost $281,570 $126,575
ECONOMIC RETURN ANALYSIS TIMING RECOMMENDATION
Timing NPV $6,599 Replacement Year: 1
Timing IRR 17.74%
Timing SIR 1.84
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7. Case Study: Ridgecrest Apartments
Property
• 144-unit Section 236 elderly property
• 1972 construction; many original finishes, systems
• Owner seeking Weatherization Assistance Program funds
Findings
•15-year-old windows; stack effect
•Many original 3-4 gpf toilets
•Oversized boiler plant
•Low R-Value wall insulation
•Original cabinetry, vinyl tile flooring
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8. Case Study: Ridgecrest Apartments
Recommendations
• Identified 13 ECMs and 8 GMs
• Single-hung windows to accommodate air
conditioners with thermal break and Low-E
coated glazing
• Improvement to wall insulation financially and
physically infeasible
• Installation of high-efficiency condensing
boilers; downsize capacity
• Linoleum flooring, solid wood cabinetry, solid
countertop surfaces
Potential savings
• ECMs total annual utility savings of $48,152
• GMs total life cycle cost savings of $26,060
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9. Michigan’s Reinvestment Program
• Stimulus funds recapitalize and green the existing
inventory
• $78 million of Exchange (Section 1602) funds
• Rehab work guided by a GCNA within program limits
• New use agreement and forgivable mortgage
• Streamlined application process
• Eligibility: existing properties > 8 years old with some
form of MSHDA subsidy
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10. Enterprise Retrofit Audit Protocol
• Developed with Enterprise Community Partners
• Creates baseline for investment-grade reporting
• Incorporates 20-year capital needs projection plus an
energy audit
• Allows underwriting and cost projection of green retrofits
• Consistent metrics for national data collection
• Supporting Enterprise’s lending for green retrofits
– California, 14 properties
– Ohio, 5 properties
– More to come
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11. Green Capital Needs Assessments
Financing Green Improvements with Energy Savings
Presented at the Partners in Innovation Conference
Ethan Handelman
ehandelman@recapadvisors.com
617.338.9484 x5904
April 14, 2010
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