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The 6th Annual Multifamily Development Symposium

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Going green in commercial buildings is nothing new. But how can more multifamily builders and developers in Greater Washington get into the energy-savings game? And just as importantly, is it worth their while to do so?


To answer these and other questions, a group of industry experts recently came together for the sixth-annual Multifamily Development Symposium, sponsored by Washington Gas. The event, held September 28 at the AMP by Strathmore in North Bethesda, produced compelling anecdotes and practical tips on everything from technology costs and project financing to energy savings and marketing.


Panelist Roger Frechette III, managing principal of Interface Engineering, said it’s understandable that multifamily developers have been slower than their commercial counterparts to go green. “It’s a highly competitive market,” he explained, “and there’s not a lot of room for experimentation.”


Still, he and his fellow panelists agreed that sustainability is gaining traction in the multifamily marketplace. One reason may be the efforts of Fannie Mae, which rewards multifamily builders, developers and owners for cutting their energy usage. In the first half of 2016 alone, $1.2 billion has been financed through Fannie Mae for multifamily projects that have a green-building certification or properties that decide to reduce their energy or water consumption by 20 percent, said Chrissa Pagitsas, director of Green Financing Business for Fannie Mae.


Fannie Mae is able to package energy financing into a mortgage so there’s no need to work with specialty lenders. Another of its products, Green Rewards, is geared toward retrofits, repairs and renovations. Fannie Mae is also building a green bond market, Pagitsas said, and often coaches borrowers about gaining green certifications that unlock Fannie Mae’s lower interest rate.


Sources of certifications and helpful ratings include Leadership in Energy and Environmental Design (LEED); the ENERGY STAR program of the Environmental Protection Agency; the EarthCraft certification program; and Green Globes, an online assessment protocol for sustainable building design, operation and management. Individual jurisdictions may offer guidelines and tax incentives as well.


Even the utility company itself can be a resource for energy savings and innovation. For instance, Washington Gas has been operating its Multifamily Piping Program in Maryland and now has approval to begin a pilot program in Virginia. The program offers rebates to developers and owners of qualified projects to offset the cost of installing gas pipe from the company’s meters to individual residential units. (In some cases, the reimbursement amount covers the full expense of internal piping.)


“We have also filed a proposal for this rebate program in D.C., as well as proposal for a more flexible commercial framework for the delivery of natural gas for highly efficient combined heat and power systems,” said Louis Hutchinson III, vice president and chief revenue officer for Washington Gas and its parent company, WGL Holdings Inc., which provides solutions across the energy spectrum: from natural gas and electricity to green power, energy efficient services and distributed generation.


Hutchinson also let the symposium audience know that Washington Gas is making significant progress on modernizing its natural gas system, reducing greenhouse gas emissions and improving safety. Throughout the D.C. area, the company has replaced more than 126 miles of distribution main and more than 30,400 service lines to date, he said.


“Over the next five years, we’ll invest approximately $650 million for accelerated replacement of aging infrastructure – we’re really excited about that,” Hutchinson added. “System modernization has helped us achieve an 18 percent reduction in emissions per therm of gas delivered over the last five years, a goal we’ve achieved four years ahead of schedule.”


Any discussion of energy inevitably leads to the uncertainty of future costs of natural resources. To panelist Peter Zadoretzky, director of sustainability for Bozzuto Management Co., high-performance technology such as combined heat and power (CHP), geothermal heating and solar panels offer not only energy efficiency in the short term, but also a hedge against volatility in future energy markets.


Plus, LED lighting and low-flow toilets “have essentially reached cost parity with the older technologies,” Zadoretzky said, “and it just makes sense to use those.”


Solar, too, has improved, added Frechette, of Interface Engineering.


“You can now buy solar panels that are 22 percent efficient,” he said.


“And when you look at the overall cost to pay back, the story has continued to get better …”


Sometimes in spite of upfront costs, the resulting energy savings can free up cash for other building improvements. That’s what happened when development firm Dantes Partners LLC set out to renovate the four-story Phyllis Wheatley YWCA building in Northwest D.C., which provides affordable housing for local women, including the elderly and disabled. “The building was crumbling,” recalls Buwa Binitie, managing principal of Dantes Partners LLC. But federal restrictions prevented the company from raising rents beyond a certain level.


Binitie and his team realized that reducing consumption of water, electricity andgas could cut the building’s $100,000 yearly utility costs in half. “So we took 50 percent of the savings and securitized that in order to bring in more capital for the renovations.” he said.


Zadoretzky, of Bozzuto, has found that “energy efficiency in affordable housing is critical, and sometimes it’ll force you to get creative.”


Bozzuto is behind a new, 100 percent affordable housing community in Arlington, for example, and the key to moving it forward was achieving four different green-building certifications (including the county’s own program).


“To get the affordable housing financing is incredibly complicated,” Zadoretzky said. “At the end of the day, we were able to make the underwriting work. And the anticipated energy costs for those residents are going to be so incredibly low that it’s just going to reinforce the mission of affordable housing.”


Even buildings that don’t offer the federal definition of affordable housing can benefit from sustainable technology, said panelist David Ohlrich, senior vice president of asset management for Federal Capital Partners. The company primarily buys older properties to renovate, and most of them are Class B or C buildings that have been under-managed and under-capitalized with no focus on energy efficiency.


Federal Capital Partners used Washington Gas’ Piping Program in Maryland to convert a master-metered electric property into an individually-metered, gas-per-resident project.

“It’s a great program,” Ohlrich says. “It made a deal that probably wasn’t affordable for us affordable.”


The eventual reduction in utility costs wouldn’t necessarily mean much to tenants paying $2,500 or more per month in a Class A residential building, he continued. “But for somebody who’s living in an apartment who may be paying $1,000 a month in rent, if I can reduce their utility costs by $100, it’s material.”


Building owners may question the need to invest in energy-saving technology when tenants are paying the utility bills. But as Frechette pointed out during the symposium, landlords are still footing the energy bills for common areas – “for garage lighting and lobbies and such.” In these cases, energy from solar panels can be directed to common areas.


“At the same time, you can … market the building as a sustainable building, which has a benefit as well,” Frechette said. “So I think we’ll see more solar everywhere, but I think we’ll also see it in multifamily developments.”

Plus, Fannie Mae provides an incentive for landlords to go green even if the utility costs in individual units are borne by residents.


“We’re actually giving you credit on your loan when you lower your tenants [utility] bills,” Pagitsas said.


Sustainability may have a long road ahead of it within the multifamily market. Pagitsas realizes many people assume going green will mean spending “thousands and thousands of dollars.” Other perceptions can be equally problematic. Zadoretzky prefers to say “high performance” or “smart development” instead of green, which he thinks people associate with high costs or a “weird,” new-agey mentality – “like we’re going to be singing ‘Kumbaya’ and lighting candles in the lobby, greeting our residents.”


Yet the panelists agreed that significant progress has been made. They predict that the multifamily industry will gradually embrace high-performance technology to reduce energy costs and to have an additional tool for marketing and differentiation.


“We’re learning it’s not just about energy efficiency,” Frechette said. “It’s really some things that are even more important to us. Green buildings are resilient buildings. Green buildings are healthy buildings. And I think the demand by the general population to be able to live in these kinds of environments is going to continue to push us in that direction.”


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