Valuing the Financial Benefits of Energy Efficiency in the Multifamily Sector

This paper focuses on how efficiency upgrades affect the financial performance of multifamily buildings. It also provides a replicable methodology for similar research to be carried out on Elevate Energy’s growing portfolio as well as other multifamily buildings nation-wide. Increasing the energy efficiency of multifamily buildings not only helps owners improve building operation, but also provides a lending opportunity for financial institutions. Energy efficiency program implementers and policy makers who aid in shaping utility Energy Efficiency Portfolio Standards also benefit from understanding the full range of positive effects associated with multifamily energy efficiency improvements. These non-energy benefits (NEBs) can range from improved health to job creation and lower greenhouse gas emissions.

In this study, we analyzed the financial benefits of energy efficiency upgrades in multifamily buildings. We also examined building owners’ motivations for investing in energy efficiency. We looked at a group of thirteen buildings upgraded through the Elevate Energy efficient buildings program, formerly known as Energy Savers, and compared them to twenty-one buildings that underwent an energy assessment, but did not complete an upgrade. We also interviewed five building owners who completed upgrades through the program. Interviews focused on learning more about their motivations for investing in their buildings and the financial outcomes they perceive. All of the buildings in this study have naturally occurring affordable rents in low-income neighborhoods.

Based on the quantitative analysis of pre- and post-upgrade data, buildings that completed an upgrade experienced a 1.6% median increase in net operating income ($29.10 per unit), a $0.12 per square foot decrease in gas costs, and a $0.34 per square foot increase in rental income six months to a year after the upgrade. In the interviews, building owners emphasized the impact of turnover costs and associated lost rental income on the success of a building. They also discussed the importance of keeping rent affordable to maintain a core group of stable, happy tenants. Overall, our results highlight the financial benefits of energy efficiency upgrades among owners who choose to complete the improvements.

The paper concludes with specific recommendations for lending entities, energy efficiency programs, and building owners.