Commercial Lots for Sale - Pederson Crossing Blvd., DeForest,WI
Ethan Handelman, Recap Real Estate Advisors
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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