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Cliff Hockley, President
Bluestone and Hockley Real Estate Services
As landlords prepare their 2009 budgets they will be taking a close look at increasing utility expenses.
Increases in all utility sectors are looming.
This year alone Landlords in Portland, Oregon will be facing significant increases in all of their utility expenses.
Electric:
- PGE: 14 – 15%
- PP& L: 8.5%
Gas:
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Northwest Natural Gas 14%
Water and sewer:
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City of Portland water and sewer bills increased by 11.3% in July of 2008 and will increase another 8 – 10% in July of 2009
Garbage:
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Between 10% and 17% depending on commercial or residential use.
What is driving these increases?
The trend in escalating utility prices is driven by:
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the integration of salmon habitat rehabilitation and its parallel potential future reduction in hydro electric power as dams are pierced and taken off line
- plus the cost of installation of new wind and solar power infrastructure
- As well as the replacement of aging infrastructure.
In addition, the evolution of the clean air and water acts and population /infrastructure needs have forced municipal water and sewer agencies into a continual cycle of system upgrades in order to preserve clean waterways.
These increases have occurred consistently and spiked recently as a result of the high oil prices in the summer of 2008.
What can a Landlord do to plan ahead and keep a handle on the increasing utility rates?
Many landlords have decided to bill back tenants for the use of water and sewer and garbage. Water, sewer, electric, and gas can be billed back using a sub-meter system that can be read by the onsite manger, or by electronic means or by using Ratio Utility Billing System (RUBS). Garbage can also be billed back using the RUBS system. Many landlords hire utility billing contractors to handle this process for them. Many of the companies that offer these services can be located on the internet, at multifamily vendor exhibitions and by word of mouth.
In addition Landlords should consider the following longer term solutions:
RUBBISH
Recycling
Keep on recycling and encouraging your tenants to recycle. New construction should consider installing under counter compactors to use less dumpster space. Large apartment complexes review the balance of labor against garbage rates. The collecting and hauling of the rubbish to a central compactor may cost more in labor hours as compared to having separate dumpster locations around the property.
PLUMBING
Solar Thermal
Hot water preheating as well as swimming pool heating can be accomplished by the use of solar thermal systems. These are different from Photovoltaic systems and are more cost effective. There are federal and state tax credits available for the use of these systems as well as potential grants from the Energy Trust of Oregon.
Dual Flush toilets
These toilets have two settings (2 buttons) and use .8 gallons for urine use and 1.6 gallons for use with bowel movements. They are used all over the world and save a significant amount of water.
Tank-less water heating
On demand water heating, also known as tank-less water heating, is another way to save energy expenses, since the water does not have to be continuously heated during the day to keep warm when you turn on the tap to use it.
Rainwater Harvest
Commercial and residential rainwater harvesting. This process is currently in its infancy for large use ( bigger than residential homeowner).
Grey Water Systems
Re-use the filtered waste water from sinks and showers to flush your toilets. These systems can save you 35-40% of your water use (from BRAC website) http://www.watersavertech.com/AQUS-System.html. This technology has come a long way and is patented for use in the United States
Additional Greywater links: http://www.greenbuildingsupply.com/utility/showArticle/?objectID=330.
http://www.bracsystems.com/home.html
Misc Water Facts
"UNESCO has predicted that by 2020 water shortage will be a serious worldwide problem”. The average family in the US and Canada uses more than 1600 cubic meters of water per year. That is 6400 tons of water for a family of four--twice as much as the average family in France, three times as much as in Germany, almost four times as much as in Sweden and more than eight times as much as the average Dane!!! Our per capita water consumption is 65% above the world average.
ELECTRICAL
Energy Trust of Oregon has identified many energy efficiency measures that can be applied to save incremental dollars:
To motivate investment in these measures they offer cash incentives to owners of multifamily property to help pay for change over in technologies. In many cases, these incentives are tied to state and federal tax credits and low interest rate loans to help investors make significant investments into their properties.
Clearly you can attract a better tenant to a property that has been upgraded with new windows and doors and insulated and saves energy costs. Since tenants are paying the electrical bill any way, the fact that by living in an energy efficient property, they can save dollars will help motivate them to rent from you as the cost of utilities increase.
From Energy Trust Website
Energy Trust offers cash incentives to multifamily property owners for :
- Clothes washers
- Common area lighting
- Duct insulation
- Exterior doors
- Gas boiler and pipes
- Gas furnaces
- Heat pumps
- Insulation
- Attic
- Exterior wall
- Underfloor
- Refrigerator recycling
- Water heaters
- Windows
Call Energy Trust at 866-311-1822 for more information. See a list of Multifamily Home Energy Solutions standard incentives and new lighting incentives on their website.
Bonus for participating
Free water and electricity savings measures for your existing Multifamily building when you participate
As a participation bonus, they install the following inside every unit that receives incentives for shell weatherization measures or HVAC equipment:
- Compact fluorescent light bulbs - Up to 8 per unit
- High performance showerheads
- High performance faucet aerators for kitchen and bath
Eligibility
Properties must be five units or larger and served by Portland General Electric, Pacific Power, NW Natural or Cascade Natural Gas to qualify for Energy Trust cash incentives. For information about incentives for smaller multiple-unit rental dwellings see Energy Trust’s Duplex, Triplex, and Fourplex Incentives webpage.
Loans are available through a special program called Green Street Lending, a partnership organized by Umpqua Bank and Energy Trust of Oregon and are known as BETC Loans
Geothermal Space Heating or Ground-source Heat Pumps
The State of Oregon
The State of Oregon offers significant Tax credits for conversion to alternative energy sources. A summary of Solar and Geothermal resources from the Oregon Department of Energy website follows below.
Geothermal heat pumps, commonly called ground-source heat pumps (GSHPs), work by moving heat, rather than by converting chemical energy to heat like in a furnace. They provide space conditioning -- heating, cooling, and humidity control. They may also provide water heating -- either to supplement or replace conventional water heaters. Geothermal heat pumps are three times more efficient in heating your home than baseboard electric heaters.
Solar Space Heating
A solar space heating system is eligible for a tax credit of up to $1,500. The tax credit may offset the additional cost of improved design, thermal storage and superior windows.
Solar Electric Systems (PV)
A solar photovoltaic system is eligible for a tax credit of up to $6,000. For more information about the solar tax credit, see Oregon Department of Energy web site.
The Oregon Residential Energy Tax Credit brochure explains how you´ll save on energy bills and how to apply for the credit. Contact The Oregon Department of Energy with any questions. (503.378.4040 in Salem or 1.800.221.8035 toll-free in Oregon).
Solar Domestic Water Heating Residential Tax Credits
A solar domestic water heating system is eligible for a tax credit of up to $1,500. For more information about the solar tax credit, see the Oregon Department of Energy web site.
Business Energy Tax Credits ( BETC) are temporarily back logged according to October 24, 2008 article on page four of the Portland Business Journal, Breaking Down the BETC Backlog. There are currently 50 new applications per day coming n to the Oregon Department of Energy BETC program.
Photovoltaic Panels
This technology has been installed effectively at numerous multifamily locations in the United States. New plants in Oregon will be producing these panels in volume and be able to use manufacturing efficiencies to reduce the cost of this technology. An expert needs to be consulted to pencil out the return on investments, especially since in many multifamily buildings power is separately metered to the tenants. Older buildings with central heat and hot water are more likely candidates for changeover to photovoltaic cells. Commercial buildings and homes are also more likely to benefit from photovoltaic conversions.
Conclusion
There is no lack of innovation and financing mechanisms available for Landlords to save money. The real challenge is how to arrive at a break even point for your cost analysis. Conceptually one could expect utility rates to increase in a range from 5 – 10% annually. That means that over the next five years you could have a potential 50% increase in each utility bill.
Most landlords will look for ways to pass this on to their tenants, with utility pass through billings or rent increases. Unfortunately tenant’s incomes will not be increasing at the same rate. I would encourage Landlords seriously consider building improvements that reduce utility expenses, that they can amortize over 5-7 years. I suggest this for two reasons; these upgrades will modernize existing buildings and make them more “Green” while at the same time reducing utility expenses. The added benefit is that this will keep the rents more competitive and at the same time make the buildings more attractive to future tenants. Tenants like knowing that their building is “Green” and helping them save money, this keeps your buildings full.
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