Utility costs are one of the largest operating expenses for affordable housing owners. Anything apartment owners and operators can do to control utility expenses will fatten their net operating income. Saving money on utilities will also determine who’ll be competing in a multifamily climate where everyone—from owners to tenants to local officials—is increasingly becoming concerned about limited resources.
“The new development of properties in some cases is being constrained by the availability of resources to support those properties,” said Michael Radice, president and CEO of NWP Services Corp., an Irvine, Calif.-based firm that provides utility cost management solutions and resident billing and payment capabilities to multifamily owners.
“Cities and municipalities are asking developers who want to build large apartment complexes, ‘What are you doing to conserve?’” said Radice. “Residents are becoming more sensitive to this issue of conservation too.”
In the 2008-09 winter alone, gas prices are expected to increase by as much as 50 percent, according to Phil Neeves, director of HVAC Solutions for ista North America, a submetering and resident billing provider based in Alpharetta, Ga.
Many of the same options that exist for market-rate developers to cut utility costs also exist for affordable developers. Eugene Schneur, managing director for Omni New York, LLC, is taking advantage of one of them. His firm specializes in acquiring and rehabbing affordable properties. The firm owns about 2,000 affordable units in New York, including properties upstate, in Westchester County, and in New York City.
Schneur has several buildings on an Internet-based building monitoring and management system. The system warns owners in the form of an alert (by e-mail, cell phone text message, or fax message) if there is a boiler problem. Someone may even call the owner to personally recommend specific ways to fix the problem. Such systems can help save apartment owners and operators anywhere from 15 percent to 40 percent on fuel consumption.
“You may be spending some money up front, but in the long run you’re saving a bundle,” said Schneur. “With the increasing cost of oil, I don’t think you can not do this.”
The buildings in which Omni is installing the technology are undergoing rehabilitation. The plan is to go back and set up the already-renovated properties with a boiler monitoring system in about six months.
Those pesky utility allowances
The Internal Revenue Service’s (IRS) Guide for Completing Form 8823, released in January 2007, has brought some good news for owners of properties under the low-income housing tax credit (LIHTC) program.
According to the guide, owners have permission to consider other sources of utility allowances if owners can’t get local utility companies to make utility adjustments on an annual basis.
The 8823 Guide states that if the local public housing authority (PHA) allowances do not reflect the actual annual average utility usage of a property, the owner can compute utility allowance estimates based on the expected or historical use of the property with permission from the state housing finance agency. Previously, owners could only use PHA allowances as an alternative to local utility company allowances, but typically PHA allowances are much higher than actual usage. That means that the owner could be paying more money to the local utility company for utility bills if the owner is paying for utilities instead of the tenant, and in many cases they are.
Affordable owners should find out if their properties actually use less than the allowance, said R. Lee Harris, president of Cohen-Esrey Real Estate Services.
“It can take a lot of work to sort through all the data, but it’s time well spent, in terms of cash savings,” said Harris.
Recently, the IRS released an update on the use of utility allowances. If the cost of any utility (other than telephone, cable television, or Internet) for a unit is paid directly by the tenant, the gross rent must include the applicable utility allowance. If a property receives funding from the U.S. Department of Agriculture’s Rural Housing Service (RHS), that agency will determine how owners figure utility allowances. If tenants receive rental assistance from the Department of Housing and Urban Development (HUD) in properties that receive RHS assistance, then RHS still would determine how utility costs are calculated. At HUD-regulated buildings, the HUD utility allowance will be used for all rent-restricted units.
All other affordable properties can calculate utility allowances in various ways. A HUD utility schedule model, which can be found at www.huduser.org/datasets/ lihtc.html, can be used.
An owner may also calculate utility estimates using an energy consumption model. Deregulated utility services may be used as an alternative. “Considering the exponential increases in energy costs, the new utility allowance regulation will allow builders to more accurately calculate the energy usage for their buildings, therefore reducing long-term operating costs,” said Justin MacDonald, chairman of the National Association of Home Builders’ Housing Credit Group and a developer of properties using LIHTCs in Kerrville, Texas.