Multifamily Goes Green

Written by Colin Edelstein, Director of NorSouth Constructs. As published in Scotsman Guide’s Commercial Edition, August 2013.

As the multifamily market continues to lead the commercial real estate recovery, more properties are being built to meet demand. With significant amounts of new construction coming online, green building has gained popularity in multifamily developments in a relatively short time. New building products and techniques have allowed developers to incorporate features and materials into buildings from the design process through construction. The cost-reduction benefits typically reflect on the property’s income stream and put it in a favorable position for funding.

Multifamily developments, by their nature, are more sustainable than other housing options. The smaller unit sizes, shared common spaces and building elements that limit exterior exposure help conserve energy and water. Multifamily developers today are further enhancing the basic energy efficiency of their projects.

Although green building is the right thing to do for many reasons, the capital-cost implications continue to be a moving target. To minimize costs and maximize benefits, it’s crucial for developers to assemble a competent team with experience in environmentally friendly construction and design. The green features need to be designed into the development from the beginning, and the general contractor and subcontractors must be able to furnish, equip and install these technologies.

Green building is more attractive to tenants, which makes for a more consistent income stream — a critical factor in lenders’ eyes. For conventional multifamily projects, green-building practices can offer the developer a competitive advantage, as future residents desire healthy living options and the satisfaction of conserving resources and energy. For affordable multifamily communities, state agencies often require green building certification, knowing the energy-efficient measures will positively impact future costs for residents with limited income, as well as reduce operating costs for the building as a whole.

Developers must weigh carefully the numerous options for sustainable building practices versus increased construction costs. Sustainability features for multifamily developments, in general, can increase the total construction costs anywhere from 2 percent to 25 percent. The developer must determine on a project-by-project basis what energy-efficient improvements can be capitalized, and generate return for the investors and value to the resident.

One substantial cost to be carefully considered is formal green certification. Depending on the scope of the multifamily project, the cost of completing the certification process sometimes can be prohibitive. Developers can use the guidelines established by the U.S. Green Building Council, the National Association of Home Builders and others to implement as many sustainability initiatives as possible, and design the project to meet standards even if formal certification is not pursued.

Moving forward, multifamily developers likely will continue to incorporate as many green features as possible, while still maintaining the financial viability of their projects. As the pace of green building accelerates, it will drive demand for new energy-efficient building products and technologies. The end result should be better recognition of sustainability by lenders, which will be reflected in the financing rates and products they offer.