How Financing Opportunities Spurred Energy Efficiency for an Affordable Multifamily Rehab

This resource is available courtesy of DCSEU.

The Building Innovation Hub interviewed Paul Orentas with ThinkBox about the renovation of 800 Southern Ave, an affordable multifamily building in Southeast Washington, DC. This case study dives into how the project leveraged creative financing to drive energy efficiency improvements for the building and its residents.

Motivation Behind the Renovation

The owner wanted to lower operating costs and improve their debt service coverage ratio, replace a malfunctioning chiller, and convert to tenant-paid utilities as requested by tenants.

There was also an opportunity to take advantage of some financing options to assist with the renovation through DC Department of Housing and Community Development’s (DHCD) Housing Production Trust Fund program, and through the Department of Housing and Urban Development (HUD), including a HUD redevelopment program for rehabilitation projects that allows owners to borrow 5 percent more on their mortgage if the project included energy efficiency measures. Finally, incentives from the DC Sustainable Energy Utility (DCSEU) and International Center for Appropriate & Sustainable Technology (ICAST) programs provided additional financial support for implementing energy efficiency measures.

ThinkBox’s Role and Key Stakeholders

For this project, our services included program development and management services, financial engineering (including integrating DCSEU and ICAST incentives into the HUD rehabilitation program), as well as design, support, construction, management and inspection for the energy efficiency measures. We also managed the solar installation and provided a year of measurement and verification.

The key stakeholders were HUD, Vesta Management, and Brewer Garrett, the engineering company. Limbach was the mechanical contractor and continues to maintain the system. Other stakeholders included PEPCO, and GE Solar, which is now GE Vernova, as well as the DCSEU.

Project Details

What were the energy efficiency measures implemented in this renovation project?

Beginning in 2020, 800 Southern Avenue LLC performed a complete rehabilitation of 358 units and the common area. This redevelopment activity included an approximately $11 million dollar comprehensive energy capital improvement program. The key elements were: 

• Meter conversion. This project required an electrical service upgrade for the entire property as a whole before converting the master metered electric account into 358 individual tenant metered electricity accounts, each with upgraded power capacity. 
• Heat pump conversion. The project converted the centralized heating hot water and chilled water hydronic system to a water source heat pump system with thermostats. This gave HVAC control to the tenants, which they did not have before.
• Installation of condensing boilers. These manage domestic hot water demand while providing a loop temperature for the water source heat pumps. This scope included distribution loop optimization at 80 degrees Fahrenheit to 140 degrees Fahrenheit based on outdoor air conditions.
• Cooling controls improvements. This project added variable frequency drives to existing cooling tower and distribution loop pumps and the Niagara cool controls platform.
• LED lighting conversion. The project included renovation of both interior and exterior common areas and in-unit fixtures. 
• Improved security. The project improved site security by replacing lights that were not working, and adding lighting to the stairwells, parking garage, and parking lots.
• Energy-efficient appliances and windows. This project installed ENERGY STAR appliances, windows and patio doors to reduce energy usage and costs for the tenants.
• Water efficiency fixtures. This project installed water saving fixtures to reduce hot water energy costs and reduce the cost of water service.

Were there any decarbonization measures as part of the project?

There was no concerted decarbonization effort, primarily because it was before its time. The design started in 2017, and at the time the incentive agreements were awarded in 2020, the DCSEU was still incentivizing natural gas appliances. (Note: After August 20, 2021, in line with District policy and the Clean Energy DC Plan, the DCSEU stopped offering rebates for new natural gas fueled equipment.) The owner likely would have made a more of a decarbonization effort if they were starting today, but they did what they could at the time. 

This renewables project included installation of two large solar arrays. Financing was done through a power purchasing agreement set up where half of the PV system’s generation power flows “behind the meter” to the building’s common area, reducing the cost of electricity. The other half of the generation is sent to the grid. The owner receives a lease payment for that half of the array, but they do not get any generation benefit from that array itself.

The project was initially intended to be used as a way for the tenants to offset their costs. However, since it was ultimately financed using a power purchasing agreement where the owner does not control the project, it could not be installed as a Solar for All type of application and was not configured to allow the tenants to offset their costs. And so we recommended that the tenants join the Department of Energy and Environment’s Solar for All Community Solar program which is available for income-qualified residents. Building Management provided information to residents on the program and how to subscribe, and we know that some have taken advantage of it.

What was the process for determining the right measures for this project? And who was involved in the decision making process?

Decisions were driven primarily by savings projection and budget. The design elements in the original budget that contributed to energy savings included appliances, lights, windows, and major components including air cooled heat pumps. With the added budget for further energy efficiency measures from the HUD redevelopment program, additional upgrades included a water cooled heat pump solution which allowed the building to utilize the hydronic system that was already in place. Condensing boilers were added after the fact. ThinkBox played a big role in helping to make these decisions  and Brewer Garrett performed the studies on the cost analysis. A series of design review sessions were held which  included DCSEU’s review to inform the analysis on  which measures would be eligible for incentives.

Financing

How were these improvements funded? What was the process for setting up incentives with DCSEU?

The energy efficiency upgrades were primarily funded through HUD redevelopment funding. The resulting improvement projected in the net operating income allowed for an increase in debt capacity which was then used to support the whole redevelopment.

DCSEU was engaged early on through their Low Income Comprehensive incentive agreement program. ThinkBox introduced the project to the DCSEU and coordinated the deliverables necessary to receive an incentive agreement. Because the DCSEU may only issue an incentive agreement for the fiscal year that construction completes, we structured a multi year, proportional incentive agreement for measures completed in each fiscal year during construction. 

ICAST, which offered retrofit financing options to multifamily owners and leveraged its partnerships with utility programs to access rebates and other incentives, approached the owner post-construction and provided additional incentives for appliances and windows. (Note: ICAST recently concluded its work on a three-year, whole-building deep retrofit program for Pepco in D.C. It targeted affordable multifamily properties with three or more units, and focused on paying custom incentives tied to energy savings.) 

Resident Experience

What happened to the residents while the renovation was going on?

As units became vacant during turnover leading up to the rehabilitation start, they were left vacant. The project focused on two floors at a time. Management relocated tenants to other vacant units during construction, and then moved them into new units as they were completed.

You mentioned the education component, do you know if the building management is taking any action on that?

Building management had a resident engagement program. They had information sessions to welcome tenants to their new units, and those covered the new electric bills now that the units were individually metered, thermostats, and recommendations on set points to help save even more energy, as well as information on the solar program.

Results

What were the energy savings projected and how does that compare with actual energy savings?

The overall electricity consumption is down 16%. Over the historic baseline, we expected it to be 13.5%. Gas overall consumption is down 42% over the historic baseline, compared to a 28% expected reduction, so our recommendations resulted in overperformance.

Of the measures implemented were there any factors that had the biggest impact on building performance?

The water source heat pump was a big factor in reducing the HVAC load to the tenants. From a modeling perspective, the addition of the water source heat pumps was the highest efficiency choice that could have been made for the units themselves. 

The other big factor in improving the building performance was the conversion to high-efficiency condensing boilers.

What is the impact of the renovation and energy efficiency measures on resident comfort and well being?

Before the project, there were quite a few calls related to heating and cooling. Two winters and summers have passed now since project completion, and ThinkBox, who has not recently been involved in the day to day activities at the building, hasn’t heard any complaints. At the time of inspection, it was working quite well. 

The building was initially non-compliant with the Building Energy Performance Standards (BEPS) in this cycle, how did the renovation and this efficiency effort in particular help with the building’s BEPS score?

The BEPS score should improve significantly once the Pepco meter issues are resolved. Pepco erroneously reported twice the consumption from most of 2023. We’ve been working on this issue with PEPCO who states that the issue has been repaired. This will be confirmed when I do the 2024 benchmarking report.

Concluding Thoughts

What advice do you have for someone interested in performing similar improvements and pursuing incentives from DCSEU?

Reach out to a sustainable program management / project developer to help properly engineer a full financing solution.

Many people do one-off measures like lighting, but miss the opportunity to bundle savings to do more. If you can do solar, you should. While this project was under a power purchase agreement and therefore unable to benefit directly from Solar Renewable Energy Credits (SRECs), it’s worth noting that the SRECs right now are at a value that will help you do whatever else you want to do and the utility rates are high too, so you’re going to benefit if you integrate solar. I strongly encourage customers to seek out somebody like us who knows how to bundle things together.

Any additional challenges or benefits you’d like to highlight?

Yes, a few.

• BEPS Compliance: errors in billing and data consumption reporting from Pepco to ENERGY STAR Portfolio Manager remain a huge challenge for BEPS compliance in the multifamily space.
• Increasing costs and Pepco delays in solar connections are making it more difficult to get solar projects completed in a timely manner.
• The DCSEU is doing a great job juggling various initiatives and providing meaningful incentives to the customers. The main barrier is finding the dollars to develop these projects effectively and seamlessly. Thinkbox is working on a solution.
• Working with local Community Development Financial Institutions (CDFIs) and banks should help if there can be a seamless financing package that can be structured and underwritten more efficiently to reduce the cost of each transaction.