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Ethan Handelman, Recap Real Estate Advisors
 

Ethan Handelman, Recap Real Estate Advisors

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    Ethan Handelman, Recap Real Estate Advisors Ethan Handelman, Recap Real Estate Advisors Presentation Transcript

    • 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 1
    • 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 2
    • 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 3
    • 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) 4
    • 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? 5
    • 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 6
    • 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 7
    • 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 8
    • 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 9
    • 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 10
    • 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 11