BiggerPockets

The Sustainable Future of Multifamily

Saturday, March 31

(April 2012): In today’s market, multifamily represents the most stable and sought after real estate investment property type in the commercial and residential sectors respectively.  With that said, it’s imperative that Owners factor in preventative maintenance strategies to assure building conditions remain in order long-term.  One such strategy is sustainability.  Sustainability by definition means the “ability to satisfy the basic needs of today without compromising the ability of future generations to satisfy their needs”.  In other words, the same resources available and utilized today should be accessible in the same capacity to future generations as well.  Acquisitions of value-add/non-performing apartment assets requiring any level of retrofitting or remodeling units within stabilized assets during vacancy between tenants both present an ideal opportunity to incorporate energy efficient solutions – hence sustainability.

 

One contribution multifamily owners can make towards long-term welfare of their respective apartment holdings is thru Carbon Footprint reduction.  Carbon Footprint relates to emission of greenhouse gas through human consumption of resources such as fuel, transportation, and building services.  As New Jersey, the most densely populated state in the country, contains a plethora of multifamily buildings erected in the early 1920s – 1930s, many have a negative impact on the environment.  According to statistics from the U.S Green Building Counsel (USGBC), commercial buildings (multifamily included) in the United States account for electric consumption (72%), overall energy use (9%), CO2 emissions (38%) and waste output (30% or 136 million tons annually).

 

Through strategic management and basic processes, apartment owners and tenants alike can implement conservative measures and contribute to the reduction of said percentiles by decreasing consumption and or decreasing dependence on fossil fuels (i,e…oil) in favor of sustainable elements such as harnessing solar and wind power.  One method worth consideration in Net Metering – the process that enables buildings to generate energy, bank/store excess power until needed, and sell excess to power companies like PSE&G or Jersey Central & Power (JCP&L) in the form of credits.  Special meters are required so consult your respective carrier for further details.

 

In order for multifamily Owners to monetize costs for implementing sustainable methods -vs- potential results/savings, conducting due diligence by way of an Energy Audit (average cost $0.04 - $0.10 PSF) to create a road map outlining recommended equipment, materials, and systems should be considered.

The USGBC offers various certifications to categorize commercial buildings by level of sustainability.  The top designation called LEED (Leadership in Energy and Environmental Design) – is issued to building owners who implement practical and measurable energy efficient solutions through maintenance and daily operations of their respective multi-dwelling asset(s).  The rating system (Silver, Gold, & Platinum status quantified by a 100-point scale) is based on demonstration of high standards in key areas that include promotion of human and environmental health, energy efficiency, water conservation (i.e..low flush toilets & faucets), and use of sustainable materials & resources/recycling.  For eligibility and further information about this mark of excellence and organization background, visit the Green Building Council website at www.usgbc.org

 

As the general public becomes more energy conscience, the demand for sustainable features is taking shape in well-informed renter requirements.  In order for multifamily Owners to maintain high occupancy, grasping the concept of sustainability will be paramount to building integrity and invaluable in high quality tenant retention.

Paul E. Washington
Commercial Broker Associate
Multifamily Advisor
Coldwell Banker Commercial NRT
Email: pwashington@cbcworldwide.com
Website: www.pwcommercialnj.com

Multifamily Risk Management - Are You in Good Hands?

Sunday, March 04

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(March 2012) One of the most costly fixed operating expenses for multifamily owners is property insurance.  As apartment buildings fluctuate in value due to market conditions and cashflow, the key to maintaining proper risk management is thru policy evaluation.  Savvy Owners undergo policy term reassessment on an annual basis to determine if coverage is adequate and in line with current metrics.  Primary elements to review on policy declarations include dwelling, liability, deductibles, and riders; additional coverage for protection against events such as weather crisis, earthquakes, and the like. 

As premiums and terms (bi-annually or annually) are competitive, be thorough in your respective due diligence and entertain discussions with at least three (3) property insurance resources.  Be mindful that quotes will vary based on property characteristics such as number of units, year built, construction type, and square footage.  Other attributes factored into rates include roof type, amenities, and property history.  As an apartment owner, it’s vital to retain the services from a carrier, preferably experienced in commercial real estate and disciplined in multifamily.  Seasoned property insurance professionals offering such credentials in most cases tend to be solutions-oriented, insightful about current and forthcoming coverage programs, and aggressive in claims mitigation.  For credible recommendations, consider consulting fellow local multifamily owners or real estate brokers specialized in multifamily advisory.

During the selection process, don’t lose sight of who’s in charge.  As your multifamily assets are at stake, carriers should be placed in a position to earn your business.  With that said, it’s imperative for multifamily principals to become solid interviewers.  Prior to solicitation, consider drafting a questionnaire as a point of reference.  Suggested questions include 1) what’s the average local market rate per unit or square foot for my property type?  2)  are there discounts available for building portfolios?  3) what trends are you seeing in replacement costs for multifamily?  For holders in possession of multiple apartment assets, inquire about umbrella policies and the benefits involved.  For investors rehabbing distressed multi-dwellings, ask about availability of short-term landlord insurance for vacant assets.  Principals involved in new construction, redevelopment, or retrofitting should engage conversation about discounts for sustainable features and or LEED (Leader in Energy and Efficient Design) certifications.  At all costs, avoid one-size fits all cookie-cutter policies and seek options with flexibility to customize coverage based on your risk management requirements.  Regardless of multifamily type (2-4 units, low/mid-rise, garden-style) or level of ownership experiences, take the necessary steps to assure that your prized apartment assets are in good hands.

Tax Appelals - A Multifamily Sign of Relief

Monday, February 13

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One of the most costly operating expenses for multifamily Owners is Property Taxes.  In many cases, this expenditure can account for approximately 20% - 22% of APOD (Annual Property Operating Data) and endure annual increases ranging from approximately 2% - 3%.  Depending on the municipality (566 clustered within 21 counties in New Jersey alone), spikes could reach double digits if a city/town is undergoing a revaluation of property assessment data.  No matter the scenario, one fact is constant; “property taxes are too damn high!”.  Are there alternatives for Apartment Holders to gain any relief? Yes, by way of a local Property Tax Assessment Appeal (b.k.a. Tax Appeal); the judicial process for pursuing a lower tax bill based on land and building value.  Regardless of level of ownership experience or number of units, filing should definitely be considered by all multifamily owners.  As the process is meticulous (i.e…assessment analysis formulas, ratios, equalization values, etc), seeking advice from legal counsel EXPERIENCED/SPECIALIZED in examining these type cases is highly recommended.

Here are some basics about the Appeal Process in the State of New Jersey and key dates to remember.  Keep in mind the burden of proof to obtain any tax relief (over-assessment by Tax Assessor must exceed 15% of current assessed value) solely rest with the Taypayer.

Appeal Process Highlights (New Jersey)

No Hearing – Meeting set up with local municipal Tax Assessor

Filing Fee – Up to $150.00

Average Review Period – 30 to 45 Days

Feb 1^st (Prior) – Tax Assessor notification to all Taxpayers by mail regarding current assessment

Feb 1^st (After) – Tax Assessor notification to all Taxpayers by mail within thirty days regarding any change to assessment

Filing Deadline - April 1^st of Tax Appeal year     

In the event of a successful appeal, the realized reduction amount is reported by either the Tax Court or County Board of Taxation to the subject property’s respective municipality.  Said judgment then falls under state legislation known as the “Freeze Act”; a New Jersey statute instituted to protect Taxpayers from repeat litigation/re-appeals the following year.  In fact, the statute is binding starting the Tax Appeal year and up to two (2) years afterwards.  Now what to do with the savings!  Reinvest back into the apartment asset? Offset other expenses?  Whatever you decide, it’s a relief well-deserved.

Ready...Set...BUILD Multifamily

Sunday, January 01

Welcome to the debt of The Unit – Perspectives in Multifamily; a monthly blog covering topics and insight in relation to multifamily from a Commercial Broker perspective.  All commentary is strictly personal opinion, but embodies a combination of in-the-field experience and material data from a myriad of credible sources.  As an interactive forum, The Unit welcomes dialogue from investors, professionals, and entities open to express constructive viewpoints connected to the multifamily sector.  So with no further ado, let’s get busy!

The year 2011 saw multifamily position itself by far as the most stabilized sector in commercial real estate.  Velocity of acquisitions soared as principals (novice and seasoned) engaged in a buying frenzy to absorb apartment value-adds thru bulk tapes, discounted non-performing notes, short sale, and bank-owned REO/OREO respectively.  In 2012, the challenge lies in sustaining purchasing power momentum as inventory for QUALITY multifamily assets is expected to remain anemic.  Consequently, the ongoing foreclosure crisis in residential continues to produce casualties as homeowners are involuntarily being converted back to tenants prospects for apartment rentals.  This newfound demographic coupled with college graduates entering the workforce have created a new generation of renters.  Experienced landlord principals looking to capture a portion of this emerging market might want to seriously consider testing the waters of new construction and redevelopment. 

In speaking with a host of Northern New Jersey (Essex, Hudson, and Union Counties respectively) tenant prospects, it was apparent the two (2) major factors taken into account in their respective apartment rental search were 1) modernized units with functional layouts and 2) buildings in close proximity to public transportation.  Projects with a high walkability element that incorporate mixed-use components comprised of practical street level retail catering to daily consumer living (i.e...health food conscience grocery, fitness clubs, dry cleaners, etc) will fare very well.  Aesthetically pleasing multifamily mid-rise structures featuring amenities such as elevators, 24-hour video surveillance, covered on-site parking, and LEED (Leadership in Energy and Environmental Design) certification represent attributes developers are implored to take into account.  Transit Village initiatives in Newark, Harrison, Jersey City, and New Brunswick are prime examples of this developing trend.  As New Jersey is a transit hub for a plethora of commuters to New York City and Philadelphia plus the most densely populated state in the country, The Garden State is a breeding ground for tenant prospects seeking quality housing.  Whatever your multifamily revitalization play is; erecting brand new construction, rehabbing residential 2-4 unit apartments, or retrofitting sizable pre-existing structures, the same concept applies for super serving this growing consumer base.  Shovels and sledgehammers get ready…set…BUILD!