Back in late 2010, The Bush Companies, a multifamily property developer, asked Abacus Property Solutions (“Abacus”), a real estate energy advisory firm, to assist them in retrofitting their multifamily property portfolio in Virginia. One of their criteria was to finance these improvements with reduced owner equity, in order to meet their IRR hurdle rates. Abacus evaluated the usual suspects from local, state, and federal rebates, tax credits (e.g. 45L and 179D) to conventional debt. However, in Virginia, rebates for multifamily buildings were fairly limited and eligibility of the tax credits could only be confirmed after paying for energy modeling and/or an energy audit. Terms for construction financing required owner guarantees and signficant upfront equity contributions.
Fortunately, the client’s properties met the income criteria for affordable housing, and were therefore eligible for two types of grant funding under the Federal Weatherization Assistance Program (WAP). For one of their client’s properties, a 50-unit low rise apartment complex in Waverley, Virginia, Abacus secured grant funding covering 100% of the renovation costs (~$300,000) or $6,000 per unit. However, due to some issues with rolling out the WAP program in other areas of Virginia, Bush’s other properties were ineligible for this type of grant. Abacus identified another grant program, the Weatherization Innovation Pilot Program (WIPP) – which provides for up to 50% matching funds of the total project cost. To date, Abacus and Bush have retrofitted three projects under the WIPP grant, with estimated savings ranging from 12-25+% and total matching funds of $500,000.
However, these projects under WIPP would not have come to fruition had a key part of the grant not been altered early in the process through the collaborative effort of Abacus, the building owner and the grant administrator, LEAP. Initially, all aspects of the retrofit funded by WIPP – from the energy audit to financing, construction and measurement and verification – were to be completed through an energy service company (ESCO). After we began the process with the ESCO, it became abundantly clear that the costs for going through one source for relatively small projects (under $500K each) would not result in viable projects from a return on investment perspective. Furthermore, using an ESCO removed any potential compeitition among third party consultants and vendors that would lower overall project costs. Abacus worked with LEAP to allow for the owner to choose their own consultants as well as act as the general contractor. By removing the ESCO requirement, more grant dollars went towards the actual energy and water measures such as new boilers, lighting, water fixtures, variable frequency drives, PTACs, refrigerators, etc. that serve the needs of both the owners and tenants alike.