sitka apartments greenbuilding and economic decisions in ...

1. SITKA APARTMENTSGreenbuilding and Economic Decisions in Affordable Housing OHCS HOUSING CONFERENCEAPRIL 24, 2007

3. OPTIONS TO CUTTING COSTSWhole Systems Thinking Before cutting costs, consider the whole financial structure of the project: Equity Structure Additional capital may be available Debt Structure Lower expenses can increase loan amount Need reliable data before committing Cash Flow Increased future cash flow to reduce payback But still need extra funds during development

4. SITKA APARTMENTSOVERVIEW 210 Apartments 72 @ 50% MFI 131 @ 60% MFI 6 @ Market 1 Guest Unit Greenbuilding focus Reduction in energy use Reduction in water use Indoor air quality

5. CASE STUDY - WATER SUBMETERS(3rd party reads, sends bills, and collects from tenants) Environmental Benefit Studies show up to 25% reduction in water use when tenants pay their own water and sewer bills Economic Problem Cost $130-150 each plus related extra work Need 2 per apt. with more efficient gas central hot water Total cost at Sitka - $67,020 Analysis Look at extra equity from LIHTC, other sources Assess lower expenses, possible increase in bank loan Evaluate potential for increased cash flow Consider impacts of other variables

6. SYSTEM COMPONENTS

7. SUBMETER ROUGH-IN

8. ECONOMIC ANALYSISInitial Cost – Purchase, Install

9. ANALYSIS - Equity Structure Equity Structure – Options include: LIHTC - Increased equity from increased basis Automatic if using 4% LIHTC May be limited if already at cap on 9% LIHTC Energy Incentives – Clear eligibility, early decision ETO and BETC for energy savings Usually paid after completion Grants – Eligibility limited, no certainty OSD, OHCS, Enterprise, others

10. EQUITY STRUCTURELow Income Housing Tax Credit (LIHTC)

11. EQUITY STRUCTUREOther Financial Incentives

12. EQUITY STRUCTURESummary Of Impacts

13. ANALYSIS – Debt Structure Debt Structure – Changes in net operating income (NOI) affect loan amount Can increase NOI – and loan amount - through: Higher rents or other income Lower expenses from energy savings Lower repl. reserves from more durable material

16. DEBT STRUCTUREChanges in Expenses, NOI, and Loan Amount

17. ANALYSIS – Cash Flow Cash Flow – Can provide a payback for investment, but doesn’t supply the capital unless it is certain enough to include in loan sizing. Higher rents Lower vacancy Less turnover Less advertising Less exposure to increases in energy and water costs

18. CASH FLOWChanges in Income

19. CASH FLOWChange in Expenses, Debt Service, Net Cash Flow

20. RECAP OF ECONOMIC ANALYSIS

21. OTHER VARIABLESItems that may lead to increased initial costs

22. OTHER VARIABLESFactors that may increase operating costs

23. OTHER VARIABLESFactors that may lead to lower operating costs

24. Actual Water Use

25. CONCLUDING THOUGHTS Water submeters – by this analysis – seem to make sense for this building, in this location, and using this financing regardless of the environmental benefit. Energy savings measures that reduce the owner’s expenses probably look even stronger because they qualify for ETO and BETC incentives and because there is no reason to lower rents. Energy savings measures that benefit the tenants usually won’t produce the same measurable economic returns (because they don’t lower the owner’s operating expenses). But there are compelling reasons to do them anyway.