MULTIFAMILY IS AT THE HEART OF THE ENERGY CONUNDRUM
Los Angeles has more than 246,200 apartment buildings under 10,000 square feet. 91% of these are more than 50 years old. There were no energy standards in the building codes back when these were built. So, it's not surprising that altogether they consume more energy than every other category of multifamily real estate. Why? They have little or no insulation and grossly inefficient mechanical systems.
This is an enormous problem. It means renting families pay more for energy. It means at peak demand, and especially with the growing number of exceptionally hot days, the draw on the grid leads to outages and other grid resiliency issues.
The technology exists to solve this but there are several barriers to overcome. The first is financing. People, not corporations, own around 98% of small apartments in Los Angeles. These owners often must take on personal debt to finance property improvements, which is often expensive and taps into their personal credit limit.
The second barrier is basic. Property owners usually are not the utility rate payers. There’s no incentive for them to take on debt to reduce someone else’s energy costs. This is called the “split-incentive” issue. Over half of L.A. residents are renters, which makes this a very big problem. In a highly competitive rental market, most renters don’t have a choice but to accept the condition of their rental, perpetuating the problem.
Meeting our resiliency goals requires fresh thinking and an alignment of interests. In partnership with National Coatings, thirdACT is advancing a dynamic solution.
THE LOS ANGELES OPPORTUNITY
Tackling energy efficiency with creative financing is a win for everyone. For apartment owners, this unique approach makes financing SPF cool roofs a cash-positive enterprise from day one.
Owners exchange a small percentage of their property’s future sale proceeds for the funding of improvements now. Through utility rebates, apartment owners actually get paid cash to upgrade. They have no payments, no personal debt, and the capx savings can go towards investments in building out their own portfolio.
Investors get 30 years of passive cashflows in up and down markets, across a diversified portfolio.
Renters energy costs are reduced, allowing more money to go towards other needs.
This redirection of spending injects money back into the local economy.
LADWP achieves energy consumption reduction and grid resiliency.
For the city, it delivers on established goals for resiliency in an immediate, measurable, and replicable fashion.
For the community, it creates a more resilient building stock with the potential to spark further economic development.
Energy consumption data will be provided for third-party analysis of energy savings, cost savings, and other potential benefits. We get to study the impacts, from day one, allowing us to scale this program with confidence.
BREAKING THE SPLIT INCENTIVE:
THE PHASE ONE INITIATIVE
We founded thirdACT to drive resiliency in communities through better buildings. In leading this multi-stakeholder initiative, we aim to reduce energy waste in small multifamily buildings through the application of a single technology. We expect immediate, measurable results that will save renters’ money and drive grid resiliency. The initiative, at scale, has the potential to inspire action in cities nationwide.
AN INNOVATIVE COLLABORATION MODEL BREAKS THE SPLIT INCENTIVE
It all starts with 200 apartments that have buildings under 10k square feet with five or more units. All are in one region, west of downtown. The focus is on a single technology, SPF cool roof, for its remarkable insulative and reflective qualities.
SPF Cool Roof is a high-performance roofing system that combines waterproofing with energy efficiency. Buildings are like rocks. They absorb the sun’s heat. The largest face on a small apartment building is the roof. SPF Cool Roof has a reflective coating, so that when sunlight hits it, the sunlight bounces right off, leaving the building unaffected. Beneath the coating is an insulative spray foam that keeps the cooler interior air in, reducing needs for AC. The foam is sprayed on a flat to low slope roof. It expands then hardens and is strong enough to walk on. This roof lasts for 30-50 years. It’s both a water and air barrier, and it can be applied over existing roofs in less than a week.
Energy efficiency is the most cost-effective means of achieving greenhouse gas emission targets and provides grid resiliency. The utilities have an amazing tool to encourage energy efficiency upgrades – cash rebates. The issue is that property owners must pay for the improvement in order to get the rebates. With thirdACT financing, the barrier is removed, making rebates more accessible. Property owners now can get paid to insulate apartments for their tenants.
thirdACT enables investment into the small multifamily market, the largest segment of commercial real estate in the nation. We enable a property owner to exchange a small percentage of their property’s future sale proceeds for the funding of upgrades now. The non-debt financing allows owners and tenants to keep all benefits, such as energy savings and rebates. We aggregate these projects into portfolios, where institutional investors gain diversified investments across a market that is traditionally difficult to access.
SPF Cool Roof provides the highest R Value insulation possible. Until now, SPF Cool Roof has been out of reach of most small apartment owners. Combining rebates with creative financing encourages this adoption of this technology. The impact can be measured from day one. With 200 projects in one climate zone and one building type, for the first time, data can be gathered an analyzed. With results in hand, this model can be replicated with other technologies, with other buildings and other geographies.
FROM PROVING GROUND TO NATIONAL MODEL
Bolstered by the results , thirdACT will accelerate to support thousands of projects over the first three years and tens of thousands each year thereafter. thirdACT is ultimately positioned to support a myriad of building improvements, from energy efficiency upgrades to EV charging station installation to ADA compliance and so forth. In scaling up, the focus will continue to be heavily on Los Angeles, where the market need is immense, key stakeholders are deeply supportive, and local success at scale has the potential to inspire action in cities nationwide.
The technology exists today to achieve substantial energy consumption reduction in buildings of all sizes. Yet these technologies are expensive and so remain elusive to most small multifamily. It’s time we help them upgrade their buildings. It’s isn’t just about buildings. It’s about the world we want to live in.