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Cost Isn’t the Only Consideration: Green Landlording

Posted on 23. Mar, 2010 by Dan Wilhelm in Best Of, Real-World Ideas

It seems that lately every industry in the free world is claiming some stake in the surging green movement. The Baby Boomer generation has been forever passionate about its health and the state of the environment, and both generations “X” and the latest generation “Y” appear to be no less interested. So why shouldn’t property managers jump on the green bandwagon? I ask because I see little evidence that we have joined the movement. What is the reason for this? I think it is a mindset—one that can change. I will let you decide whether it should.

From what I can discern, the primary drawback to our industry’s full embracing of sustainable practices is perceived cost alone. I say “perceived” because there are mitigating circumstances that may offset these costs, thereby relegating this perception to mere myth. Certainly, I need not elaborate on the sensitivities of the prototypical landlord’s bent for profitability.  Any property manager that doesn’t get that is either asleep at the wheel or just hasn’t been doing this gig very long. After all, profitability is a rightful pursuit, if not the main goal, from the perspective of most investors. So this concern must be adequately addressed if those of us who are altruistically motivated wish to see green growing in the rental industry.

Let’s take a glance at what sustainable or green features look like from the perspective of operating and capital costs:

• Green-built appliances, such as those that are ENERGYSTAR rated, are more expensive than their non-green counterparts.
• Low or non-VOC (Volatile Organic Compound) paints, carpets, adhesives, and other building materials are more costly than their non-green competitors.
• Replacing energy-wasteful home systems, such as poorly engineered doors and wood-framed windows, with newer energy-efficient ones can be very expensive.
• Re-insulating the property with products containing little or no formaldehyde certainly costs money, and is a difficult choice when it is spent to fix something that is not even technically broken.
• Active solar-energy systems are super expensive, and like eco-friendly insulation products, not a perceived necessary improvement to satisfy most consumers.
• Installation of grey-water recycling systems is again expensive, just as is installation of elaborate rainwater-capturing systems, as well as storm-water management retrofit systems. (This does not include rain barrels, which are an inexpensive yet effective alternative.)
• Low-flow plumbing fixtures are expensive to replace, and the expense may be hard to reconcile if the old ones are still functional.
• Water filtration systems, while clearly beneficial health-wise, are expensive to install and do require ongoing maintenance—an additional operating expense.
• Programmable thermostats can cost double or more than the old manual types. This might be a tolerable trade off; however, when used properly they can save in utility-consumption expenses. They can also help prevent overuse and premature obsolescence of the cooling and heating systems themselves because they are employed only as necessary.
• Wind screens and shading in the landscape can be a costly proposition and may demand the expertise of a knowledgeable landscape architect.
• Self-sustainable landscaping is the environmentalist’s dream, but can be expensive to install and does require some awareness to avoid destroying it, such as occasional controlled burning and avoidance of traditional practices of watering, mowing, pruning, fertilizing, etc. In the long run, a landscape is much cheaper to maintain, but it does demand awareness on the part of the landowner and tenant.

Now, what is the point if expense is the only consideration? Is there any need for further discussion? Obviously, I think the answer is yes, or I would not have troubled myself with writing this article. So, before we throw the baby out with the bath-water, let’s please examine this a little further.

As real estate professionals, whether in sales or property management, our green role is perhaps reduced to simply that of a counselor or informed advocate. Counselor, in that we can help our landlords or sellers make sound decisions about what to do to maximize the value of their property (in this case, as it pertains to green features), and then as an advocate to apprise renter and buyer prospects about the availability and benefits of green features. I do not mean to infer here that these are unimportant roles.  Quite the contrary, as these are absolutely key roles in the propagation of the green ethic. It becomes incumbent upon us to be well enough informed on the issues so that we can perform these two key roles confidently and constructively.

While understanding our role as professionals is important, it does not address the core problem. Let’s return our discussion to the cost factor for the landlord, for this is the obstacle we must bridge if any of this is to make any sense at all. I would not advocate landlords making wholesale changes on a property simply for green sake, unless they were just altruistically moved. But, since the bottom line seems to be the prevailing consideration, maybe we need a thoughtful and perhaps graduated approach that promotes the long-term impact of green-based decisions.

There are more and more homes being constructed from the bottom up that meet green standards established by institutions such as the U.S. Green Building Council’s LEED (Leadership in Energy and Environmental Design) Certification program. In these cases, the simplest solution is for us to simply recognize that the home is green-built, or has been recently retrofitted with new appliances and home systems that meet green standards, and then to promote the benefits of these systems in our marketing programs. These green initiatives can easily translate into higher rent rates. And, even if the rent rate is not enhanced, we may get it rented faster, which is big money in terms of preventing lost opportunity costs. However, it can also mean longer duration occupancies because the tenants are more comfortable living in these environments. They may also enjoy the lower cost of utilities, which again goes back to reducing lost opportunity costs.

The good news is that the added costs of green construction may be declining. According to a 2003 report by Real Estate Journal Online, the cost premium for new green construction has dropped by two percent as builders, planners, and developers have been learning how to use sustainable building products more efficiently. 1 Plus, the federal government, and even many local governments, offer rebates and other tax incentives for constructing or remodeling with green certified products such as ENERGY STAR appliances and others.

Who cannot understand and appreciate the benefits of energy savings alone? Buyers surely do. How many times have you been asked by tenant prospects about utility costs? Budget-minded prospects really do care about this. One Texas builder, who has been using high-efficiency windows since the early 1980’s, has created a growing competition in his market. He has demonstrated a savings of as much as $150 per month in energy costs for his homes.2

What about existing homes that have not been built or upgraded to green standards? It is clearly the harder solution if we want to provide green advice to our landlords about routine repairs, and this is especially true during turn-over. The least we can do in these cases is inform them about green alternatives, which, when used, will ultimately approach similar benefits as those yielded with green-built homes. We should always remember to point out to the landlord that these upgrades will be eventually recognized at the time of sale, having a positive effect on sales price and time on market. Landlords can benefit immediately and in the long-term through application of green products and systems.

Another cost factor looming darkly on the horizon is the impervious surface tax. This tax is calculated on the square footage of area on the property that has water-impervious surfaces, such as a roof or concrete slab. This is happening all across the nation as municipalities are finding a revenue opportunity in the green-movement rhetoric, justifying the tax as an effort to compensate for the cost of dealing with storm-water runoff. The irony is that the tax does nothing to prevent the problem—it just pays for the inconvenience. It is a roundabout way of forcing citizens to be more conservative with resources. Nevertheless, the problem is real and landlords will pay. The long-term solution is construction of better engineered driveways that accept the rainwater, and the installation of green roofs or elaborate rainwater-capturing systems. These are all good ideas, but they can be expensive and may not be cost effective in terms of ROI captured long-term. However, that tax will surely add to bottom line expenses. So, I think that these solutions must be at least considered for those holding for the long term.

Perhaps, not surprisingly, there is growing consumer awareness about environmentally friendly homes. Survey after survey bears this out. According to a 2004 survey by the city of Seattle, 96 percent of homebuyers say they are willing to pay more for a home with green features.3 In another Seattle-sponsored survey in 2000 and 2001 by Cahners Residential Group, more than two-thirds of those surveyed reported that they would pay additional up-front costs by as much as $5,000 for green features. In this same survey 20 percent said they would even be willing to pay as much and $10,000 in extra costs.4

Thinking green is something we, as members of NARPM®, can and should be doing. This evolving discipline is no longer a mere aberration perched out on the distant horizon. It is virtually at our front door. Perhaps it is time we get on board, unless we wish to find ourselves in the unenviable position of having to play catch up. After all, this is just another feather in our caps that differentiates us as true professionals. It is also one more reason why landlords ought to consider using us to lease and manage their properties, rather than attempt doing it themselves or using a property manager unaware of the benefits of green landlording.

Dan Wilhelm, RMP® ABR® ABRM® CRB EcoBroker® is the founder and managing broker for 3 Options Realty, a full service real estate company in Roswell, Georgia. He is a certified EcoBroker®, and is passionately interested in the environment. He is also a licensed Georgia real estate instructor.

1  Muto, Sheila, “The Public Sector Spurs ‘Green’ Building,” Special to RealEstateJournal.com, July 16, 2003, accessed at http://www.realestatejournal.com/columnists_com/bricks/20030716-bricks.html, 8/2/05
2 Carlton, Jim, “Builders Adopt Green Goals, Pushed by Rising Energy Bills,” The Wall Street Journal Online, 2/5/03
3 “Green Home Remodel Guides: Helping You Create a Healthy Homes and a Healthy Environment,” City of Seattle Department of Planning and Development, 2004 issue of dpdINFO.
4 “Built GreenTM Residential Green Building Program,” City of Seattle Department of Planning and Development, reprinted from the March 2003 issue of dpdINFO.

Copyright © July 2009 NARPM®. Reprinted from the July 2009 issue of the NARPM® Residential Resource news magazine. For additional information about the National Association of Residential Property Managers, visit
www.narpm.org.

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Tags: ENERGY STAR, Landlord, NARPM, Real Estate, VOCs