Multifamily and Industrial Owners Shift Budgets as Costs Climb

"Something that had a five-year payback period even a couple of years ago might have a three-year payback now, simply because the cost of electricity is so much higher," says LaPoint. "Maybe the recommendations themselves haven't changed, but they've become more financially attractive as costs rise."

Ariza adds that owners don't necessarily need to pursue a full decarbonization strategy to see results. There are still many no-regret moves, like starting with an energy and water audit, that can uncover savings through identifying equipment like heaters that are running during summer months or identifying and repairing ongoing water leaks in pool equipment, for example. Many areas of waste and therefore, extra cost, may exist unbeknownst to the owner until an audit is performed.

LaPoint and Ariza also pointed to the diverse incentive landscape and the importance of checking for available incentives for any upgrades.

Insurance and Building Conditions Add New Complexity
Operators are also feeling pressure from rising insurance expenses, with some CRE owners seeing premiums increase from 7% to 13% of total property revenue, nearly doubling costs.

Premiums have climbed alongside weather-related damage and aging infrastructure. "People are now conducting insurance due diligence alongside their other due diligence items, where in the past they may have just assumed insurance was simply a cost they could live with," says Ariza.

She stresses the importance of keeping building information accurate, with roof age and condition among the biggest drivers of insurance pricing. Proactive measures, such as resilience upgrades to address risks like wind and hail damage, can reduce future damage and improve access to more affordable coverage.

Planning Ahead to Avoid Surprises
Ariza encourages owners to take a more integrated approach to capital planning. Rather than treating energy, risk and capital budgets as separate silos, she recommends bringing them together.

In particular for new acquisitions, LaPoint and Ariza recommend adding the following to the standard due diligence checklist:

• Obtain the last 12 months of utility data. It will be difficult to obtain after close.
• Obtain accurate building attribute data and confer with insurance brokers and risk team to evaluate insurance availability and pricing.
• Screen for natural hazards in the area and evaluate how this is likely to affect insurance costs and availability over time. Also explore with the operations team how future conditions may impact the cost of operations. For example, extreme heat will result in more stress to HVAC systems and higher costs of operation.
• Explore whether the local jurisdiction has an energy benchmarking or performance standard in place and whether the property is in compliance. If not, estimate the costs required to achieve compliance.
• If upgrading roofs are in the future capital plan, consider whether solar will be part of the energy strategy at the site, and coordinate the roof and solar feasibility to save money and time investments correctly.

Planning proactively, documenting assets carefully, and prioritizing efficiency allow owners to better manage rising operating expenses, reduce costs, and prepare for future expenses and changing market conditions.