The "G-Factor"

What is the “G-Factor?”

In short, the “G” stands for going green but the “G-Factor” is much more than going green.  Many people see going green as something for “treehuggers” or environmentalists who want to preserve the natural beauty of the planet, sometimes to the detriment of business.  The “G-Factor“, however, is about going green not just for the sake of the planet but because it is great for business and particularly multifamily communities.  Let me explain more.

“G-Factor” Improves Operating Costs of Multifamily Buildings

As discussed earlier, energy usage directly affects the bottom line for the owner of a multifamily building.  From running lights all day in a common area to provide air conditioning to laundry services or leases that include utilities, all of these items require immense amounts of energy costing the the building owner tremendous amounts of money.  A building owner has two choices with these energy expenses: (a) absorb them  or (b) pass on some or all of these costs to the building tenants.  There are consequences to both paths.  With option (a), absorbing some or all of the energy costs of operating the building will reduce the profit margin of the building.  With option (b), if energy costs are passed on to the tenants, then the building owner may wind up pricing many of his tenants out of the building and the owner might be left with vacancies and loss revenue.

As much as the “G-Factor” is about going green, it is about making a multifamily building more economically stable.  If a building can reduce his energy costs by utilizing green technologies such as EnergyStar appliances or energy efficient lighting, that owner can substantially reduce the operating costs of his building.  In fact, an environmental report released in 2003 claims that financial investment in a green building can pay for itself 10 times over.  The report, conducted jointly by the Lawrence Berkeley Laboratory, several California state agencies and clean-energy consultant the Capital E group, used national data from 100 green buildings and concluded that sustainable green buildings lower operations and maintenance costs between $50 and $70 per sq. ft., or about 10 times the additional costs associated with green buildings.  So instead of facing a choice of lesser of two evils with options (a) and (b), by implementing green technologies, a building owner can lower his operating expenses and (i) keep the lease rates of the tenants at a more favorable rate, (ii) keep the building at or close to 100% occupancy and (iii) maintain strong profit margins due to reduced expenses.  As you can see, going green just makes economic and business sense.

“G-Factor” Enhances Multifamily Building Revenues

The “G-Factor” is also integral to maximizing future revenues by attracting new tenants.  In difficult economic times, building owners can only lower their rents so much in order to attract new tenants.  Many tenants are not even looking for an apartment based on purely economic grounds, rather they are looking to be a part of a community that shares common, core values. According to Ann Edlen, who does marketing for Gerding Edlen Development in Portland, “[their clients] are people who like to be connected to a community.  They like to be part of a movement.”  Providing a living space that has been constructed around and actively promotes environmentally friendly living practices is one of the primary ways that building owners are differentiating themselves and creating that sense of community.  And for renters, going green is a unique and desirable residential feature and can be leveraged to great success by aggressive building owners who are looking for new ways to attract their tenants.

In addition to the community aspect, many renters are simply looking for a place to live where they not only feel comfortable but also where they feel healthy.  This is particularly important in crowded urban environments such as New York and Chicago. According to one resident at the Solaire apartments overlooking the Hudson River in Battery Park City, living in the Solaire complex “gives you peace of mind, knowing that you won’t be dealing with all the fumes in the city.”  Many renters are even willing to pay a premium for this type of living environment. According to the Solaire developer, Albanese Organization, Solaire’s occupancy rate of 95% has greatly exceeded the company’s first-year projections even though the complex’s rents are on average 5% greater than the comparable market rate.

As you can see, the “G-Factor” is not just some green movement for the sake of going green or helping the environment, rather it is a powerful concept that can be concretely leveraged into operational savings and increased revenues for multifamily buildings.

Why Isn’t the “G-Factor” More Common in Today’s Multifamily Buildings?

If the “G-Factor” is such a valuable tool for multifamily building owners, why isn’t it more common in buildings throughout the country?  There are number of reasons for this.

First, there is a perception that energy efficient building practices and green technology is more expensive to implement than traditional construction methods.  This is not necessarily the case as the up front costs of green technology is not always more expensive than traditional materials/methods.  However, this view also ignores the cost savings that can be realized within a relatively short period of time with reduced utility bills through a multifamily complex.

Second, there is a pronounced lack of understanding/education relating to actually building with energy efficient building practices and green technologies.  While energy efficient building practices are somewhat different than traditional building techniques, many developers and contractors are under the impression that energy efficient building practices require special skills or are too complex to utilize.  Again, while this is not the case in all instances, that is the perception.

Lastly, most states in the U.S. do not require than new building construction using state funds use energy efficient building techniques.  If state governments mandated use of energy efficient practices in order to receive state funds, this would provide a huge incentive for developers and contractors to actually use energy efficient building practices and green technology in their building projects.

Article written by Clean Energy Experts, copy edited by Jayme Elliott