How Big is the Link between Utilities and Property Value?

by ‐ Tags: WegoWise data, property management

There’s an undeniable link between energy and water savings and significant increases to NOI and property value. With rent revenues leveling off, and utilities representing 20% to 25% of controllable expenses, property owners and managers are under pressure to unlock new sources of value.


Our latest report, The Property Utility Benchmarking Report, based on a long term study of the top quartile of multifamily properties in the United States using WegoWise, reveals immediate, sustained, and scalable increases in utility savings. While the report highlights property savings of more than 15% over three years, that’s just the beginning for asset managers to drive stronger portfolio returns. The benefits of a proactive and continuous utility benchmarking strategy go far beyond improving Net Operating Income (NOI). The returns produced from utility benchmarking help identify undervalued assets for acquisition, justify a higher sale price at disposition, and create eligibility for discounted green loan financing.

Let’s take a look at an example of real savings and increased property value.

Sample Property Spotlight
Units: 200
Monthly utility spend: $150/unit
$360,000 annual utility spend

In the example, study results show potential savings of 4.3% after a year of active benchmarking, which translates into a $8,550 reduction in annual operating expense.  Savings of 7.9% in the second year accumulate to $31,230, and 10.8% in the third year totals $65,160. All reductions in operating expenses translate directly to increases in Net Operating Income (NOI).  The table below demonstrates how NOI increases based on the use of benchmarking, advanced analytics features, and completing retrofit projects.

 
 

After 12 months

After 24 Months

After 36 Months

 

You have saved

Your savings rate is

You have saved

Your savings rate is

You have saved

Your savings rate is

All Properties

$8,550

4.3%

$31,230

7.9%

$65,160

10.8%

Properties with Advanced Analytics

$12,510

4.9%

$36,000

10.4%

$82,170

15.5%

Retrofitted Properties

$17,100

7.6%

$52,740

11.2%

$106,200

17.2%


Applying a 5% cap rate to the above 3 years of savings, creates the following increases in value:


3-year value gain

All Properties

$777K

Properties with advanced analytics

$1.16M

Retrofitted properties

$1.23M


Now scale those savings effects across the portfolio, factor them into your acquisition and disposition valuation strategies, and leverage them further for better financing terms. The link between utility savings and property value is considerable, direct, and actionable. 

Get the report