In this week’s issue, we explore a new multifamily solar project and its impact on our industry.
We start off with the week’s multifamily insights and then dig deeper into a new multifamily construction project relying on solar energy. Let’s start with the top multifamily stories from this week.
- Suburbs: Zillow’s most popular markets this year are Woodinville, Washington, Burke, Virginia, and Highlands Ranch, Colorado — Zillow
- Rental Demand: Redfin economist believes the cooling housing market will prop up demand for rentals but an influx of new rental constructed could cool the market long-term — Redfin
- Construction Rising: Permit authorization for 3-4 units increased 13% YoY in March 2022, and 36% for 5+ units over the same period — CoreLogic
- Cap Rates: May begin to recover some of their value according to a new analysis by First American Financial Corporation — Globe St
- The Bad: 83% of apartment builders report delays in construction due to permits — NHM
- The Good: But, there’s good news for builders, building material prices may have peaked — NAHB
- Value-Add: Investors are willing to pay a premium for strategically-located value-add multifamily properties — Yardi Matrix
- Wait, or Act: Investors increasingly falling into two camps: “Act now before market fundamentals erode and the cost of debt keeps rising, and those who are deciding to pull back and wait for the next cycle” — Globe St
- Take a Breather: The 30-year fixed rate took a break following a three-week 72-basis point ascent, dropping to 5.70% last week — Realtor.com
Solar + Multifamily
Main Takeaway: As regulatory pressures on the apartment industry appear to be increasing, expect to see more proactive solar and ESG-focused construction for new multifamily. With almost 22 million apartment units across the country, the business opportunities are endless, and one ambitious solar project in Orlando may set a precedent for future development.
Story: Last week, Allume Energy, RENU Communities, and esaSolar announced a first-of-its-kind behind-the-meter (BTM) shared solar system in a multifamily building. A BTM system gives power that can be used on-site, without passing through a utility meter, giving owners and operators more flexibility and control over energy costs and usage.
According to their press release, the shared solar system is for Orlando’s Canopy Villa Apartments, a 296-unit garden-style multi-family apartment complex. Using SolShare technology, tenants will able to “subscribe to a portion of the solar energy produced on the roof, offsetting the cost of their individual electricity bills.”
As its first investment using a $600M ESG venture fund, Aegon Asset Management completed its acquisition of Canopy Villa Apartments in May 2022, which was originally built in 1981.
Aegon’s strategy is to “acquire value-add multifamily assets and turn them into low carbon, energy-efficient buildings.” Specifically for Canopy, the plan is to reduce the entire property’s carbon footprint by 50%.
What is noteworthy about this project is it will be the first shared solar utility in a multifamily development, allowing apartments and tenants to share access to solar power. According to Chris Crowell of Solar Builder:
This solution directly integrates with traditional electricity billing processes for renters and owners of apartments — cutting out the need for a separate payment platform or complex, blockchain-based trading solutions directing the flow of clean energy between residents. SolShare also monitors each unit’s demand over time to determine optimal delivery and as well as cost parity among users, regardless of their individual demand needs…Allume says this process results in up to 55% more solar being consumed on site versus set-ups where each apartment has its own solar system and can reduce electricity bills by up to 40%.
Sun Rising on Solar
With government solar and ESG commitments and mandates increasing across the globe, the future looks bright for early adopters. And ultimately, multifamily owners and investors may not have a choice. In California for instance, regulators voted in 2021 to “require builders to include solar power and battery storage in many new commercial structures as well as high-rise residential projects.”
Adopting solar may also help with reducing operating expenses. Using modeling data, the Orlando Utilities Commission recently projected that by 2030, most residential solar systems will be profitable after 8 years. Further, tenant amenities and preferences are leaning more toward various ESG efforts, including the use of solar.
Expert Take: “Multifamily needs to start marketing and talking to consumers like we do in single-family to help them understand the true cost of leasing…For renters, if you can link the utilities to the rent, and show a decrease in their net payment [as a result of solar], that’s a really compelling value to attract residents.” — CR Herro, VP of Innovation at Meritage Homes
Chart: LGBTQ+ Renters
According to a new report from Zillow, LGBTQ+ renters comprise about one in eight of all renters and disproportionately face hurdles when trying to find rentals.