Research sponsored by IREM has found that green-certified multifamily communities
have higher net operating incomes (NOI) than conventional properties. Analysis shows
that NOI is higher by $4.61 per square foot and $4,260 per apartment unit in certified
communities compared to non-certified ones.
For the average-sized apartment community in the study, this translates to an NOI
increase of approximately $1.1 million. The net present value (NPV) of this increased
NOI over the building cycle is approximately $13.2 million, assuming a 7 percent discount rate.
Erin Hopkins, Ph.D., assistant professor of property management at Virginia Tech,
conducted statistical analysis on financial data for over 1,100 multifamily communities
submitted by two large AMO companies to the IREM Income/Expense Analysis®
IREM worked with the companies and through certification databases to verify
green certification status of their communities. Certifications represented in the study
include LEED®, ENERGY STAR®, Green Globes®, GreenPoint Rated, National
Green Building Standard™, Austin Energy Green Building® (AEGB) Rating System,
and Florida Green Building Coalition (FGBC).
Hopkins worked with IREM to establish the parameters of the study and identify variables of interest on both the income and expense sides of the income statement. Based on the data available, she applied several control variables, including age,
building type, building mix and average
apartment size. Hopkins presented the
findings to IREM this spring.
Higher Income and Expenses
The study showed that certified communities have both higher income and
expenses. On an apartment unit basis,
green certification increased total rents
collected by $5,581, total actual collections by $5,720, maintenance and repairs
by $129, property insurance by $102, and
total of all expenses by $2,347.
The finding that certified communities show higher operating expenses
was unexpected. It is often assumed that
green buildings have lower operating expenses. Previous research on the impact
of sustainability on the operating expenses of office buildings has generally shown
those expenses to be lower in green-certified properties, mostly from lower energy
costs. Little research had been done on
The increased income is encouraging. Tenants want green space and
will pay a premium for it—or so the
argument goes—and studies have indeed shown higher tenant revenues for
office buildings. Like the expense side,
though, research was lacking for the
While additional studies are needed, IREM has sought to fill this gap
in research on the financial impact of
sustainability on multifamily communities. IREM hopes that the multifamily
sector can use these findings to better
understand property financial performance and include in a business case
By Todd Feist
IREM Study: Multifamily
+ Green Certification =
Todd Feist ( firstname.lastname@example.org) is sustainability program manager at IREM Headquarters in Chicago.