Benchmarking: What It Is, Why it’s Important, and How People Are Using It

8 min read

There is common consensus now that the pursuit of energy efficiency is not only the right and civic thing to do, but can offer substantial savings to those paying the bills, be they owners or tenants. But to be most effective, there has to be some way of quantifying and calculating that efficiency.

Gathering energy data through measuring and monitoring a building’s energy use performance over time—a process known as benchmarking—offers an array of benefits for private owners and public entities, from making informed investment decisions to designing multifamily programs that respond to specific needs. The U.S. Department of Housing and Urban Development is promoting the idea that benchmarking can benefit multiple stakeholders. As the result of a change in HUD’s affordable housing assistance and loan guarantee application process, many affordable housing owners will likely have to benchmark their portfolios’ energy performance metrics for the first time, which HUD can use to inform its initiatives.

Currently, HUD requires multifamily property owners, buyers, and mortgage lenders to submit capital needs assessments (CNAs) when applying for HUD loan guarantees and when receiving HUD assistance for affordable housing, as CNAs help plan for and justify using capital reserves for building repairs and equipment replacements. Once HUD modifies the CNA, however, a Statement of Energy Performance must accompany it. This means that building owners will have to benchmark their building’s energy use, submit ENERGY STAR scores, and possibly undertake comprehensive energy audits.

Benchmarking involves measuring the energy performance of a property and comparing the results to similar building types, as well as to the building’s past performance. The policy rationale is that stakeholders who understand how their buildings are actually performing are better able to make fully informed decisions about energy efficiency investments.

HUD isn’t the first entity to recognize the value that benchmarking provides the multifamily housing sector—an increasing number of jurisdictions and agencies across the country are asking building owners to measure, monitor, and disclose their buildings’ energy use.  At least five cities and the District of Columbia have multifamily benchmarking laws in place, with additional legislation in other cities on the way.

The U.S. Environmental Protection Agency (EPA) and Fannie Mae’s interest in benchmarking multifamily properties led them to collect the data necessary to create a multifamily benchmarking baseline, some of which HUD supplied. As of last fall, multifamily building owners and managers can use EPA’s ENERGY STAR Score for multifamily properties to generate an easy, standard metric on how their buildings compare to similar properties. Fannie Mae now integrates benchmarking requirements into its multifamily asset management, as properties subject to existing benchmarking laws must submit their source energy use intensity and ENERGY STAR score on an annual basis.

In addition, affordable housing owners and investors – including nonprofit organizations such as Stewards of Affordable Housing for the Future, National Housing Trust, Enterprise Community Partners and LINC Housing Corporation – are voluntarily tracking their buildings’ energy performance as a business norm. The more one knows about how a portfolio is performing, the more steps can be taken to improve efficiency and increase operational savings.

The purpose of benchmarking is not to shame or leave multifamily building owners stuck with bad buildings. As the adage goes, you can’t manage what you don’t measure, and measuring is the first step to improvement.

Affordable Community Energy:  Benchmarking in Action

Affordable Community Energy (ACE) is a mission-driven energy service company (ESCO) and a subsidiary of Hispanic Housing Development Corporation (HHDC), a developer, owner, and manager of affordable housing in Chicago. ACE is a “one-stop shop” energy service provider for multifamily buildings: it will benchmark owners’ energy use and then evaluate, install, manage and, most critically, finance the appropriate energy efficiency and renewable energy retrofits. Benchmarking is a critical element in ACE’s toolkit.

For its Phase 1 project, ACE benchmarked 11 of HHDC’s properties and designed a comprehensive plan to retrofit nearly 1,200 affordable housing units with energy efficiency and water conservation improvements and install renewable energy and co-generation systems. Beginning in 2013, each building in this primary group entered into agreements with ACE to install conservation improvements and leased their rooftop and equipment space to ACE so it could install solar photovoltaic equipment and, in some cases, combined heat and power units. ACE funded the $6.25 million project using Solar Investment Tax Credits, New Market Tax Credits, a HUD Energy Innovation Fund grant, state and utility incentives, property reserves, deferred developer fees, other equity and in-kind funding, and a bank loan. This kind of multi-faceted financing strategy is becoming common throughout the business sector.

In exchange for installing, operating and maintaining the equipment, ACE receives a portion of the realized energy conservation savings. Currently, the completed project has realized a 37 percent savings in energy usage from pre-retrofit levels. The affordable housing owners receive the benefits of reduced energy consumption and more affordable power, as the power generated on site is sold back to them at a rate lower than what a utility would charge.

The completed project now supplies 12 to 42 percent of electricity used in common areas. In addition, after 10 years, the energy conservation and production equipment––and the value of all the savings and production–belong to the affordable housing owners.

ACE has used the HHDC portfolio as a laboratory to validate its ESCO model and is now in the position to support affordable housing while maintaining a financially sustainable business. Encouraged by the results of Phase 1, ACE and HHDC are now proceeding with similar measures on an additional round of HHDC properties and beginning to offer ACE’s services to other owners.

Benchmarking Benefits in the Public Sector

The data from benchmarking can be beneficial on a larger scale as well. Cities with benchmarking and transparency laws have the ability to capture large data sets to better understand how the cities’ buildings are using energy. These jurisdictions are analyzing the transparent energy data, engaging in dialogue with multifamily building owners to understand compliance issues, and responding to the needs of the multifamily sector based on energy performance.

For example, an analysis of benchmarking data from buildings in New York City has shown that energy consumption could be reduced by 18 percent if all buildings were improved to the average sector efficiency levels, and that these improvements can be made via basic, low-cost efforts. The Mayor’s Office,  Building Energy Exchange and the New York City Energy Efficiency Corporation’s “Retrofitting Affordability” project will use multifamily benchmarking data to “identify the simplest and most cost-effective retrofit strategies” for various segments within the multifamily sector, including affordable housing.

As many multifamily buildings covered under benchmarking laws are affordable or subsidized properties, cities and policy makers are using benchmarking data to develop and target incentive programs to better align investment resources with retrofit needs. In Massachusetts, the Low Income Energy Affordability Network is a state-utility initiative to benchmark affordable housing so that utility program administrators can create incentive programs tailored for the unique needs of owners. Likewise, HUD expects to use the CNA Statements of Energy Performance to develop a robust data set within the next few years to analyze its portfolio and drive program and incentive decisions.

Unlocking Untapped Potential

In most large American cities, buildings account for the majority of energy used, with a relatively small number of large buildings often accounting for a significant portion of a city’s overall use. Multifamily buildings alone are responsible for nine percent of the U.S. housing sector’s energy consumption – with research estimating that these buildings are sitting on 174 trillion BTUs in potential annual energy savings. Energy use benchmarking, whether voluntary or mandated, can reveal these potential savings for whole buildings and individual tenant units.


Building Energy Use Benchmarking Benefits

Data gathered through benchmarking offers property owners and managers multiple benefits, including:

  •  Helping owners make well-informed investment decisions and calculate payback periods.
  •  Identifying properties that warrant further analysis through energy audits.
  • Motivating owners to invest in energy efficiency.
  • Helping owners show investors that a property is performing well.
  • Supporting underwriting for energy efficiency, leading to more favorable DSCR and LTV requirements.
  • Helping affordable building owners adjust utility allowances, especially when whole-building data is available.


Tracking Benchmarking Legislation

Regulations regarding the benchmarking and transparency of building energy use data vary in terms of the types and sizes of covered buildings and the required forms of transparency. Currently five cities, as well as the District of Columbia, have multifamily benchmarking legislation in place. Where does your city stand? The website tracks individual policies and provides an up-to-date searchable database on existing benchmarking legislation.