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A Q&A with Dan Gaddis of AncillaryAnalytics
AncillaryAnalytics is a revenue consulting and energy management company that helps multifamily buildings tap into unrealized revenue. Specifically, it works with over 50 property management companies to provide ancillary revenue, NOI solutions and general cost solutions. AncillaryAnalytics has integrated Urjanet into its MultiFamily Energy Savings software to improve its ability to capture utility data.
We sat down with Dan Gaddis, Founder and Managing Director of AncillaryAnalytics, to learn more about his take on sustainability in the multifamily sector.
Very few companies in the multifamily space are taking a full-on approach to overall sustainability, and, at times, there’s a lot of trepidation in the industry to take on large retrofit efforts. While companies that manage affordable housing have proven more inclined to do deeper retrofits, those on the market rate side don’t always see the financial value in undertaking some projects. However, the payback for these projects can be quick enough for short term hold properties, and in some cases even more valuable than doing standard retrofit projects.
AncillaryAnalytics focuses on education, data transparency and quantification of results in order to help property owners understand the true value of sustainability projects. According to Gaddis, a lot of these efforts come down to the ability to monitor data around results. Gaddis also points out that those companies that have taken on some projects sometimes see results in the beginning that don’t last because the retrofits aren’t maintained or tracked appropriately. AncillaryAnalytics provides both the education, utility data and the project maintenance to help overcome this challenge.
When it comes to opportunities to “green” the multifamily sector, Gaddis cautions going after all the low hanging fruit all at once. Instead, he recommends taking a whole building approach that combines smaller and larger projects in order to shorten the payback period.
In general, Gaddis shares that there are numerous new technologies available that can help reduce energy, water and sewer cost in innovative ways, but many people aren’t aware of them. Gaddis says the most value comes from water conservation efforts, since water and sewer rates are increasing significantly across the country.
Finally, Gaddis highlights the importance of data and the value of Urjanet:
“Data is first and foremost the most important element of anything we do… In general, the data in the industry is inconsistent, which makes Urjanet’s solutions so much more important. You can get your data a week faster with Urjanet. You can also get it 100% accurate to what the utility company provides and have every single element on that bill, like demand charges, additional fees, meter changes, rate changes and things that most of the utility billing companies don’t track at all. The data coming from Urjanet is the absolute best possible data available.”
Angela Sun: What are some of the main reasons why customers seek out the services that AncillaryAnalytics provides?
Dan Gaddis: It all comes down to bandwidth and expertise in some areas of multifamily. Our clients just don’t have time to chase down all the new money that’s available to them. The big value is we don’t take much, if any, of their time, and we find them money that doesn’t cost them anything to acquire. We also have an energy management software system built specifically for multifamily that handles needs like the Better Buildings Challenge, multiple data providers or no data provider, the new HUD benchmarking requirement and transmission of data into Portfolio Manager. We monitor and manage that software for our clients so that they don’t have to hire another resource like an energy manager or a sustainability director. Often times they give us a focus area and we go find revenue or energy savings, a new NOI, whatever it might be, and put it right on their desk, and say, “Hey, give us the thumbs-up to save X thousand dollars.”
AS: When you started AncillaryAnalytics two and a half years ago, what was the general sentiment toward energy and sustainability in the industry and how has it evolved in the years since?
DG: The truth is, the term sustainability really doesn’t fit for many multifamily companies. There are very few companies that are really taking a true sustainability approach — creating corporate stewardship and sustainability reports each year and looking at their organization and their portfolio in terms of the three pillars of sustainability. I’m not saying a “full-on” sustainability approach is required but there are companies that have a green webpage, or a green logo, or talk about sustainability on their site, but I don’t see too many companies engaging in what would be considered full sustainability or energy management. Just having a couple LEED-certified buildings and using LED/CFL lightbulbs here or there really isn’t much of a sustainability statement. To me, that’s more dabbling in energy management while missing most of the real marketing and financial potentials.
Multifamily, like most businesses, seems more focused on the easy money that can be made without spending too much, so some companies tend to concentrate on some very secure, time tested methodologies. For example, LED has been taking off in our industry, but even there it can sometimes be hard to get everyone to grasp that if you unscrew a 100-watt light bulb and you put in a 5-watt light bulb, you save 95% on energy cost. And, of course, there is more to a good LED retrofit than screwing in bulbs.
There’s some trepidation in the industry to just jump in with the next new thing, but I think overall the industry is getting closer to sustainability than it ever has before, at least in regards to the potential to realize the huge savings potentials within every portfolio. I’ve been doing this for probably a decade now, and realization of these potentials is certainly a little different today, but also the same in many ways, which can be frustrating. I haven’t seen too many big leaps and bounds. Our clients and some other companies certainly do achieve substantial savings and have gotten more comfortable in taking those larger steps and commitments, due to the financial outcomes that they are seeing. Getting started today is always the best step to be taken toward sustainability and positive revenue solutions through energy management.
AS: Why do you think this hasn’t translated entirely within the multifamily space?
DG: There are subsections within multifamily. You have your market rate/conventional properties and then you’ve got the affordable/HUD sites. When you get into the areas where portfolios are paying the bills, like in affordable, they’re far more interested in reducing bills as they’re the ones paying them.
Also, I think the groups that manage affordable portfolios are really in it to help people — not that everybody in our industry isn’t — but affordable seems to be a little more focused on at risk human beings and their living spaces. I think that also adds to their motivation to make sure that they’ve got a healthy and efficient sustainable environment for them to flourish in.
Now, for the market rate or conventional side, where they buy a property that they plan to sell in the next three to seven years, that model really limits the ability to do some big energy projects. Projects like boiler retrofits, windows, building envelope, solar PV and thermal, energy storage, insulation and HVAC can have four to eight year paybacks, so there can be limited interest there because an owner may sell the property before these project’s payback is achieved. But I do think one area where energy management hasn’t impacted multifamily enough is in the disposition cycle. The industry understands very well that if they buy a property and rehab it, putting in say a million dollars, depending on the cap rate, they’re going to sell it for X amount more money. It’s an easy equation. If you put in $200,000 in energy saving retrofits, divide that by a cap rate of 8 and all of a sudden you have $2.5 million added net present value to that property.
What perplexes me, at times, is that if you did a $200,000 energy retrofit, it’s at least as valuable as doing standard rehab projects — even more valuable because of the savings during management of the asset. But I don’t see buyers and sellers quantifying that number very often. Many organizations tend to be doing the industry standard stuff they might have done 10 or 20 years ago, with little consideration, at times, to “greening” properties and the additional financial benefits of those efforts within the disposition cycle. That’s something I’ve got my finger on now — how we can really quantify disposition and M&O value.
AS: What are some of the challenges in trying to convince building owners that it’s a good investment to take on these energy efficiency retrofits?
DG: We put a lot of proposals in front of a lot of different clients, and some of them simply don’t see value in certain areas. It’s probably just the perspective of the company and the way they do business. Some of them do latch on and understand the many upsides. Education is a big part of our job. We’re in an industry that has dabbled in energy retrofits, typically. Don’t get me wrong. There are many many organizations out there fully focused on these positive energy potentials and achieving them every day. In regards to those who have yet to shift perspective, It’s our job to get them comfortable and knowledgeable enough to make qualified decisions they can trust, that help their company short and long term.
We all have a different perspective — every company, every person. Changing that perspective can take time. Usually it takes a lot of proof, which means a lot of projects that are quantifiable and show their value very easily. Sometimes we’ll be working with someone who does understand it, but they might struggle to explain that value to their higher ups, therefore, if they can’t completely explain what we can do to help the company, they can run into some barriers within their organization. Working directly with the top decision makers at a company is one of the most important considerations regarding sustainability as a whole.
It’s a lot about transparency, education and quantification of exactly what we’re doing and why it benefits these companies so greatly. The key is breaking it down into simple business terms that a company can trust and hold onto.
I think there are a lot of reasons why the multifamily sector isn’t as sustainable as it could be. The biggest one: misconceptions about results. I’ve met with a lot of people over the years and heard the same story a little differently in many offices. “Well, Dan, you know we tried an electric retrofit, and it just didn’t work,” or “We did a water project and it didn’t work.” There’s a lot of these stories because they didn’t have a relationship like ours to really make sure there’s a positive, measured outcome that insures the ability to easily represent the results in a financial statement.
Energy projects really come down to the partner doing the work and monitoring the data. You can do any kind of project, your rate could go up and you would have no idea why you spent more money on electricity this year if nobody told you your rate went up. It’s our job to say, “Hey, we have been monitoring the data and your rate went up, but good thing you did the energy retrofits, because you would have been paying X thousand more dollars had you not.” Water rates and electric rates go up all the time. If you don’t have somebody that’s monitoring that, explaining exactly how the cost and use is working, you could inadvertently think that your energy management program isn’t performing, and therefore, stop attempting to create more savings. Our mission is to insure positive results that allow companies to build on a program that saves over and over again.
AS: What do you think is the biggest opportunity or the lowest hanging fruit for multifamily buildings?
DG: That’s kind of a loaded question because the easy answer is to say LED, smart irrigation controls and water retrofits. Those are the ones where you’re going to make a bunch of money really quickly. There’s another layer, where it’s different everywhere because it depends on what incentives you have with your utilities. You could have great incentives for windows or insulation or HVAC, which all of a sudden turns that into low hanging fruit.
But there’s a trap with low hanging fruit because if you do all of that first, you’re never going to be able to do bigger projects because the payback will be too long. If you take your low hanging fruit, say your LED, your irrigation and your low flow, which are all about one to two year paybacks, you lose out on further potential because there are other projects, like say boiler efficiency technology, HVAC, insulation and windows, that are more expensive and have paybacks between four and eight years.
The best value you can achieve comes from performing a whole building retrofit, meaning you look at everything under the sun — lighting controls, LED, plumbing valves, energy storage, insulation, solar PV and thermal, water catchment, irrigation, landscaping, windows, building envelope, geothermal, cogeneration, waste and recycling, motors, laundry, pools, elevators, roofing, HVAC, boilers and the list goes on and on. When you do everything together, you average the payback, and instead of ending up with a lot of big projects that are eight to ten year paybacks, you might get those down to around a five or six year payback as a whole. In other words, you’re able to create more efficiency with a larger project that saves more energy and makes your building even more valuable. That’s really the best way, for those properties that will not be sold in the next year or so.
When you do those larger projects, there’s so many good financing mechanisms available for energy savings these days that even if it’s a million dollar project and you don’t have anywhere close to that kind of money to do it, you can finance it and that property will be cashflow positive from day one. The savings simply pays for the loan payment. If you do a million dollar upgrade to your property and apply the cap rate, all of a sudden your property is worth millions and millions more dollars than it was to start. So thinking whole building and taking more of a sustainable view is a really big deal, literally.
AS: Switching gears to water conservation, what are you seeing in the industry with regards to saving on water?
DG: Water rates are going up everywhere. I get alerts every day about it from Google. They send me articles about municipalities across the country raising their rates drasticly, and it’s only going to get more and more expensive. The infrastructure in the United States requires at least a trillion dollar investment to get the wastewater system structurally sound, as well as an additional trillion dollars to keep the clean drinking water system where it needs to be infrastructurally. Municipalities pay for that by raising water and sewer rates.
We see places like Atlanta and Seattle that have outrageous costs for water and sewer, and those high costs are really just financing the infrastructure changes that are required. Every city has these issues. Every city needs rate increases in the near future. Water cost is going to go up by multiples today and for decades to come.
In terms of decreasing water usage, on the resident side a typical retrofit we do will get you 10-15% or even 20-25%+ savings with very specific technologies and methodologies. On the other hand, one of our clients, Maxus Properties, does a lot of resident education, and they can see the results, because they use our MultiFamily Energy Savings software to track it. This shows that even at properties where Maxus hasn’t done a water retrofit, but they’re educating their residents, they see 5-15% drops in water use and cost. That works too. The issue there is that unless you’re a company that’s willing to sincerely and continually reinvest in that effort, or hire a company like mine, the educational type of savings will not occur at that level. Many properties are simply too busy. If you don’t have somebody driving that project or a credo to continually to provide that level of educational service to the residents, this type of savings opportunity is not available, but remember that it can be.
When it comes to landscaping, there’s a lot that can be done to improve overwatering, which is the typical reason for water waste. For example, we deliver smart controllers that have a cellular feed to the most local weather station so they know exactly how much it rained each day and can calculate how much water is contained in the soil based on how hot, wet or dry it’s been. That system will know exactly how much water to put onto the grass and the foliage. By using the appropriate amount of water to keep things green we see average savings of 25%.
There are other technologies that use magnetic systems which connect around the pipe to change the surface tension of the water. As the magnets affect the water, it becomes more absorbable by the environment that it’s going into. We used this at a vineyard recently where we put the equipment on half the crop, and it yielded just as much fruit and growth, with half as much water. We see similar results in multifamily type landscaping.
AS: Speaking of technologies, what innovation(s) are you excited about seeing grow in this space?
DG: There are a lot of exciting things like the magnets and smart irrigation systems, battery storage and this thing we install called a smart valve that’s in effect a one point low flow retrofit for a building. There are new burners that use 50% less electricity on your oven and oh by the way, they don’t get hot enough to start grease fires. One of the biggest problems folks have to deal with in multifamily is grease fires — if one unit catches on fire, it can spread to other units and it’s a nightmare. You can put in energy efficient burners that won’t ever catch anything on fire so you’re killing multiple birds with one stone there. We’re also working with some engineers on a water energy creating solution that basically puts a impeller in the column of water so that as the water goes by, it spins the impeller and creates a micro-hydro electricity generator. It’s not going to power too much, but it can light up one of your hallways, for free, forever. Battery storage for senior properties is something that has shown very exciting returns recently. Not only can you backup your property in regards to energy outages, you can manage your peak use to reduce those huge demand charges that really cause a lot of electric cost.
There’s all kinds of fun stuff that has been proven to work very well in multifamily recently. Don’t forget the oldies but goodies like solar thermal though. Solar thermal leads to huge savings because it costs a lot to heat up your water and circulate it around the building. Solar thermal can be very cost effective. So, I’d say there are many steadfast energy solutions along with lesser known newer ones that are working great, that many have ever heard of. We’ve done them all and are testing newer technology all the time. I’d encourage any multifamily professional to reach out and learn about the new and the old and how it is working and working well in multifamily today.
AS: What do most of your multifamily initiatives look like? And what are typical results?
DG: We always lead with our low flow solution for a couple of reasons. Of course we’re going to use the best aerators. That’s easy, those things are cheap. We’re never going to put in a 1.5 gallon shower head because residents will remove it if they don’t like it. Then you have dissatisfied residents and you don’t realize why they’re moving out. We’ll always put in a 2.5 gallon shower head to add to resident satisfaction. Right there, we’re already giving away an extra gallon per minute, so how do we get the savings? To start, our crew comes in and they fix every drip or leak, everything that they see within the unit and the property. They also do underground leak detection. We tighten up the entire property.
Then you’ve got to think about the toilet. This is one of the big areas. The porcelain of any toilet is not your problem. That’s what’s expensive. You could spend $200-400 on a toilet or you could spend $75-100 in replacing the guts of the toilet, because if you think about how a toilet leaks, it has nothing to do with the porcelain. It has to do with the components inside that toilet. A leaking toilet in Atlanta could cost you $400 a month. It’s huge. Our solution replaces specific internal components of that toilet, reduces the tank volume and makes sure it’s completely tightened up, for the long term. Also, we come back every six to nine months and tighten everything up again to make sure that you continue to get the same level of savings. We’ll keep doing that as part of the ongoing, stepped reduction, shared savings program. That means zero cost to our client. This retrofit methodology saves an average of $32,400.00 per qualifying site, per year.
We’re always going to talk about water first because it’s the most expensive and the cost is going up all the time, so when you can impact water usage consistently, those dollar savings are big. An average low flow retrofit with a smart valve is probably about $40,000 a year in savings. When you look at a common area LED lighting retrofit, it could be anywhere from $5,000 to $50,000. You get a bigger bang for your buck focusing on water, and we can do a lot of the water stuff in shared savings so it doesn’t cost anybody anything. We’ve saved properties hundreds of thousands of dollars per year. When you can average $30,000 or $40,000 in savings for something that’s shared savings, or a one to two year payback, that knocks it out of the park.
At the same time, we’ll do whole building audits, especially with the affordable or Better Buildings Challenge participants. For HUD affordable portfolios, if you join the Better Buildings Challenge, they will basically give you up to four dollars per unit, per month. They give you that money to procure an invoice processing service like Urjanet’s to create transparency into that data and have our software populate ENERGY STAR® Portfolio Manager® to fulfill all HUD utility allowance or BBC requirements. Then you have two other pieces where it’s resident engagement as well as resident and staff education. We provide the consulting to handle that entire program for our clients. They get the additional funds, which is meant to pay for our services to manage that program for them. The outcome and commitment of joining the BBC is a 20% reduction in energy use in the next ten years and we take care of all the heavy lifting. For zero dollars in, companies can lay the required groundwork to achieve a 20%, or more, portfolio-wide energy reduction for no M&O cost. We’ll handle 95% of the work and deliver all these significantly positive results.
There are so many ways for energy management to be easy, whether it’s utility incentives that reduce overall costs and payback periods, the BBC, leveraging energy experts like us, or the great data like Urjanet provides, it’s not that expensive and saves a ton of time and money. Folks are going to save far more money than they spend. It’s down to math and a science now — we’re not shooting in the dark as far as costs or paybacks. We know exactly how each project is going to pay back and when. Therefore, the entire concept of energy management is now a no-brainer.
AS: Do you think the market is aware of and educated about programs like the Better Buildings Challenge?
DG: Not enough. When I go to conferences, my conversations are typically: “Are you on the BBC?” “No.” “Do you know what that is?” “No.” “Did you know you can receive free money to hire us to save you 20% on your energy, and we’ll make it easy?” That pitch makes sense to me because I know it and I trust it, but to somebody who’s been pitched by a lot of salespeople for a lot of things, red flags are popping up all over the place. “Wait. Free money? Twenty percent, that sounds too good to be true, right?” It’s tough getting over the hurdle of so many salespeople selling so many things. Some products work and others do not. We’ve got a program that works every single time. It’s about building trust and building longterm relationships.
AS: Where does data come into play in your projects and your initiatives?
DG: The most important element of anything we do is data. Whether it’s our auditors going out on the site and gathering the correct information or populating our MultiFamily Energy Savings software with great data on baselines and ongoing savings. Our industry has a couple of ways of providing data. There are utility billing companies that basically have an army of folks that hand-key information into their system so that they can perform the utility billing for clients. Many typically don’t focus on a lot of elements on the bill that we would like to see, like Urjanet does. Therefor you don’t get as much information as you could. And seeing as how there’s a human element, there are errors, and they can be big. When a company reports 1,000 gallons versus 1,000 kilo gallons, that’s a big difference if you just missed that little piece. There’s a lot of correction and time spent to get that data closer to accurate. Urjanet is the most complete data provider out there by delivering data that is 100% accurate to what the utility company puts on the bill.
There are a couple of utility billing companies that do a better job than others. In general, the data in the industry is not as precise as we’d all like it to be, which makes Urjanet’s solutions so much more important. Urjanet creates a timeliness with their instant download from the utility company so the client isn’t dealing with their vital data being delivered via snailmail, then being scanned off to timbuktu to be hand-keyed, then to be scanned back and then finally made available, in a semi accurate state. That’s why you can get your data a week faster with Urjanet. Getting that data quickly and having every single element on that bill like meter changes, demand charges, additional fees, rate changes and things that many of the utility billing companies don’t track at all is important. The data coming from Urjanet is the absolute best possible data available in the United States, hands down.
Ready to Uncover Savings in Your Buildings?
Achieving savings like those described by Dan Gaddis is well within reach. Learn more about what it takes to make it happen in our eBook, The Next Frontier for Energy Efficiency: “Greening” the Multifamily Sector.
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