Our Insights

Unchartered waters: combating the drought

One thing we know for sure–It will take a long time for the country to adjust to the drought across the western states, particularly in California. But this is about more than California. It’s about economics. And it’s about apartment utilities.

First, economics: California is the largest federal taxpayer of all U.S. states, paying more than it receives in federal spending. What happens in California permeates the nation not only in tax dollars, but in sustenance: it’s also the world’s fifth largest supplier of food with over 450 different crops, many of which are grown exclusively in the state. Lest we forget, this includes being the world’s fourth largest wine producer. Overall, California’s$2.2 trillion annual economy makes it the seventh largest in the world.

Then there is the business of apartments. California has a lot of them. In addition to hundreds of worldwide headquarters including Google, Apple, and Hewlett Packard that support its rental market, California is home to the third highest percentage of renters in the nation (16.8 percent of its population) behind only Washington, D.C.(35.7 percent) and New York (23.7 per-cent). With nearly one million apartments in the Golden State alone, the four-year drought and its ramifications are sure to redefine how apartment owners across the nation deal with water and other utilities now and into the future.

Of course, a few months of rain could change everything, right? Not likely. It is true that climatologists point to the El Nino weather phenomenon as a possible source of some relief over the long-run. But even that is a 50/50 guess among experts. The National Oceanic and Atmospheric Administration’s (NOAA) Climate Prediction Center recently announced that this year’s weak El Nino is emerging too late in the season to bring any relief to California. In fact, it’s more likely to bring more spring rain to the coast along the Gulf of Mexico. NOAA notes that only three of the past years El Nino was present have brought above-average rainfall to California during March-April-May.

It’s important to note that conservation has long-been as much a part of the California story as renewable energy. But culture and conviction was not enough to overcome the scale and ensuing water shortage of the present drought.

What began as encouragement toward a voluntary reduction of 20 percent has now become an executive order by Governor Jerry Brown mandating unprecedented restrictions in water use. The lack of moisture in the way of snow pack this winter during what is normally the state’s wet season, has sparked a notable 25 percent reduction in water use for lawns, golf courses and commercial entities backed by stiff fines.

Tough decisions are still ahead with regard to prioritizing water supply according to its effect on the ecosystem, the importance of food supply, and the ensuing economic and psychological impacts.

The broad stroke of constricting water use by a quarter will create an interesting decision-making process as apartment owners and renters, alike, prioritize practical need with the new normal of available resources. At first glance, it seems logical to favor maximizing the return on investment (ROI) of the water used. But what does that mean in practical terms for the apartment owner competing in today’s rental market? How are owners to navigate the obstacles whereby residents are ultimately responsible for water use, and landscapes are a key component of leasing and retaining residents?

Curb appeal and lush property landscapes are often leverage for apartments to garner market-competitive rents. In fact, effective rents are at record highs right now. California water rates, not counting any accrued penalties, are predicted to rise by 30 percent in the next year. Such an increase would easily net a shortened return on replacing water-thirsty landscapes with less demanding designs. Could this be the apex whereby the cost of replacing lush landscapes for drought-tolerant designs finally makes financial sense?

In fact, such cost analyses and other topics related to conservation were hot topics at NWP’s Energy Summit 2015 held in Washington, D.C. in March. Case studies were presented by apartment operators from around the country, and addressed field-tested methods for controlling rising utility costs by way of conservation, while protecting a property’s asset value. Here are two that explore very different issues but involve the same major resource.

Stopping leaks

Tom Spangler is Acting Senior Director with Greystar, headquartered in Charleston, South Carolina. Greystar is the country’s largest manager of apartments with just under 400,000 units within its portfolio. The company currently owns a global port-folio of over $9.2 billion in assets with another $3.3 billion of projects in the development pipeline.

Spangler’s first case study began with a Florida property where water usage abruptly spiked nearly doubling its water spend from$11,000 a month to over $21,000 a month. The property typically averaged about 100 gallons per unit, per day, but over the course of a 30-day billing cycle, the number doubled to 213 gallons. The site team was immediately notified to locate the presumed leak. After all, an extra 3,000-plus gallons of water should be obvious, right? Not really.

After a thorough visual inspection yielded no clues, the next logical conclusion was that the leak must be underground or in a less obvious or deeper place.

Greystar’s next step was to hire a specialized consultant to install leak detection monitoring devices on all of the water meters to analyze and measure each pulse of water throughout the property. The devices provide real-time alerts whenever usage strays beyond historical thresholds.

Water Signal, headquartered in Alpharetta, Georgia, was hired for monitoring. The Water Signal team quickly pin-pointed the leak under a courtyard fountain. The fountain was designed to only use reclaimed water, but a three-quarters inch domestic water line had been erroneously connected to the recirculating system. It was adding fresh water to the fountain on a continuous basis, which in turn, simply went down the overflow drain. The $11,000 water waste was quickly rectified which brought the property’s water spending back to normal levels.

Spangler concluded that while every property may not think they need real time monitoring, the service is an insurance policy against future leaks and easily paid for itself with a single leak and within a 60-day timeframe.

A sprinkle of savings

U.S. Environmental Protection Agency EPA estimates that as much as 50 percent of water used for irrigation is wasted due to evaporation, wind or runoff caused by inefficient systems. This can rise as high as 60 per-cent in water-challenged areas like the southwest. Over-watered landscapes can also, and quite easily, result in property dam-age, fiscal liability and elevated sewer costs.

While water and sewer are historically one of the highest line items on a property’s P&L statement, it is often overlooked when passed through to the resident.

Spangler’s second case study provided the results of saving water at multifamily proper-ties through smart irrigation. Greystar hired HydroPoint Data Systems, Inc. to run an analysis on the water used for irrigation at three properties located in Mesa and Phoenix, Arizona, and Colorado Springs, Colorado, based on their high water bills. A trifecta of rising costs, suspected water waste and poor landscape health compelled the in-depth assessment of the properties’ irrigation systems and their efficiency.  Greystar was looking to benchmark water use against best practices and regionally appropriate water use.

After establishing a baseline on the water used for irrigation at each property, they installed their WeatherTRAK smart irrigation controllers at the three sites. The property in Mesa, Arizona, saw an immediate savings of 25 percent less water use, realizing an annual savings of 2,332,000 gallons of water. This meant an increase of $14,109 to the property each subsequent year.

A revised irrigation plan at the Phoenix property resulted in a 26 percent decrease in water use, even in the hottest, peak irrigation months of the year. This translated to more than $40,000 in savings annually.

Still, the Colorado Springs property yielded the golden ticket. The site saved over $7,303 in water used within the first 60 days, setting in motion a ROI period of a mere 15 months.

The irony is that landscape health actually improved by virtue of a more efficient sys-tem, creating asset value and improved curb appeal. The added bonus is that the smart irrigation system delivers operational efficiency with remote visibility and controls of the system and the community grounds.

Smart irrigation is now one of Spangler’s top water savings tools since his beta tests in Arizona and Colorado.

Conclusion

There are many tried-and-true ways to generate cash flow, bolster asset value and encourage utility conservation. The estimated wasted water across our country is particularly significant, and the cost of water promises to only rise in the years ahead.

Apartment owners and operators who manage conventional assets are generally compelled to operate by cost-benefit analysis for any retrofit or operational decision. Determining which retrofits produce the greatest value for the dollar is the best way prioritize how to mitigate rising costs.