Senior Living Investing in “Green” Projects, Waiting for Cost Savings

| February 6, 2013

As energy prices fluctuate and the cost of living rises, the appeal of green design has the potential to attract a wide range of retirees looking for sustainability, especially in a housing market crawling its way to recovery.

Some say go green or bust, claiming that features from green roofs to water-saving faucets are essential in saving the bottom line. Yet those who have done so say the idea of “being green” may outvalue the actual costs savings, which communities can’t seem to pin down.

Several unquantifiable factors such as wavering energy prices and the time it takes to recoup on a project’s investment, though creating uncertainties, have not deterred developers and operators from green communities and equipping them with all the eco-conscious building features imaginable.

“The challenge of green building is that everything is on a rule-of-thumb basis,” says Robert Helle, principal at Pathway Senior Living. “You can identify savings in your air-conditioning and electrical cost due to more efficient systems and lighting, but those savings could get wiped out in a hot summer.”

Even in the event of adverse weather conditions, Helle stresses that the savings would still be there for a community decked out with green qualities, though they could have been lower under less efficient systems.

“There’s no good way to quantify annual energy costs right now,” says Helle. “If we use more efficient systems, our lenders are not going to give us higher loan amounts based on a lower estimate of our utility costs.”

The uncertainty surrounding future energy prices only adds to the difficulty in determining when a green community begins to “pay off,” as savings in energy costs represent an integral part in developers and operators recouping their investment.

“You hope to realize some return on that investment, or some recoup to the money you’ve spent,” says Martin Jablonski of Landmark Realty & Development. “The period of years it takes for that to occur depends on what the energy costs are, for instance, how the cost of water might rise.”

Jablonski, who oversaw the development of Pathway’s Oak Hill Supportive Living Community—which obtained a Gold Certification from the National Association of Home Builders (NAHB) for its green capabilities—suggests that the time it takes to see a return on the investment of a green community depends on the amount of “green” put into the project.

“When you’re getting a higher rating it requires some sort of additional investment,” says Jablonski.

Broken down into four degrees of certification, certification for NAHB’s Green Building Standard ranks from Bronze, Silver, Gold and Emerald, with each level representing an escalating investment, according to NAHB’s Kevin Morrow, senior program manager for green building.

For an Bronze-rated building, the payback period will be calculated at a faster rate than an Emerald one since it is has fewer costs to recoup, notes Morrow. However, an Emerald-rated building might include some energy generation capabilities that would allow a faster payback calculation than other levels.

“Our industry tends to favor payback periods of 10 years or less, but there’s no guarantee that they are going to achieve that,” says Morrow.

There is limited data on exactly how many senior living communities are considered green, but the number is increasing despite a lack of any quantifiable savings. Some developers are betting these types of communities will resonate with the Baby Boomer Generation.

“In the 50+ market we are seeing that products tend to be a bit more contemporary,” says Manny Gonzalez—AIA, LEED, Principal, KTGY Group. “The more we get those to converge to where the costs of incorporating green and the savings they provide are realized in a much shorter time, the faster it will be adopted,” says Gonzalez. “And I think we are starting to see that gap close dramatically.”

Written by Jason Oliva


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Category: Development, Green, Senior Housing

Comments (4)

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  1. Chris_Foley says:

    It's great to see the industry continuing to pursue lower cost alternative construction methods and building materials. Even though, as mentioned above, the banks may not give higher loan values due to lower utility costs, when it's time to sell the building in 5, 10 or 20+ years, the lower utility costs will give higher NOI (Net Operating Income).

    NOI is still the #1 driving factor to determine the selling price (value) of an operating property. So, lower utility costs compared to other properties for sale at the time, will yield higher prices for those owners who wisely spend on "green" construction.
    Chris Foley
    Sr. V.P.
    Equity National Seniors Housing Brokerage & Advisors
    cfoley@Equity.net

  2. Jaclyn says:

    Glad you all are writing on this very important topic. The EPA's ENERGY STAR program does offer some quantifiable savings associated with energy efficiency and incorporation of "green" best practices. http://www.alfa.org/News/2983/Senior-Living-Commu

    • JasonSHN says:

      Thank you for sharing this piece of information, Jaclyn. I will consider these findings for future articles on green design in seniors housing.

  3. Blair Carey says:

    Our research suggests that there are less than 30 environmentally friendly communities at this time. Those that are are generally using the fee-based CCRC model including Mirabella in Oregon as discussed in this article http://bit.ly/YcVdH.

    Last year Retirementhomes.com completed a research report on environmentally friendly communities that you can find at http://bit.ly/VGn8z8

    We believe that the trend towards "green" communities benefits the quality of life and health of senior residents while also improving the wallets of the communities that choose these construction methods.