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Shedding Light on LED Retrofits (National Apartment Association)

By Dan Gaddis, January 2017

By now, everyone in the apartment industry has heard about light emitting diode (LED) lighting and its many effects on operations and bottom lines.

LED retrofits are one of the easiest and fastest ways to begin a strategy toward greater energy efficiency at a community. Payback for such implementation can be rapid and this helps to increase the property’s value.

LEDs are now a time-tested and proven solution for reducing energy costs and they are working even better and at lower cost every day. However, there are intricacies and pitfalls when it comes to LED projects, their ongoing maintenance and security.

Many apartment industry partners can help make LED installations or retrofits as easy as they sound while delivering on the promise of long-term savings for the assets.

LEDs can be calculated with a market CAP rate to ensure that the project yields an even larger financial outcome when the site is sold. For example, if an average LED project costs approximately $25,000 and that project saves a community $15,000 per year while under management, the project can be worth another $312,500 at disposition when calculating an 8 percent CAP rate.

Based on comments from experienced apartment companies, following are thoughts about how LEDs worked positively and negatively for the community and how they addressed them:

LED Pros

1. Big Savings: Low-risk energy projects with high returns can come both through energy cost saving as well as saved maintenance bandwidth. Just like any capital project, LED projects can be applied to the CAP rate at time of sale for increased property value.

2. Low-Hanging Fruit: LEDs are among the lowest in cost and effort compared to other sustainability projects that address energy or water savings. Other low hanging fruit are typically efforts related to low-flow water conservation retrofits with required recurring equipment review, smart irrigation systems with magnetic water savings add-ons, water valve oxygen compression, PTAC plug-in upgrades, boiler and hot water efficiency equipment, local utility incentive retrofits, 179D property tax engineering, doorstep recycling programs and other proven new technologies.

3. Quick Return on Investment: LED projects typically pay back their investment quickly, meaning a speedier delivery of financial returns compared to other potential investments. Even if a community is on the market, the quick payback period often means that an LED project can deliver additional revenue at the time of sale.

4. Green Marketing: Many prospective and current residents increasingly like the idea of living in a green community. As such, marketing LED and other green aspects of a community or portfolio take on additional importance and can generate more leases.

5. Safety and Security: Community and resident safety can improve as a result of reliably lit areas, such as common space. LEDs are 10 times less likely to burn out than incandescent bulbs or compact fluorescent lights (CFLs) and can produce more appropriate light for these areas.

6. Incentives and Property Tax Reduction Many utilities offer rebates on LEDs that help to reduce project cost and increase payback time. EPACT/179D can allow for up to $0.60 per square foot for portions of some LED projects. EPACT can also be leveraged for some HVAC and building envelope upgrades. Be aware that an EPACT-specific engineering group is typically required to achieve the 179D tax deductions.

LED Cons

1. LED Selection: Not all LEDs are created equal. Communities must choose the proper LED or fixture to achieve the greatest benefit. Lighting direction, intensity, warmth and color are important considerations. Similar fixtures being offered can range in price and quality. In the past, it was common practice to purchase LED products directly from China to keep costs down. This no longer is true. Most manufacturers and distributors have become very competitive and today it’s more about product quality. Based on years of experience, some LEDs from China have shown to have a 5 percent to 10 percent burnout rate within the first year or two. Many higher-quality LED providers are achieving closer to 0 percent while keeping cost in line with project goals. Most LED products have a counterpart at a lower cost and with similar quality. As for duration, LED warranty periods typically range from 3 years to 7 years. Maintain a copy of the warranties at the community for reference. Keep in mind onsite personnel may change during that time, so warranty information can become lost or forgotten.

2. LED Replacement: Just because an LED provider suggests that a light bulb or fixture should be replaced at a given point does not necessarily mean that it must be changed out. There are times when more lighting fixtures are recommended for an installation or retrofit than are necessary. An LED retrofit provides the opportunity to reduce the number of fixtures, thereby reducing overall project cost and ongoing electricity cost. Be aware that because LED fixtures can be more directional than their preceding incandescent or CFL lights. At times, additional LEDs, which deliver more directional lumens (the measure of lighting candela illumination in a specific direction) may be required to light the same area. Discussions and analysis should be had for communities that have over- or under-lit areas to determine how many fixtures are needed. Thankfully, some LED partners will deliver extra bulbs at no charge as part of the initial order. Having these few extra bulbs makes it easy to replace those that may be stolen or burn out prematurely.

3. LED Theft: LEDs are more expensive than their virtually extinct incandescent cousins, therefore they can be viewed as something of greater worth to residents or their guests. Ensuring that LED fixtures and bulbs are secure or are difficult to remove is critical during project review. Many fixtures have been designed to reduce removability. They include bulb configurations that cannot easily be reused or resold; some even manufacture screw-in LEDs with locks. Many lighting auditors will recommend that an LED be used in place of most every existing bulb. That is not likely necessary. When reviewing an LED audit proposal, consider that most any LED line item that has a payback period of greater than five years might not be necessary to the project’s overall success. Discussing the use of lower quality or reduced-cost LED bulbs in vulnerable areas can be a good tradeoff to receive energy savings while limiting exposure to potential theft of property from your community.

4. CFLs Still Have a Place: Although CFLs are not as efficient as LEDs, they can add value in many lighting retrofit projects. By opting to use CFLs in areas where LED theft may occur, a community can limit the possibility or impact of theft while still saving energy and lowering project costs. Should these CFLs still be stolen, they can be less costly than LED and therefore are more expendable.

5. Bidding vs. Partnering: Accepting the lowest bid is not always the best choice when choosing a firm to assist with LED installations or retrofits. Quality of product, installation, site audit, incentive review and ongoing relationship are many times lost during a bidding situation. Most apartment organizations agree that finding a high-quality, trusted partner or two is the best way to ensure for positive outcomes, pricing efficiency and ongoing attention to detail for the long term.

6. In-House Installations: Having a professional LED installer perform these projects can prove to be a big positive. Using maintenance staff to conduct an LED review or retrofit can cause considerable issues. Statistics show that about half of residents who do not renew their leases state that maintenance-related issues were the reasons why. Freeing up maintenance staff members’ time instead of asking them to change lightbulbs can have a positive effect on occupancy. When professionals are used to conduct these installs, things simply tend to get done more smoothly and more quickly.

Dan Gaddis, Managing Director, AncillaryAnalytics; Rae Schnabel, Director of Sustainability, Maxus Properties, Kansas City; and Mark Watson, Building Supervisor, Quintessa Apartments, Seattle; contributed to this report.


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