Reverse mortgages as an option for energy-efficient refurbishments
In the coming years, many homeowner associations (HOAs) will have to carry out energy-efficient renovations. The EU and Germany have set ambitious climate targets in which the decarbonization of the building sector plays a central role. Even if energy-saving measures are urgently needed, there is always the question of financing in the HOAs. Senior citizens are often faced with financial challenges, as most of their capital is tied up in their homes and conventional credit options are rarely available from banks due to long terms.
The importance of energy-efficient renovations is greater today than ever before: in addition to their contribution to climate protection, financial aspects are increasingly coming into focus. In the coming years, heating costs will rise due to CO2 pricing as well as other factors, making energy-efficient refurbishment an indispensable long-term investment. At the same time, the energy-efficiency condition increasingly determines the value of the property.
Reverse mortgages in the UK and USA
In the UK and the USA, reverse mortgages are a common way for older people to release tied-up assets without having to sell or even move out of their homes. In this case, part of the property is mortgaged by the bank and paid out as a loan. Interest is added up to the loan amount without repayments or interest payments being made. Only when moving out of the property or dying, the loan becomes due, which can then be settled by the heirs, or by selling the property.
Situation in Germany
In Germany, reverse mortgages are not available for several reasons: First, the German pension system is comparatively robust and provides some financial security in old age. Second, the ban on compound interest requires banks to develop more complex approaches to reverse mortgages with security margin. In addition, the ownership rate in Germany is lower, and culturally, many people are reluctant to remortgage their already paid-off property.
For some years now, however, Allianz Lebensversicherung AG and some Sparkassen have been offering a comparable product for older people who own real estate. The prerequisite is an unencumbered property that is occupied by the owner. Up to 40% of the value of the property can be paid out as a loan at the usual interest rates. Unlike the reverse mortgage, however, the interest is paid monthly by the borrower, which means that the loan amount remains constant and does not grow as with the reverse mortgage. In addition, the loan is not repaid until the owners move out of the property or pass away.
Outlook
Products like these can play an important piece of the puzzle in financing extensive energy retrofits in condominium associations. In an aging society, it is important to further develop such financing models so that renovations can be financed from the value or appreciation of the property.
To date, the renovation rate of buildings owned by homeowner associations (HOAs) is less than 0.5 percent, far below the national average and the rate that would be necessary to achieve climate targets. To achieve climate neutrality in the building sector, the renovation rate in Germany must reach at least 2% .
The GREEN Home project aims to increase the refurbishment rate in HOAs building stock. In doing so, the project serves to develop practical instruments for the implementation and financing of energy efficiency measures on the common property of individual owners. The implementation of the aforementioned project goals for the promotion of energy efficiency in the residential building sector connects different stakeholder groups and thus organizations, groups of people or even individuals and relies on their participation. The project has already conducted round tables in the target federal states of Brandenburg/Berlin, Nordrhein-Westfalen and Baden-Württemberg, analysing and identifying barriers of HOAs that stand in the way of renovations.
In order to meet the identified needs of HOAs, the project is currently modeling concrete solutions together with relevant stakeholders, such as administrators, financiers and energy service companies. Ideas were generated in the last workshops based on the following questions: How can long-term refurbishments be initiated? How can the relevant experts be found? How can information on refurbishment and financing be made comprehensible to owners? Which renovation models can energy service companies offer to HOAs?
It became apparent that the initiation phase of the refurbishment is often a central issue. One solution to this is an online tool that managers can use to pass on information quickly and easily to all owners. A cost comparison before and after the refurbishment is required, but also a simplified presentation of the refurbishment roadmap.
External facilitation, which can support administrators in transferring professional knowledge and thus facilitate decisions, can also lead to increased renovation decision-making in HOAs. Networking of refurbishment companies and HOA through an intermediary website in combination with “best practice” examples, should increase confidence in refurbishment implementation. Energy services can implement refurbishments in HOAs partly bundled by variants of your offer, which in turn would relieve the organization of the administrations. Loans for HOAs facilitate the financing of refurbishments, as the risks of an entire HOA are considered. Nevertheless, we have also examined here which framework conditions would have to be created in order to remove all obstacles.
To flesh out the results, and make them applicable to HOA, we need feedback from relevant market stakeholders like you. Feel free to drop by the next GREEN Home workshop in Berlin in November.
If you would like to skip this step and go directly into the implementation with your HOA building, the GREEN Home project would like to accompany you. Please contact Valentina Fröhlich (DENEFF) by e-mail with the following data:
– City/Region
– Year of construction
– housing units
– Information on renovations already carried out
– If applicable, refurbishment roadmap
– Final energy demand, energy classification
– heat source.
05.04.2023
Deep building renovation can be financed in many ways. The increasing concern of citizens about energy bills open the opportunity for the financial sector to offer different financial mechanisms for financing renovation projects. At the current moment, a popular way how to finance these projects is using grants for the amount usually between 10-60% which are considered as an attractive opportunity. However, it must be noted that public financing capacities are limited and insufficient to meet the actual need for building renovation which is estimated to be around 275 billion EUR across the EU each year to achieve targets set for 2030.
Residents cannot expect that once they decide to renovate their building, a grant program will be available, and neither should they count on a new grant program appearing soon and therefore wait to renovate. Considering the newest regulatory instruments stemming from the European Commission that foresee renovation obligations, pressure to act sooner than later is advised for property owners.
Another common form is bank loans, which are compatible with grants and usually are for up to 20 years in the EU, while in Germany, more common practice is providing them on average from 5 to 8 years. Some banks may structure these loans as so-called green loans, which might offer clients a loan at slightly lower interest rates than standard loans. In those cases, the project must meet the conditions set by the bank in terms of generated savings.
Not only banks but also national development finance institutions can offer loans specifically for building renovation as there is growing demand, which can also be subsidised by creating it as an off-the-shelf financial instrument, therefore decreasing the financing costs for end users since these instruments foresee ESIF programme support and the financial advantage arising from such must be fully passed on the final recipients in the form of interest rate reduction. One example of this is the loans offered by Lithuanian Public Investment Development Agency specifically for building renovation, and on base of it, an off-the-shelf financial instrument was designed named “renovation loan”, which can be implemented in any Member State.
Another untraditional method is obtaining a loan from a municipal government in case it has implemented the Property Assessed Clean Energy (PACE) loan program, in which the municipality would issue bonds and attract investors, after which the municipality would issue loans in their area repaid as part of the property tax. These have not been popular due to regulatory complexity. The building owner repays the loan through an additional special “pay-as-you-go” payment on their property tax bill for a specified term. These “assets” are similar to loans in that the homeowner pays off their debts in instalments over a period of years but are not legally considered as such. If the owner of the property changes, the remaining debt is transferred with the property to the new owner. Property owners pay back the “surcharge” over a period of 15 to 20 years by increasing their property tax bills. The PACE concept is adapted to Europe through the EUROPACE project. As with PACE, the innovative nature of the EUROPACE mechanism is that funding is linked to the taxes paid on a property. In other words, the financing provided by a private investor is repaid through property taxes and other building-related charges. The EUROPACE mechanism also establishes a one-stop shop by involving multiple stakeholders in the process: local governments, investors, appliance installers and homeowners.
Tax incentives are also sometimes used to reduce the tax paid by consumers or companies that undertake energy efficiency investments, e.g., the Superbonus 110 initiative in Italy, which entitled homeowners to a tax credit of up to 110% (starting from year 2023 changed to 90%) on the cost of upgrading their property or the French scheme of reduced VAT on renovation works in residential buildings (10% and 5.5% as opposed to the normal rate of 20%).
It should be pointed out that often these instruments don’t have an ongoing measurement and verification process for projects results, which means that the performance over time is not considered; while it is of upmost importance to ensure long-lasting results, satisfied citizen and long-term impact on energy consumption and therefore the level of energy dependency. Therefore, mechanisms that ensure performance should be considered.
Another common form for financing multi-family building renovation is with on-bill schemes, which is a method of financing energy renovation investments in buildings that draw on utility bills as a repayment vehicle. On-bill schemes can be grouped in numerous ways, most often depending on who is the investor, which means that the scheme can be considered as on-bill financing in case the investor is the utility company or an on-bill repayment if the investor is a third party like a bank. They can also be grouped based on debt ownership transfer, so it can be an on-bill loan in case ownership of debt is not transferred when the apartment owner sells the apartment or an on-bill tariff where obligation is assigned to the property and therefore is transferred to the new owner.
Another financing tool is financing the project by the use of the Energy Performance Contract Plus (EPC+) model where the renovation service provider would pre-finance the implementation of the project and then receive payback from energy savings during the term of the contract. EPC+ models nowadays have many complementary tools like refinancing after project execution, e.g. the LABEEF model in Latvia. This model is already replicated in Poland under the Priority program by the Polish National Fund for Environmental Protection and Water Management, while the refinancing will be offered by the Polish Development Fund.
The GREEN Home consortium is working with stakeholders in Germany to analyse these and other financial tools to deliver an optimal financial instrument for Germany.
11.04.2023
Current developments in European policy on building directives
On 14 March 2023, the EU Parliament adopted its position on the amendment of the European Buildings Directive (EPBD). An essential component of the directive is the introduction of minimum efficiency standards for the worst performing existing buildings (MEPS), which all EU institutions now support. The three institutions, the EU Parliament, the EU Commission and the EU Council, will now vote on the details of the directive in a trilogue.
The vote is in particular a signal to the member states, and thus also to Germany. Since the trialogue is still pending, the specifications for the MEPS are preliminary and the design is still unclear.
With this EU directive, the German government will also pursue its overall concept to achieve climate neutrality in the building sector and affordable heat through corresponding new legal regulations. Among other things, it is planned to define concrete criteria for necessary energy refurbishments in the building sector as a tool to reduce emissions.
In Germany, buildings of homeowner associations (HOAs) in particular have enormous emission reduction potential: 66% of all apartment buildings were built before the first Heat Insulation Ordinance of 1977 (Institut f. Wohnen und Umwelt, Darmstadt). In order for energy retrofits to be implemented in WEG buildings, better WEG-specific legal and financial frameworks are needed that are easily accessible so that they can be used effectively.
It is already foreseeable that the MEPS will be introduced so that the worst existing buildings will have to be tackled first. Waiting and seeing can be risky – the extent to which the subsidy programmes that support owners with renovations will continue to be so well funded will be shown in the coming federal budget debates.
How will the EPBD be transposed into national law?
Current developments at the German level: The 2nd amendment to the Building Energy Act:
– As early as 1.1.2024, every newly installed heating system is to be operated with 65 percent renewable energies
According to the coalition agreement, the energy transition in the heating sector is a key area for the German government to achieve its climate policy goals. A rapid change of direction in the area of building heating is to be a central building block. From 1 January 2024, every new or replacement heating system is to be operated with at least 65 percent renewable energies. This is the result of the draft of the responsible Ministries for Economic Affairs and Climate Protection (BMWK) and for Housing, Urban Development and Building (BMWSB), which is currently being heard by associations. The 2nd amendment to the Building Energy Act (GEG) is to be passed before the parliamentary summer recess.
Now that the government has, after a lengthy struggle, agreed on various mitigations with regard to permitted exceptions, the concrete form of the law will only be clearly determined after the parliamentary legislative process.
In order to achieve the climate protection goals, however, it is already clear that boilers may be operated with fossil fuels until 31 December 2044 at the latest. Even gas boilers will then only be permitted if they are operated 100 percent with “green gases”. According to the draft, the federal government is primarily relying on the expansion of district heating networks and heat pumps, supplemented by geothermal systems and solar thermal energy.
Structurally, the planned new regulations will entail a long decision-making process, especially in condominium owners’ associations. Special features for the procedure in condominium owners’ associations, which (partly) still have decentralised floor heating systems, are therefore described in detail in a separate standard in order to be able to plan implementation concepts in the long term. After an initial revision, the deadlines have been extended to up to 13 years for a corresponding conversion of the heating system.
It is currently still unclear how a socially just implementation of the plans and a corresponding subsidy for the heating system renewal will look, which will be financed with funds from the Climate and Transformation Fund and is expected to become part of the guidelines of the Federal Support for Efficient Buildings (BEG).
It therefore remains to be seen with what concrete regulatory content the Building Energy Act (GEG) will enter into force, underpinned by a corresponding funding system in the Federal Promotion for Efficient Buildings (BEG).
Finally, it has been announced that a 3rd amendment to the GEG will come in 2024, in which the requirements of the EPBD that has come into force are to be incorporated (such as MEPS and solar obligation).
More than 96 percent of property managers believe that homeowner associations (HOAs) are not in a position to carry out comprehensive energy-related renovations. In addition, 87 percent of the administrations estimate that the maintenance reserves are not sufficient to replace older heating systems. Far over 90 per cent of the administrations continue to assume that owners will not be able to carry out clearly higher reserves or to be able to pay so-called special contributions. These are only some results of a flash inquiry of the VDIV Germany with approximately 1,600 real estate administrations on the occasion of the discussions approximately around the energetic reorganization of the housing stock.
The announced amendments to the Building Energy Act (GEG) and the EU Energy Performance of Buildings Directive (EPBD) show: The financial cost of energy-efficiency retrofits in existing buildings will continue to rise. If, for example, the 65 percent EE requirement – i.e., at least 65 percent of heating systems installed from 2024 must be powered by renewable energies – or the EU requirement for energy efficiency class D as the minimum standard for all buildings are to be implemented by 2033, building owners will have to invest and refurbish significantly more than previously assumed.
Flash survey delivers sobering results
In order to find out whether HOA can finance such measures at all, the VDIV Germany conducted a flash survey of around 1,600 companies in March of this year. The result: the vast majority of the property management companies surveyed (96 percent) stated that the reserves in the condominium owners’ associations they looked after were not high enough to be able to comprehensively renovate the residential buildings to make them more energy efficient. 88 percent of the property managers surveyed said they would propose an increase in maintenance reserve payments to the communities in light of future renovation tasks. On average, the increase is expected to be around 59 percent. At the same time, more than 90 percent see a risk that individual owners will not be financially able to pay significantly higher reserves or a corresponding special allocation.
85 percent of the companies surveyed also stated that they did not have enough staff to support and implement energy-related renovation measures. More than 58 percent assume that their company is not sufficiently qualified for this and justify this with the corresponding lack of specialist personnel.
What should be done?
“The results are alarming. In times of rising interest rates and high inflation, the German government’s renovation plans come at an inopportune time. There is a serious risk that homeowners will not be able to raise the financial resources. At the end possibly the distress sale of the long desired property stands , so VDIV Germany managing director Martin Kassler.
“The installation of a new heating system also only makes sense if this is integrated into an overall energy concept for the residential building. An accordingly free of charge available reorganization roadmap, as announced in the coalition agreement 2021, would name the costs to be expected then and contribute to the objectification of the discussion. To date, however, any implementation is lacking.”
“The results clearly show that two adjusting screws need to be turned. Firstly, it is necessary to stretch the implementation periods of the GEG and EPBD. Secondly, existing support programs and subsidies must be significantly increased and new tax depreciation models must be launched. In this respect, it remains to be seen whether the recent announcement of the Federal Government that it really wants to “leave no one in the lurch” in this mammoth task will become reality,” concludes VDIV Managing Director Martin Kaßler.
You can access the results of the survey free of charge here:
Context
Around 10 million homes, about 23 percent of all homes in Germany, are organized in homeowner associations. As early as 1977, Germany gave itself its first legal guidelines for climate protection in existing buildings with the Thermal Insulation Ordinance, which set maximum permissible heat transfer coefficients for exterior building components. Since then, there have been regular updates and new regulations – most recently, due to the Ukraine war and climate crisis, more frequent and at the same time more short-term in their implementation than ever before. These create major challenges for the building stock, about 36 percent of which is unrefurbished, about 51 percent partially refurbished, and only about 4 percent fully refurbished (about 8 percent is new construction). The refurbishment rate has remained virtually unchanged since 2005 at around 1 percent per year, and in WEG even significantly lower.
27.09.2022
The financing of energy saving and energy efficiency measures represents a major challenge for many WEG – service providers who handle the implementation and financing can remedy the situation. As a long-standing investor in the field of financing energy efficiency measures for apartment buildings, Nicholas Stancioff – founder of Funding for Future – knows the challenges surrounding the topic of comprehensive energy-efficient renovations in homeowners’ associations. He talks about energy saving contracting as a solution for increasing energy efficiency. A conversation about success stories.als eine Lösung zur Steigerung der Energieeffizienz. Ein Gespräch über Erfolgsbeispiele.
Kristina Eisfeld: Mr. Stancioff, you developed the BEEF model for financing comprehensive energy efficiency renovations. What is the BEEF Model and how does it help homeowners’ associations with financing?
The BEEF model is a scalable, replicable, low-risk, long-term financial instrument. BEEF stands for “Building Energy Efficiency Facility”.
The fundamental purpose of the concept is to scale up dEEp (“deep Energy Efficiency priority “) renovations and produce long-term benefits for owners while lowering risks for property owners and financiers. BEEF’s primary innovation (and disruptor) is that it separates the risk of poorly completed work (which is the builder’s risk) from the risk of collecting payments. The risk of poorly completed work (performance risk) is further reduced by long-term guarantees of savings and of quality of works.
There is nothing that can be done to control the risk of inadequately completed work (performance risk). As a result, the Builder must fund its own work – the risk remains with them. Owners, on the other hand, do not have the same flexibility: if they do not pay, a number of negative events follow. As a result, it is doubtful that they will not pay. Also, because this payment is part of the utilities, they can sell or rent to a third party who will make the payments. Finally, the guaranteed results further improve quality further ensuring that payments will be made. This structure explains why such buildings are in high-demand and command a 20-30% premium in the real estate market.
By definition, service companies must be excellent at delivering services throughout the contract with their clients. Any problems are their responsibility to manage. These potential risks are theirs to manage and should not burden clients or financiers.
However, payment risk is not the responsibility of the service company. This belongs to owners/residents. The BEEF takes the payment risks.
Better risk allocation lowers the total costs to the owner. While the short-term money needed to deliver the project will be more expensive, the longer-term repayment will be far less costly as the risk is lower.
Evidence in Europe and the US supports owners’ payment discipline. The LABEEF experience – LABEEF is the BEEF in Latvia – is 100% payment -95% in 30 days. In the US, defaults on renovated homes are 32% lower than the market.
Kristina Eisfeld: Why did you develop the BEEF model? What challenges is it addressing?
Building retrofitting is a difficult task. It involves many technical concerns and many players, each with their own point of view and interests: energy specialists, architects, building businesses, engineering offices, site managers, banks, political decision-makers, subsidy programme implementers, and so on. What is frequently lacking is an experienced and committed central coordinator who acts on behalf of and for the HOA.
A further complication is that homeowners’ associations are not homogeneous groups and joint decision-making is correspondingly challenging. Different perspectives and interests of the owners have to be taken into account, otherwise it is easier to leave things as they are. It is necessary, especially in the case of large investment decisions, to moderate the decision-making processes in the HOA.
Since then, I have always asked myself how could Energy efficiency in buildings be developed as a real business. There are billions of square meters of multifamily buildings that must be renovated. These buildings are between 40 and 70 years old. The potential saving from these buildings is far above the 30% savings the EU targets today. Energy neutrality is conceivable.
Residents are reluctant to commit to dEEp renovations and it seems that challenges are impossible to overcome. To name the main ones:
Today, the culture is changing. We have “EE First Principle” but there is still much to do. We designed one possible model.
Each aspect of the model addresses one or more of the challenges. It includes the need for long-term and monitored guaranteed energy savings (1). Its guidelines require structural soundness (2) and include specific measures regarding building and occupant safety and health of the indoor and outdoor environment (3). The contract requires 20 to 30 year services, while the owners may want to skimp on these, the service company must perform them (4). By freeing the Company’s cash, companies can repeat the same model going down the learning curve (5). The BEEF lays out the entire process starting with the end in mind: successful projects are 90% preparation and 10% execution: companies can focus on what they are good at delivering technically and monitoring the results to the satisfaction of residents (6). The opportunity is vast (7).
The homeowners get what they need: Safety, Health and Comfort. The Service Company delivers what they are best at: services based on a technology they control, and the Financier handles the payment risk. Society gains from a cascade of benefit: better well-being, higher employement, lower balance of payments, high energy security.
Final entangled challenges that needs addressing: owners lack liquidity and the urgency increases the need for rapid escalation of renovations rates. By drawing cash into the housing infrastructure, the BEEF increases renovations rapidly in an asset class in urgent need.
Kristina Eisfeld: Describe briefly how the model works and the role of the participants in the preparation and implementation of the project.
Before any activity, the BEEF seeks funding based on legal, financial and technical Guidelines. The Guidelines require guarantees on Energy Savings, meeting CO2 targets, safety and health criteria. They also include the protocols and methodologies for accounting and settling results. Financiers only disburse through the BEEF based on results that match these Guidelines.
Once the BEEF has secured financing, it publishes the availability of funds and the core Guidelines to be met. Services companies can self-select and, in turn, attract clients based on the eligibility section of the Guidelines.
Once the Company and the client prepare jointly the project and enter core data, documentation on a digital platform, the Sunshine platform, the BEEF team will provide a commitment subject to
The companies would receive short-term capital from their bank based on their expertise and the commitment of the BEEF to purchase the future receivables.
With funding commitments in place, which may be blended with grant components, the service company can execute the renovation works.
Following commissioning, the project is submitted to a testing period – in Northern Europe, the heating season. After the testing period, an independent confirmation of savings, quality of works and administrative compliance (such proper insurance) would trigger a payment of no less than 80% of future receivables to the company.
The BEEF purchases the receivables. From then on, the company would be responsible for the services and receive a quarterly payment for this work and the balance of its share of the receivables, while the BEEF would collect the funds from owners/residents as part of their utility bill. In many cases, the housing management company would collect these funds as well as provide outsourced maintenance service.
Kristina Eisfeld: The BEEF does not provide the initial funding; it forfeits the final production?
Yes, the BEEF is purchasing the future invoices for services rendered over the next 20-30 years. The service provider will be delivering these services thanks to the initial investments they have made in the building and the energy systems of the buildings.
Following confirmation that the works achieve the above-mentioned targets, the BEEF will “buy” future services from the service company.
Kristina Eisfeld: Do buildings need to be a specific size to be eligible?
Today we focus on multifamily and public buildings for two reasons. Firstly, the 80/20 rule: we can deliver CO2 savings faster by concentrating on the biggest and worst.
Second, larger buildings provide for higher profit margins for the contractors. Proven quality outcomes will promote market expansion and scale. Companies will need a gross margin of at least 15% on each project. Today, large ESCOs will not consider a project with a gross margin of less than 20-25 percent!!
In the second stage, upon reaching scale and market maturity, the market actors, having gone down the learning curve, will naturally take it upon themselves to further widen their opportunities based on the evolution of product offerings and pricing.
Kristina Eisfeld: What kind of renovation projects does the BEEF require?
BEEF requires specific technical targets covering building engineering, indoor environment, and safety.
The Guidelines do not impose any methodology, only the targets to be met and the protocols to demonstrate fitness requirements. In addition, the Guidelines provide a method that the companies can repeat and lower their delivery costs.
Finally, with the information across several BEEFs, advisory boards can “tweak” the Guidelines annually to further increase quality while controlling costs.
Kristina Eisfeld: Which advantages does BEEF offer the contracting parties involved?
The primary advantages are scale and reduction of costs. The low rate of dEEp renovations makes it urgent to increase scale. For any scale to occur, all stakeholders must benefit so that they will engage.
For this to happen, owners/residents must perceive a clear and benefit to the renovation.
For the owner to see an tangible benefit, we align the interests of all stakeholders on the final beneficiary.
However, the advantages are to all the parties. The first advantage is a more straightforward, more precise way of dealing with one another. Thanks to the Sunshine platform, each counterpart enters critical information standardised. The platform reduces information asymmetry: it allows owners to have the same information, financiers can check for trends, and the companies can demonstrate their results. Independently run by an NGO, it provides trust in the quality of the information.
The goal of the BEEF is to reduce the transaction and management costs throughout all project phases, including monitoring. Today, retrofits are one-off projects. Project finance teams analyse these. These assessments require the same work as for a significant greenfield industrial project. The five-floor building owner(s) will pay much higher transaction fees per euro invested than the major greenfield project. While it will pay more in transaction fees and interest, it will not receive the same quality review.
Our standardised process will also reduce the time for decision-making initially: decreasing marketing costs while increasing positive decisions. In Latvia, after an initial 2 buildings over three years, over 17 applied in the same neighbourghod over the next 2 years. During the project, the shorter documentation preparation and monitoring lead times provide savings to the company.
Finally, the standardized approach implies that commercial banks can provide more support faster and a lower cost.
As the BEEF closes many standardised contracts, contracts can be further aggregated and sold as a block for new liquidity.
Kristina Eisfeld: What is the role of Funding for Future in the BEEF concept?
F3’s mission is to meet the climate crisis: CO2 reduction and the social problem: lack of housing. One fits neatly into the other.
“There is no money for projects”, say the companies, “There are no good projects!”, say the financiers. To address the “chicken-egg” problem of renovations, F3’s goal is two-fold:
1- provide a steady return to investors on par or lower than a utility. This comparison is logical: BEEFs are financing Energy – megawatts.
2- the setup of the BEEF, the sharing of know-how and the delivery of a multi-country platform to track projects and contracts. Guidelines and their annexes must evolve and learn from other BEEFs.
BEEFs need little staff and have minimal overhead: accountant, audit, legal and provisioning.
Kristina Eisfeld: Can you give some insights into concrete examples in Latvia?
In Latvia, LABEEF has purchased bonds based on the contracts of six buildings meeting the Guidelines.
The challenge was finding a way forward in an environment that doesn’t have extensive experience in financial instruments because of shallow capital, and real estate markets.
LABEEF can be considered a comprehensive pilot test resulting in an number of replications, the largest is Poland’s. However, it is also a good practice to test all aspects of any financial instrument:
Poland has now replicated LABEEF. NFOS – the government’s environment and wastewater fund launch a priority program – EPC PLUS. Slovakia and Romania are preparing versions.
Meanwhile DG Regio and EIB recommend it as a model for policy makers. [https://www.fi-compass.eu/content/innovative-forms-integrated-building-renovation-services]
Kristina Eisfeld: What framework conditions are required for the model to be implemented?
Before any project, before seeking funding, the BEEF guidelines must comply with local laws. Technical targets for safety, health, and comfort must be defined.
Thanks to existing studies and our own research in Austria, Slovakia, and Poland, we conclude that Germany would not require a heavy legal burden to develop the BEEF framework, meet the homeowners’ associations rules and regulatory requirements: quota, votes, invoicing etc.
Our partners in Green Home would be the ideal champions to move the instrument from concept to reality.
Kristina Eisfeld: How could the BEEF model be transferred to Germany and be applied here? Will this require special knowledge?
It does not require any special knowledge.
The BEEF model requires to use of its Guidelines and follow the methodology already tested in several countries including Poland and 4 other countries. The project must meet technical targets while owners/building and Company must meet sound eligibility requirements. The Guidelines annexes include the legal documentation necessary: the EPC Plus, the Transfer documentation, and Maintenance Agreement/Manual. In addition, templates and instructions for all parties support the Guidelines.
The Guidelines dictate the minimum targets that must be achieved to deliver a dEEp renovation for the building (including maintenance).
The BEEF Guidelines cover the contractual processes of a dEEp renovation. The instrument lays out before the project’s design, each party’s responsibilities, and what will happen. In addition, it provides documentation and procedures before and after the contract’s duration.
In other words, the targets to be reached during the service contract are predetermined and non-negotiable, the international protocols for verification are unambiguous, all the steps are standardised, and contractual templates are in place. Furthermore, this information is publicly available. As a result, the Service companies know their risks and how best to mitigate these. Therefore, the housing association has confidence in their agreement.
So no, no unique know-how is necessary.
From your point of view and extensive experience, can ESCOs contribute to increasing the Renovation Rate in homeowners’ association buildings?
ESCO have extensive experience in working in a systematic and structured way. They are accountable for the savings they provide.
ESCOs are currently reluctant to modify their business model as
We propose that the EPC+ – which provides a complete refurbishment and services for the next 30 years offers a less costly and more profitable way forward for the long term due to the replication and scale.
Which is why, in the previous question, I refer to service firms rather than ESCOs. BEEF model establishes an organised environment, allowing SMEs to enter this industry. Their technical expertise and project management abilities would be required. They would not need a large corporate entity to provide all of the additional know-how required, principally financial and legal, which is currently a natural barrier to market entry. According to our research, upper management spends more than 20% of project expenditures on documentation and contractual management.
What will energy retrofits look like in the EU? What are the significant challenges and barriers to renovations? Do you have any recommendations for market actors in the financing, building management and energy service companies?
The Future is now. The Commission states that Europe is at a 1% renovation rate. However, this rate is misleading as deep renovations are less than .25% annually.
We need 3% renovation rates at least. We must talk about deep retrofits financed from Energy Efficiency Savings with 25-30 years payback times.
A coherent set of long-term regulations would remove the main challenges and barriers I mentioned earlier.
So, the main recommendation is for local authorities to support models whose benefits ensure an increase in the real estate value for owners – this implies a deep renovation has been carried out. Financing institutions will have greater security. In turn, they will finance large projects. With more similar projects, service companies will benefit from better margins and profit from higher value proactive maintenance contracts.
Further, the policies must include monitoring and guarantees regulations.
Finally, these policies must stay in place for the next 10-20 years.
This way, companies and SMEs will invest in assets and train a permanent workforce instead of following the boom-and-bust pattern encouraged by EU structural programs.
Simultaneously, dEEp renovations unlock a cascade of benefits to residents and the State.
Increased revenues, increased jobs, lower health costs.
Until this is in place, there is little to recommend to the market actors as they know better than I what slim margins they struggle for in delivering current renovations.
Currently, policies don’t:
Check out this link from NASA – be patient, it illustrates our reality forcefully.
The policy recommendations are essential, but we must overcome negative behavioural patterns. These can take the general forms of “NIMB” -not in my backyard, “2B2K” -too busy to know, Not on my watch, or the worst: “let the next generation come up with the solution.”
We need more champions and first movers to catalyse this change.
Together, we can deliver, not just imagine Climate-neutral, Climate-resilient European Housing.
The goal of a climate-neutral building stock by 2045 is ambitious and cannot be achieved without homeowners’ associations. The refurbishment rate of multifamily buildings owned by homeowner associations (HOAs) is well below the national average, and regarding the revision of the Energy Performance of Buildings Directive (EPBD), a tightening of the energy efficiency requirements by the legislator and increasing pressure on HOAs to act is to be expected.
In April and May 2022, the Germany-wide GREEN Home online survey with property managers and homeowner associations assessed the perspective of homeowners and property managers on the status quo of multifamily building renovations in Germany. The aim of the two surveys was to uncover citizens’ investment motivations to support energy-efficient renovations and barriers responsible for the renovation backlog. Particularly, the objective of the survey was to shed light on which points can be used to provide better support for corresponding renovation projects, e.g. by redesigning financing instruments, providing information for investment decisions to be made and transferring knowledge. The analysis is based on the answers of 63 owners and 78 building managers. Additionally, the research team reviewed additional current studies to enrich its analysis.
Building Stock – poorly perceived
The survey showed that the age distribution of HOA buildings is almost identical to the age distribution of the total residential building stock in Germany (BBSR 2014). 60% of the buildings were built before 1979 and therefore offer high energy saving potentials, being built before the first Thermal Insulation Ordinance (WSchV 1977). In HOAs the refurbishment rate is significantly below average, and the overall refurbishment rate of 1% in Germany is far below what is needed to reach a climate-neutral building stock by 2045 (Galvin 2014). According to the GREEN Home survey, in the last five years renovation works were done only in 31% of buildings.
Pressure to act, awareness and willingness to invest
More than 90% of the participants from both target groups perceive stricter legal refurbishment requirements in the coming years. The majority of owners (90%) actively advocate that instead of simple repair work, energy-related refurbishment be carried out if this is economically viable. Above all, the increase in energy prices motivates owners to carry out extensive renovation measures. Over 90% of homeowners are willing to invest more money in energy-related measures. Only 10% of owners do not want to do this.
The Financing gap – often the first perceived obstacle
Perceived reasons for lacking investments of homeowners in renovations are mainly of financial nature. Other surveys identified long amortisation rates of energy efficiency measures, costs surpassing the financial capacity of homeowners and HOAs missing access to capital as the leading barriers for homeowners to renovate (BBSR 2014). The GREEN Home survey adds a lack of information about the building’s need for renovation and legal requirements (66% agreement) and missing renovation and value preservation planning (52%) to this list of most seen barriers.
Motives and barriers – the property manager’s perspective
For property managers, the main barrier is the missing economic viability due to the common financing term of ten years being too short (68%). There is an urgent need to raise awareness of the topic: 68% question the sense for implementing energy efficiency measures and 62% state that maintenance reserves of HOAs usually are too low. However, property managers generally agree that climate protection is relevant for building management (92,5%) (VDIV Weiterbildungsumfrage 2021).
42% of the HOAs complained that their property management company did not sufficiently address investments in energy efficiency in the case of renovations that were necessary anyway. As reasons for the lack of long-term planning of value retention and refurbishments, property managers mentioned the following aspects: high preparation effort (61 %), lack of interest by homeowners (78 %), low staff capacity (50 %) and too low remuneration (50 %).
Motives and barriers – the homeowners’ perspective
While financing seems to be a major problem for homeowners, they also see the financial benefits of renovations. 90% agree that rising energy costs are a motive for comprehensive renovations. Continuous value preservation as another reason (84%) is followed by contributing to climate protection and taking advantage of comprehensive subsidies with 82% of homeowners agreeing to each.
The information gap, is it the key?
The question arises, what information and financing instruments do homeowners and building managers need to make the decision to renovate. The survey showed that informational materials are needed about subsidies, financing opportunities, legal requirements, cost savings, and suitable renovation measures for different building types.
How to fill the gap?
Especially renovation roadmaps were identified as much needed, but not yet established, decision-making aids. In the survey, 95% of owners agreed that renovation roadmaps could be an instrument for calculating short-, mid- and long-term investments. They create transparency about what measures are needed and should provide a holistic picture of needed renovations (93% agreement).
Further widely agreed upon values are:
Individual renovation roadmaps must include holistic planning, which also takes into account electrics, pipes and all other components, according to the opinion of the majority of owners. However, it is crucial that property managers place the topic of long-term renovations in the homeowners’ meeting ahead of time, because according to 87 % of the homeowners the topic is being discussed when there is an acute need for action. At this point, there is often no longer enough time to consider and plan a comprehensive renovation.
The federal government has also recognised the potential of individual renovation roadmaps. According to the current coalition agreement, they should be used systematically, but above all, they should be created free of charge for HOAs.
Apart from information, suitable financing instruments are much needed for comprehensive building renovation, as the analysis of barriers showed. Maintenance reserves play the most important role in renovations in HOAs (67% of renovations), indicating the importance of increasing the amount of reserves. Other typical sources of finance are individual contributions by homeowners (33%), HOA-loans (5%) and subsidies (9%).
A majority (60%) of owners are willing to take a long-term loan for 10 to 15 years for comprehensive renovation works if the loan costs are covered by the energy savings. 20% are undecided, while 20% refuse to take out a loan.
Single-source solutions anyone?
Building managers (97%) see the usefulness of comprehensive third-party services (e.g. in the form of Energy Performance Contracts) that cover financing, subsidisation, planning, implementation and continuous maintenance. Government aids and subsidies are considered to be insufficient by building managers. 71% think better subsidies would increase the renovation rate. On average, the application process for current subsidies is rated as poor (32.5%) rather than good (13%).
Climate neutrality can only succeed together
Property management companies play a key role when they educate HOAs about the need for renovation to maintain the value of their property. That’s why they know what’s missing and where there is a need: Development of financing concepts (51 %), counselling services (91 %) and online information platforms (88 %) together with regional information/ counselling centres (90 %) received the highest approval ratings from property management companies. Regional contact points, which act as one-stop-shops, can be used by administrations and HOAs. They offer energetic refurbishments “from a single source”, e.g. they provide support with advice, the selection of options and suitable financing instruments, and project implementation. Nationwide information points, however, were regarded as “not useful.” Could this be demonstrating that residential renovations are a case of “Think Global but act (very) Local?” For both, owners and building managers, the use of their personal and professional networks, apart from websites of interest groups and consumer protection associations, are the main sources of information about building renovation.
What information is relevant for joint decision-making by homeowners’ associations?
Reaching the necessary majority in the homeowners’ meeting is a particular hurdle, especially when all apartment owners have to bear the costs of the energy-related renovation measures. Only well-informed owners are willing to invest the necessary capital. For this, different types of information are necessary for the joint decision-making in the HOAs: most frequently mentioned was information on subsidies that can be used in relation to the costs in €/m2 and the predicted energy savings in € per month.
Above all, information on funding/subsidies is considered particularly important (98%). Also, the current legal minimum standard/specifications for residential buildings (91%) and the transparent presentation of cost savings per residential unit (m2) for renovations (90%) are the three most frequently mentioned pieces of information.
Additional information
Project deliverable: Stakeholder survey
BBSR [Bundesinstitut für Bau-, Stadt- und Raumforschung im Bundesamt für Bauwesen und Raumordnung] (2014): Investitionsprozesse bei Wohnungseigentümergemeinschaften mit besonderer Berücksichtigung energetischer und altersgerechter Sanierungen. Bonn: BBSR. https://www.bbsr.bund.de/BBSR/DE/Veroeffentlichungen/Sonderveroeffentlichugen/2014/In-vestitionsprozesse.html?nn=445354.
Eisfeld, Kristina (2022): Woran liegt’s? Eine GREEN Home- Befragung von Eigentümergemeinschaften und Verwraltungen ermittelt Hürden für energetische Sanierungen. VDIVaktuell 05-22.
Galvin, Ray (2014): Why German homeowners are reluctant to retrofit. In: Building Research & Information 42 (4), S. 398–408. https://doi.org/10.1080/09613218.2014.882738
Pfeffing, J. (2021): Welches Know-how ist gefragt? Das ergab die diesjährige Umfrage des VDIV Deutschland zum Bildungsbedarf der WEG-Verwaltungen VDIVaktuell 8/21. Online verfügbar unter https://www.archiv.ddivaktuell.de/blog/welches-know-how-ist-gefragt-das-ergab-die-diesjaehrige-umfrage-des-vdiv-deutschland-zum-bildungsbedarf-der-weg-verwaltungen, zuletzt geprüft am 30.06.2022.
On 6 May, our Kick-Off Meeting “Pathways to a Climate Neutral Housing Stock 2045: Energy Efficiency for Home Owners Associations” will take place as part of the Berlin Energy Days!
Together with our guests we will travel into the future.
2045 the WEG stock is climate neutral. How did we achieve this? Which measures, cooperations and decisions have proven to be good practice in retrospect?
In preparation for the journey, we will start with a change of perspective: in addition to a political impulse, we will outline important current challenges and open questions regarding financing and funding, energy consulting and refurbishment planning, as well as HOA management.
With these questions in mind, we will then set out on our journey. Having arrived in the year 2045, we take a look back.
What has proven to be good practice in refurbishment planning and the financing of comprehensive energy efficiency measures in owners’ associations over the past 23 years?
Unfortunately, registration is no longer possible as all places are already taken.
If you are interested in the results, that’s no problem: just send an email to j.pfeffing@vdiv.de and we will get back to you after the Berlin Energy Days with an overview of the results!
If you have any questions, ideas or tips, please feel free to contact us!
GREEN Home – The chance for a climate-neutral HOA inventory
Motto: Achieving more together!
The GREEN Home consortium is kindly inviting to its newly established energy efficiency panel for homeowner associations at the 30th German Homeowner Administrators’ Day, that will be held on September 7, 2022 at the Estrel hotel in Berlin.
The ambitious national energy efficiency target in the building sector can only be achieved together with homeowners’ associations. Cooperation and a well-developed networks are elementary to advance the energy transition. What is the role of residential real estate management and how can resolutions to increase energy efficiency be promoted and investment decisions supported? We will discuss these topics with you!
How?
Panel discussion and workshop
Who?
Moderator: Christian Hunziker (freelance journalist)
Where?
Estrel Hotel Berlin
Sonnenallee 225
12057 Berlin
www.estrel.com
When?
7. September 2022, 10:30-12:00 (CET)
The event will be in German.
For registration please click here
Renovating one’s own home is a time-consuming, strenuous and expensive undertaking that upsets the daily routine of the residents for a long time. This is the impression that prevails above all when homeowners start thinking about how they can save energy and maintain their property in a contemporary manner. This often leads to necessary decisions being postponed or the project being abandoned altogether. In addition, there are reservations because a wide variety of technical and bureaucratic requirements have to be understood and observed.
The situation becomes even more complicated when several owners in homeowner associations (HOA) want to make a decision on the renovation of their building or housing complex. Then many different perspectives, economic situations and personal circumstances come together, and consolidating them is sometimes a difficult task. HOAs usually have an administration at their side that coordinates and looks after the interests and needs of the owners. With regard to refurbishment, the administration then has a special role and responsibility, because its overview, networking and competences have a decisive influence on whether and which refurbishment decisions the HOA makes.
Surveys and experiences from various EU countries in recent years suggest: owners – whether they own individual property or are organised in HOAs – find it easier to deal with the topic of renovation and to make a decision for such a project if they have a qualified point of contact for their questions and needs for clarification. This is not just about being able to obtain expertise and advice. Rather, what is needed is an expert ‚carer’ who knows and manages all aspects and steps of the renovation process in detail, who identifies financing and funding opportunities, and who relieves the owner or HOA of the burdens of bureaucracy, paperwork, technical and legal details. In the case of HOAs, he also relieves the administration company of a large burden and can supplement its capacities substantially and in a targeted manner.
Not only in the Renovation sector, but also in other economic sectors such as telecommunications, companies and structures have been forming on the market for some time that act as such neutral, professional carers – so-called one-stop shops. Basically, this term is meant to describe one thing in particular: Here, all answers concerning refurbishment are bundled and provided by one source. One-stop shops serve as central competence centres, as a point of contact and service for people who want to renovate. A one-stop-shop company carries out a needs analysis, develops the technical and organisational renovation planning, tenders the renovation work and coordinates the trades and companies on the construction site. It takes care of the financial details and incorporates funding opportunities for the owners and commissioned administrators. It supports the HOA step-by-step in the practical implementation of energy efficiency measures.
One-stop-shops are becoming increasingly important because they make the refurbishment process much easier for homeowners and administrators and specifically address obstacles. For most homeowners and HOAs, the comprehensive (deep) refurbishment of their building will be a once-in-a-lifetime undertaking. For this very reason, they should not have to acquire expertise in building engineering or technical knowledge themselves – especially since the majority of owners will have a different professional background and no capacity to additionally penetrate the complex matter of “refurbishment”. This would also be a great challenge for a HOA administration, which most administrations cannot handle in addition to their other tasks.
It is absolutely necessary to become (more) active in the field of building renovation: The building sector accounts for a good 40 percent of greenhouse gas emissions, and progressive global warming forces us to act, especially in this field. Not only in Germany are renovation rates far too low, with an annual average of well below two percent. In residential property, significantly fewer renovations are taking place. Against the backdrop of European and international efforts to curb global warming and protect the climate, in the future there will be mandatory requirements for the renovation of private residential buildings as well, which will make it necessary for homeowners and condominium administrators to act quickly and in the short term.
A growing number of one-stop shops for building renovation (especially in residential property) and increasing awareness of the business approach have the potential to become a game changer: They can encourage imitators on the provider and customer side, significantly and measurably increase retrofit activities and thus accelerate the decarbonisation of the residential building stock. The approach of one-stop-shops is receiving increasing consideration and support from the European Commission as well as from the scientific and business sectors. The establishment and dissemination of one-stop-shops is thus also moving onto the agenda of funding programmes, some of which, such as Horizon 2020 or Interreg, already cite the integration or implementation of the approach as beneficial for funding and for successful projects such as ProRetro (https://proretro.eu/de/). In the upcoming GREEN HOME newsletters, we will jointly look beyond the horizon and present practical examples for the implementation of renovations and the increase of renovation rates in residential property: one-stop-shops will kick off the series on so-called “good practices” from various European countries.
IWO e.V.