Beyond Efficiency: Multifamily Buildings as Energy Assets

Despite these benefits, how real estate investors think about energy needs to change. The grid isn’t just a utility, it’s an asset. The systems that connect buildings to the grid aren’t just infrastructure; they’re opportunities. In an era of tightening margins and rising expectations for performance, energy systems are emerging as a powerful driver of improved cash flow, operational efficiency, and resilience.

However, for those outside infrastructure, development, or construction, the relationship between buildings and the grid often goes unnoticed.

From an asset management perspective, utility accounts may change hands when a property does, but the embedded infrastructure and energy relationship itself is inherited, rarely questioned, and almost never treated as a performance lever. Unlike rents—other income, operating expenses, or capital improvements—utilities are often just passed through without consideration, under the assumption that someone else will pay. This dynamic, known as the split incentive, discourages owners from considering a building energy performance. Compounding the issue is the assumption that these systems are fixed and unchangeable, reinforcing outdated notions that buildings are simply energy consumers and an endpoint in the grid machine.

Disturbances in the steady stream of cash flow away from buildings as just energy consumers are appearing everywhere, and they are signaling a new dynamic relationship between buildings and energy. These signals are the result of the ever-growing demand for energy, technological advancements, changing policies, and some innovative investors who’ve made some novel success because of their focus solutions in delivering on climate-aligned returns.

When it comes to energy, the best of today’s established real estate investment efforts focuses heavily on improving building efficiency and reducing emissions. They’re motivated by demands from capital markets and threats from regulators. While tinkering with improved efficiency and decarbonization are rational acts, the financial benefits are rarely clear in the underwriting. When presented, energy-related performance is often abstracted by benchmark terminology or buried within sustainability reports. What’s missing is a direct and transparent connection between energy performance and financial results.

As these pressures and technology continue to evolve, US multifamily real estate is presented with unique opportunity to redefine its relationship with energy and transform buildings from captive consumers into active, value-generating participants in the grid.

THE CASE FOR GRID-INTERACTIVE MULTIFAMILY

Multifamily buildings are perfectly positioned to participate in the next evolution of energy: becoming grid-interactive efficient buildings (GEBs). These properties house millions of American individuals and families who share roofs, walls, systems, and (critically) energy load profiles. With smart technologies like networked thermostats, heat pumps, on-site renewable power and energy storage, building owners can partner with the grid to aggregate demand and enroll in responsive utility or wholesale market programs like virtual power plants (VPPs).

Unlike a single-family home, a 300-unit apartment complex with networked systems can shift energy use in meaningful ways. When aggregated and enrolled in a demand response program, this technology becomes a valuable grid resource. It’s not hypothetical: the US Department of Energy (DOE) projects that emerging GEBs could reduce system-wide power costs by $18 billion annually by 2030 and cut 80 million tons of CO₂ per year.[ii]

The shift isn’t just about trying one’s best to appease in response to pressure on emissions; it’s about unlocking new dynamic value from systems that are incorrectly perceived as one-way and fixed.

FINANCIAL OPPORTUNITY FOR INVESTORS

Underwriting has long ignored and treated energy operating expenses as an uncontrollable cost that either just unilaterally erodes away at income or is passed on to renters regardless of their individual behavior. Those that still underwrite utilities as pass-through costs or simply burdens to bear, ignore the opportunity for real value creation. GEBs and the potential of VPP participation offer a real incentive to multifamily investors to change this zero-sum-game.

Smart meters, thermostats, IoT enabled mechanicals and energy management systems enable buildings to respond to grid signals, reducing usage during peak hours. That flexibility becomes a revenue stream through demand response. Grid-responsive technology is designed to be nearly invisible, with small, temporary shifts during short-duration events. When thoughtfully implemented, it improves occupant comfort, lowers bills, and enhances resilience of the grid.

Electricity demand in the US is rising fast, driven by electrification and data center growth, with buildings making up a major share. Meanwhile, solar and battery storage costs have plummeted where battery prices are now less than one-fifth of what they were a decade ago. These shifts position multifamily owners to cut costs, boost resilience, and actively participate in energy markets. In March 2023, Logical Buildings announced a $110 million VPP project aimed at decarbonizing multifamily buildings in New York City and New Jersey.[iii] This initiative focuses on installing smart thermostats and integrating them with platforms like GridRewards™ and SmartKit AI™ to enhance energy efficiency and generate grid services revenue. As of March 2025, the project has achieved notable success in two key areas:[iv]

Increased Enrollment: Logical Buildings reported a record number of enrollments in its GridRewards™ platform for 2024, indicating strong adoption among residents and building owners.

Regulatory Compliance: The platform has been instrumental in helping building owners comply with local regulations, such as New York City’s Local Law 97, by effectively reducing carbon emissions.

Energy upgrades don’t just improve operations, they de-risk the asset. Lower operating expenses, new revenue streams from GEB and VPP participation, and regulatory alignment contribute to cap rate compression and stronger exit multiples. In a tightening policy environment, assets with measurable performance gain preferential lender terms and can avoid insurance premium hikes tied to climate exposure and energy inefficiency.

Here’s a high-level example to demonstrate some investment potential: In New York, multifamily properties participating in Con Edison’s GridRewards™ program can earn $75–$150 per unit annually simply by reducing energy use during peak demand events.[v] With smart meters already installed in most buildings and optional thermostat upgrades, participation often requires little to no upfront capital. It’s a low-barrier, revenue-generating entry point into the grid services economy. With a 5.5% cap rate, boosting asset value by $300,000–$600,000 with minimal effort is within reach.

REGULATORY AND MARKET DRIVERS

Feel that? It’s the financial pinch. Building investors in the US are increasingly exposed to energy and emissions regulations at the state and local level. While some hope to avoid these costs or pass them through, the reality is unavoidable: more than 50 US jurisdictions have enacted Building Performance Standards (BPS) requiring energy or carbon reductions in commercial and multifamily buildings.[vi] In New York City, Local Law 97 imposes significant fines on owners who fail to decarbonize.

The real opportunity lies in anticipating these regulations and investing early with a flexible, forward-looking strategy. Think of clean energy technologies: solar, storage, smart controls, not as one-time capital projects, but as modular components in a broader system. These upgrades are modular can be staged over time creating a pathway for compliance while also opening the door to new revenue opportunities.

RESIDENT DEMAND AND COMPETITIVE ADVANTAGE

Energy investments improve a building’s financial performance and have the potential to generate non-financial qualitative returns, such as improved resident comfort, compliance with regulations, enhanced reputation, and the benefits of demonstrating environmental impact.

They drive leasing performance and minimize total vacancy loss. Resident surveys increasingly show demand for energy-efficient housing. Well-managed energy programs can turn tenants into active participants, rewarding them for behaviors they can control. That means comfort, control, and cash back. The definition of a positive feedback loop.

While grid-interactive technologies may sound highly technical, and they are, but they often simplify daily operations. Systems that rely on onsite combustion for example, like natural gas ranges or furnaces, involve mechanical parts, fire risk, carbon monoxide hazards, and regular servicing by licensed professionals. By contrast, solar arrays and battery systems operate quietly, automatically, and with minimal maintenance.

That simplicity can cause confusion.

At one property we acquired, everyone from the seller to the site staff assumed the rooftop solar array was broken. It had operated silently and reliably for a decade, but because it required no maintenance, its performance went unnoticed. In another deal we evaluated, a broker listed a solar array with accurate capacity but badly understated its output by nearly half of what it should have been given the location. That error translated into a $500,000 undervaluation in their underwriting model. In both cases, the issue wasn’t the technology; it was a lack of familiarity with how these systems work and generate value.

In both these cases, the issue isn’t energy technology. It’s clearly an improvement to these multifamily investments. The problem is the lack of experience and understanding in how it functions, and how it generates value. These systems don’t require routine wrench-turning, oil changes, or gas top-offs. They do require teams to trust them, to monitor them, and to understand their role as an asset.

As technology simplifies and transforms the old energy infrastructure operations teams will have more time to focus on the things people truly care about. Therefore, devoting more focus to service, comfort, and care of what can’t be automated, which is the sense of community inherent in multifamily assets.

Transparency and continuous practical communication on these subjects such as energy and environmental performance: signage, certifications, pre- and post-project surveys can result in measurable improvement in Overall Satisfaction, Net Promoter Scores and retention. This effort doesn’t have to be expensive because it doesn’t require a lot of technology either. For example, the manufacturer of our solar inverters offers a link to real-time solar production reporting. Instead of investing in displays and networks to support this, our marketing people produced a nice sign that includes a QR code that links to the “kiosk” URL. Residents and prospects that are curious to learn more about the solar can view the data on their own device.

The bottom line is that individuals and families who rent will choose to stay longer in buildings that work better and work for them. And with GEB tech, buildings don’t just consume less, they adapt, respond, and generate value. That’s a competitive advantage in terms of both maximizing revenues and rightsizing costs.

COLLABORATION IS THE CATALYST

Scaling requires partnership. GEBs and VPPs depend on coordination across tech providers, utilities, regulators, and building owners. Projects like Marcus Garvey Apartments in NYC show how early engagement with utilities and creative design can solve interconnection and permitting hurdles.[vii] National programs like DOE’s Connected Communities and tools like SolarAPP+ are making deployment faster and smoother.

But we must go further. Shared challenges like permitting delays, outdated tariffs, and data silos require shared solutions. Collaboration is no longer optional. It’s the only way to unlock the full power of grid-interactive multifamily.

For investors and asset managers, success depends on embracing change and aligning with diverse stakeholder perspectives. Success in this space will require learning new concepts and rethinking old assumptions.  

The most important litmus test is, if the investment doesn’t result in a better experience for everyone in the building, residents and staff alike, it’s not a good investment. To be successfully adopted, these upgrades can’t just replace the status quo; they must be obviously better.

Help is readily available. The DOE’s Better Buildings program connects participants to expert peer groups and national lab engineers—at no cost. Programs like Connected Communities and energy equity initiatives are guiding this change in real time. The energy transition isn’t just about carbon or compliance. It’s about shared systems and shared outcomes. Real estate investors and energy innovators face many of the same headwinds: local permitting, stakeholder opposition, entrenched processes. Working together isn’t just possible; it’s the only way forward.

BUILDINGS AS ENERGY ASSETS

The real estate sector is under growing pressure to modernize, not just for compliance, but to retool the means of value creation. GEBs and VPPs move beyond outdated models of passive energy use, turning consumption into active, revenue-generating performance. This shift isn’t just about emissions. It’s about delivering smarter, simpler systems that enhance reliability, comfort, and resilience. Multifamily buildings can stabilize the grid and better serve everyone who lives and works in them. Value in real estate isn’t static—it’s time to rewire the definition.

SUMMIT #18

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Note from the Publisher

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