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Research Insights, June 28, 2022

Building Value: Water Conservation Strategies

Glass bottle being washed under a kitchen sink faucet

Welcome to Building Value, a new series from American Realty Advisors that will explore investment strategies, building improvements, and management initiatives designed to promote our environmental, social, governance, and resiliency goals.

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The Strategy: Water Conservation

Why Conserve Water?

There is no new water. All the water on planet Earth has existed since its beginning.

Water is continuously moving and changing forms through its natural cycle on, above, and below the surface of the land. We experience it as rain, ice, and vapor, and with increased frequency we either have too much of it (in the East) or too little of it (in the West).

Despite the finite nature of this vital commodity, consumer pricing signals the opposite of the true value of our potable water supply:

Graphic comparing the price per gallon of gasoline, milk, and water in the U.S. May 2022

There are alternatives to gasoline in abundance today, many of which cost less. The state of California often produces more solar energy than consumers use during the dayi. There are alternatives to milk, made from nuts and other organic matter. Non-dairy milk can cost twice as much, but it is available. When it comes to water, there is none to spare, and there is no alternative.

What is the Role of Commercial Real Estate in Water Usage?

Let’s take a look at how buildings in the U.S. are using water on an annual basis. Fifty-seven percent of water use in the U.S. occurs in the residential sectorii, and the average American family uses more than 300 gallons of water per day, 30% of which is for outdoor wateringiii.

Twenty-nine percent of water is used in commercial, industrial, and institutional buildings. In office buildings, the three largest uses of water include restrooms, heating and cooling, and landscape wateringiii.

How Can Water Conservation Build Value for Investors?

As citizens, we have a responsibility to preserve our most precious natural resource. As investment managers, we have a responsibility to make operational decisions that provide strong returns for our clients and protect our investments from future disruption.

We see water conservation measures as part of our responsibility as both corporate citizens and as responsible investors. When you compare increases in household water bills in the U.S. to other measures of price increases, the value of reducing water usage can be seen as an active strategy to hedge against inflation (Figure 1). Since 2012, the rate of increase in household water bills across the country has well outpaced inflation, making saving water not just good for the planet, but also good for operating costs.

As this trajectory continues, potentially compounded by increasing water scarcity and continued drought conditions on the West Coast, implementing water savings initiatives today is protection against increased operating costs for building operators and tenants in the future.

Graph displaying the price trajectories of select CPI components, overall inflation, and household water bills from 2012-2022

Water Saving Initiatives:

In order to save money at the property level, ARA has developed an approach to optimization, deploying water conservation measures and promoting water reuse/recycling systems across our portfolio assets and within our own corporate offices. Highlights of our programmatic approach include:

  • A 23% reduction in annual water use in one of the firm's portfolios in 2021, compared to its 2017 baseline, exceeding its original target. This was achieved through a multipronged approach of operating efficient properties, pursuing water conservation projects, and engaging our stakeholders among other things.
  • The elimination of potable water use for turf irrigation in ARA’s California office and industrial properties in June 2022. ARA properties in Texas, Colorado, and Florida are also limiting watering to one-to-two times per week until further notice. Altogether, 41 properties are on reduced or no watering of turf.
  • The launch of a strategic partnership with a leak detection firm to deploy this technology in multiple buildings in our portfolios.

Here is a sampling of effective water reduction projects from the last two years.

Alara Uptown property in Dallas, Texas

Low-flow

Alara Uptown, a 294-unit property in Dallas, Texas, decreased unit sink water flow to 0.5 gpm through the replacement of aerators in units in 2021. They achieved an annual savings of 317,000 gallons of water, which equates to $3,500 in reduced annual utility costs. They also added a Weathermatic control and meter to the irrigation system.

Ballston Gateway property in Arlington, Virginia

Landscaping

  • Ballston Gateway installed a Lakos Side Stream filtration system as well as new fill media on their cooling tower. 
  • Pasadena Plaza completed an extensive native landscaping and drip irrigation project. 
  • Admiral Junction completed renovations of the lower-level landscaping by adding drip irrigation. 
  • 6425 Katella has kicked off turf removal and installation of drought-tolerant landscaping.

Foundry III property in San Francisco, California

Leak-detection

  • Foundry III completed an under-floor leak detection system. 
  • 499 Park Avenue installed leak detection systems on multiple tenant floors. 
  • 1130 Connecticut installed FloodStop and Flood Master leak detection on tenant floors. 
  • 30 Montgomery installed GoVee leak detection in the equipment penthouse.

Discover More

Single Family Rental

We explore the economics of sustainability in multi-family assets by comparing the occupancy and rent profiles among LEED and non-LEED certified properties.

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Notes 

iInstitute of Energy Research, 2021
iiU.S. Geological Survey data as of 2015.
iiiU.S. Environmental Protection Agency

Disclaimer

The information in this newsletter is as of June 23, 2022, and is for your informational and educational purposes only, is not intended to be relied on to make any investment decisions, and is neither an offer to sell nor a solicitation of an offer to buy any securities or financial instruments in any jurisdiction. This newsletter expresses the views of the author as of the date indicated and such views are subject to change without notice. The information in this newsletter has been obtained or derived from sources believed by ARA to be reliable but ARA does not represent that this information is accurate or complete and has not independently verified the accuracy or completeness of such information or assumptions on which such information is based. Models used in any analysis may be proprietary, making the results difficult for any third party to reproduce. Past performance of any kind referenced in the information above in connection with any particular strategy should not be taken as an indicator of future results of such strategies. It is important to understand that investments of the type referenced in the information above pose the potential for loss of capital over any time period. This newsletter is proprietary to ARA and may not be copied, reproduced, republished, or posted in whole or in part, in any form and may not be circulated or redelivered to any person without the prior written consent of ARA.

Forward-Looking Statements

This newsletter contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements are statements that do not represent historical facts and are based on our beliefs, assumptions made by us, and information currently available to us. Forward-looking statements in this newsletter are based on our current expectations as of the date of this newsletter, which could change or not materialize as expected. Actual results may differ materially due to a variety of uncertainties and risk factors. Except as required by law, ARA assumes no obligation to update any such forward-looking statements.

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