222 Week 7 A /For WIZARD KIM

ARTICLE

Promoting sustainability in the United States multifamily property management industry

Erin A. Hopkins1 • Dustin C. Read1 • Rosemary Carucci Goss1

Received: 16 July 2015 / Accepted: 17 May 2016 / Published online: 23 May 2016 � Springer Science+Business Media Dordrecht 2016

Abstract Efforts to promote environmental sustainability in the real estate industry con- tinue to proliferate throughout the United States in response to both economic and social

forces. This trend has received a considerable amount of attention in the academic liter-

ature, yet relatively little is known about the importance of sustainability to third-party

property management firms operating in the multifamily sector of the housing market. For

those interested in promoting sustainability, an important question that arises is whether

barriers to environmentally-friendly business practices commonly observed throughout the

housing industry extend to the market for third-party property management services. A

second question of equal relevance focuses on determining what sustainability initiatives

third-party property management firms are actually using in their efforts to procure new

clients or retain existing ones. The qualitative analysis presented in this paper is one of the

first to the authors’ knowledge to explore third-party property managers’ perceptions about

sustainability in an attempt to address the aforementioned issues. The findings of this study

support two overarching conclusions. First, sustainability is increasingly being promoted

by large, third-party property management firms in the multifamily housing industry.

Nonetheless, numerous barriers are perceived to exist that may impinge upon future efforts

to reduce the environmental impact of the rental housing stock. Second, some firms appear

to be better positioned than others to take advantage of sustainability initiatives as a result

of the types of properties they manage and the characteristics of the owners they represent.

Keywords Business strategy � Environmental sustainability � Green buildings � Multifamily housing � Property management

& Erin A. Hopkins [email protected]

Dustin C. Read [email protected]

Rosemary Carucci Goss [email protected]

1 College of Liberal Arts and Human Sciences, Virginia Tech, Blacksburg, VA, USA

123

J Hous and the Built Environ (2017) 32:361–376 DOI 10.1007/s10901-016-9516-3

1 Introduction

Efforts to promote environmental sustainability (hereafter ‘‘sustainability’’) in the real

estate industry continue to proliferate throughout the United States in response to both

economic and social forces. This trend has received a considerable amount of attention in

the academic literature, yet relatively little is known about the importance of sustainability

to third-party property management firms operating in the multifamily sector of the

housing market. Third-party property management firms, defined as those who actively

engage in the fee management of apartment communities in which they do not have an

ownership interest, act in an advisory role to their clients by providing a wide array of

services. These services can include marketing, leasing, budgeting, maintenance and

repairs, staffing, property policies and procedures, capital improvements, rent collection,

bill payments, establishment of rental rates, and resident relations. This gap in the extant

research is noteworthy because these firms manage millions of apartment units across the

country and the number continues to grow. There are currently 19.7 million apartment

homes in the United States representing $1.3 trillion to the economy and there could be

5 million new rental households formed by 2023 (National Multifamily Housing Council

2015). Third-party property management firms are therefore, well positioned to reduce the

environmental impact of the rental housing stock if they have the ability, autonomy and

inclination to do so when making management decisions.

For those interested in promoting sustainability, an important question that arises is

whether barriers to environmentally-friendly business practices commonly observed

throughout the housing industry extend to the market for third-party property management

services. Notable examples include a reluctance to embrace new technologies, concerns

about implementation costs, skepticism regarding consumer demand, and a lack of clear

definitions and communicative frameworks. A second question of equal relevance focuses

on determining what sustainability initiatives third-party property management firms are

actually using in their efforts to procure new clients and retain existing ones. Gaining a

better understanding of these practices is anticipated to shed light on whether sustainability

agendas are viewed as an effective way to improve the operational efficiency of multi-

family properties or simply as a means of satisfying the corporate social responsibility

commitments of institutional real estate owners.

The qualitative analysis presented in this paper is one of the first to the authors’

knowledge to explore third-party property managers’ perceptions about sustainability in an

attempt to address the aforementioned issues. A series of semi-structured interviews are

conducted with executives representing some of the most prominent firms in the multi-

family housing industry to complete the task. Those participating in the research are asked

to assess the importance of sustainability to their clients, as well as to identify any sus-

tainable management practices currently being used in the business development process to

differentiate their firms from competitors.

The paper begins with a discussion of the property manager’s role in promoting sus-

tainability. Next, consistent barriers encountered in implementation of sustainability ini-

tiatives in the housing and rental housing industries are reviewed. An overview of the data

and methodology used to examine the extent which firms promote sustainability in their

business development process is presented next. This is followed by a summary of the

interview results and an analysis of these results. The paper concludes with key findings of

the study, research limitations, and issues in need of further analysis.

362 E. A. Hopkins et al.

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2 The third-party property manager’s role in promoting sustainability

There are four distinct phases in the building lifecycle where decisions can be made to

promote environmental sustainability: material manufacturing, construction, use and

maintenance, and end of life (Bayer et al. 2010). Material manufacturing includes activities

such as manufacturing raw materials and transportation of these building products, the

construction phase includes the activities of the actual building of the project, the use and

maintenance phase involves managing the building operations such as energy and water

usage and maintenance and repairs, and the end of life phase occurs when the building has

reached its end of life and is decommissioned with materials either being disposed to

landfills or being recycled and reused (Bayer et al. 2010). Third-party property manage-

ment firms do not typically have a significant amount of influence in all of these phases, but

they are well-positioned to advocate on behalf of sustainability initiatives that affect the

way multifamily properties are operated once construction is complete. It is also important

to note that the end of life stage can be delayed by effective maintenance which extends the

building’s physical life and makes the building more sustainably developed (Christudason

2002). The extant real estate literature outlines a number of steps that can be taken to

achieve these objectives. Some of the most commonly cited practices focus on establishing

clear channels of communication between property managers and their clients; modifying

apartment lease structures to realign the allocation of costs and benefits among the parties

involved; and investing in human capital to increase awareness of environmental concerns.

First and foremost, third-party property managers can empower the owners they work

for to make more sustainable business decisions by providing them with information. Since

these professionals control granular data measuring the operational efficiency of the real

estate assets they manage, they can potentially encourage owners to invest in capital

improvements promoting resource conservation and other environmentally favorable

outcomes if they can clearly illustrate the resultant financial benefits (Wai-chung Lai 2006;

Kyrö et al. 2012). Property managers can also provide their clients with information about

the rent and sales premiums that can potentially be achieved as a result of environmentally-

friendly design features and programming (Zieba et al. 2013). Multiple studies show that

green buildings often command higher rents and sales prices than conventional buildings

(Eichholtz et al. 2010; Fuerst and McAllister 2011; Miller et al. 2008).

Property managers can also advise their clients about the advantages offered by envi-

ronmentally-friendly leases. The provisions included in these leases impose few direct

costs on real estate owners, while generating environmental benefits by requiring tenants to

engage in sustainable behaviors such as using public transportation, composting or par-

ticipating in recycling programs (Caulfield 2015). For example, a green lease could include

an energy efficiency upgrade clause where tenants agree to have increased monthly rents to

cover these costs. Besides the obvious environmental benefits, this can be mutually ben-

eficial to the tenant and owner as the owner can receive a return on his or her investment

and the tenant’s overall rental expenses can be lowered if the monthly energy savings are

higher than the monthly rent increase (SPUR 2009).

Finally, third-party property management firms can work to ensure site managers and

maintenance staff are appropriately trained in sustainable practices and procedures. Such

training has been shown to effect the priorities of real estate practitioners, as well as their

commitment to sustainability (Kyrö et al. 2012; Saha and Paterson 2008; Oladokun 2010).

One way to implement this training is through an environmental management system

(EMS). An EMS is a comprehensive environmental program addressing environmental

Promoting Sustainability in the United States multifamily… 363

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training, executive management support, teamwork, rewards, and empowerment while also

documenting the process from commitment and policy to review and improvement (Daily

and Huang 2001). An even more integrated method is to train staff on how sustainability

measures impact financial performance. As more companies are seeing sustainable efforts

increase revenue and decrease operating costs (Epstein and Roy 2003), a framework to

implement sustainability into operations and decision making processes is helpful. Epstein

and Roy (2001) put forth a framework to accomplish this by incorporating corporate and

business unit strategy, sustainability actions, sustainability performance, stakeholders’

reactions, and corporate financial performance and examining the relationships among

these major components.

The nonexclusive list of activities outlined in the preceding paragraphs illustrate that

third-party property managers can work with their clients in a variety of ways to promote

sustainability in the multifamily housing industry. Perhaps a more interesting question is

whether these professionals should be inclined to do so in light of their other responsi-

bilities. At some level, sophisticated ownership groups may expect third-party property

managers to have a working knowledge of best practices used in their field related to

sustainability initiatives. This is likely to be the case because the role of the property

manager has evolved over time to include a wide array of services extending beyond the

oversight of physical assets (Goss and Campbell 2008). Property management firms are

now expected to seek out creative ways to maximize the revenues generated by income-

producing properties through the identification of emerging market tends and the adoption

of innovative management practices (Goss and Campbell 2008; Wai-chung Lai 2006).

Taking steps to promote sustainability in the operations of multifamily rental properties is

undoubtedly germane to this expanded scope of property management services.

Despite the potential advantages, third-party property management firms may be

reluctant to embrace sustainability initiatives when pitching their services to prospective

clients for a variety of reasons. Examples of potential barriers can be found throughout the

housing literature. Three consistent barriers encountered in implementation of sustain-

ability initiatives are reluctance to embrace new technologies, concerns about imple-

mentation costs, and the lack of consumer demand for sustainable products.

3 Housing industry barriers

The unwillingness to embrace new sustainable technologies continues to pervade the

housing industry (Pinkse and Dommisse 2009). One reason for this struggle stems from the

fact that many technological activities are outsourced (Pinkse and Dommisse 2009).

Furthermore, new technologies are not being embraced due to the qualitative attributes of

some of these new technologies (Jaffe and Stavins 1994). For example, the hue of energy

efficient lightbulbs can be less aesthetically pleasing than more traditional lightbulbs.

Another reason for the lack of energy conservation technology adoption is the lack of

information available (Jaffe and Stavins 1994; Pinkse and Dommisse 2009; Toole 1998).

This lack of information can cause uncertainty.

Implementation costs also present a struggle in the residential building sector when

deciding on sustainable initiatives implementation. The principal-agent problem remains

persistent throughout the literature. Construction companies are hesitant to undertake the

incorporation of energy-efficient technologies because the financial benefactor of lower

utility bills are the end-users of the building, not the construction company (Farrell et al.

364 E. A. Hopkins et al.

123

2007; Jaffe and Stavins 1994). These challenges, coupled with the fact that many com-

panies do not have the proper systems in place to evaluate the costs and benefits of

sustainable building practices, compounds the problem (Epstein and Roy 2003).

Another major obstacle to sustainability adoption within the housing industry is skep-

ticism regarding consumer demand. One reason for this skepticism is the lack of infor-

mation provided to retailers and consumers regarding sustainability opportunities. From

the retail perspective, knowledge on new sustainable products is needed just as much as

existing conventional products in order to understand both options (Toole 1998). On the

consumer side, educating homebuyers on the advantages and consequences of sustainable

technologies can be helpful during the decision making process (Farrell et al. 2007; Pinkse

and Dommisse 2009). Another cause for this obstacle is that consumers make decisions

regarding sustainable features, such as energy use, based on more than just financial

considerations. Consumers, no matter their income level, take into account the comfort and

convenience versus strictly financial considerations when deciding on their energy use

(Farrell et al. 2007). Furthermore, capital is often not available to the end user to invest in

more efficient technologies (Farrell et al. 2007).

4 Rental housing barriers

Along with the aforementioned barriers within the housing market, there are potential

barriers to sustainability that are unique to the rental housing market. Lease provisions

commonly used in the multifamily housing industry pose a problem because tenants are

typically required to pay their own utility bills. This creates a disincentive for property

owners to invest in things such as energy efficient appliances and fixtures because they do

not realize a direct economic benefit from these investments unless tenants’ cost savings

are fully capitalized into prevailing rental rates (Blumstein et al. 1980; Davis 2011; Klein

et al. 2009; Economidou 2014). From the social housing perspective, the Netherlands has

attempted to solve this split incentive problem by passing a bill in 2011 that allows

landlords to increase rents based on energy labeling scores. This bill, although it does not

completely eliminate the split incentive problem, positively impacts landlords who invest

in energy efficiency (Tigchelaar et al. 2011).

Although sustainability actions impact customers’ decisions and therefore revenue

(Epstein and Roy 2003), the multifamily housing market has been largely overlooked

(Labanca et al. 2015). The typical shorter-term leases in multifamily housing (versus

commercial buildings) prevent tenants from participating in sustainability programs

(Cradduck and Wharton 2011).

Rental housing owners and managers may not realize the benefits of taking full

advantage of greening measures (Carswell and Smith 2009). Uncertainty in implementa-

tion time and costs, long anticipated payback periods and tepid market demand for ‘‘green’’

apartments in some markets amplify these concerns (Kriese and Scholz 2011; Kyrö et al.

2012; Miller and Buys 2008). In comparison to other property types, LEED certification of

multifamily buildings can take approximately five extra months (Carswell and Smith

2009). Furthermore, managers believe that the economics of sustainable development clash

with the environmental management (Bansal 2002) and the cost of sustainable buildings

tend to be overestimated by building professionals (Kriese and Scholz 2011). While tenants

recognize the benefits of sustainability, many are not willing to pay significantly more for it

(Miller and Buys 2008). In the aggregate, these factors diminish the desirability of

Promoting Sustainability in the United States multifamily… 365

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sustainability initiatives in the rental housing industry, which may in turn discourage

property managers from actively promoting such endeavors.

Another potential obstacle to sustainability is the lack of clear definitions and com-

municative frameworks to guide market participants. Real estate developers, property

managers, owners, and tenants frequently have very different interpretations of what the

term ‘‘sustainability’’ means from an environmental perspective (Evans and Jones 2008;

Kriese and Scholz 2011; Priemus 2005). Information asymmetries of this type may

encourage underinvestment in sustainable property management practices to the extent

market participants revert back to service offerings with more clearly defined benefits.

Only recently have serious efforts been made to address this market failure through the

creation of certification programs that provide third-party property managers with an

opportunity to demonstrate their understanding of and commitment to an established set of

principles related to sustainability. Examples include the National Apartment Association’s

Credential for Green Property Management and the U.S. Green Building Council’s LEED

Green Associate designation. The extent to which these programs have successfully

addressed information asymmetries remains unclear due to a lack of empirical study.

Understanding the severity of the aforementioned barriers to sustainability in the

multifamily property management industry is important because apartments comprise a

large and growing segment of the U.S. housing stock. In fact, quarterly homeownership

rates are currently lower than they have been at any point in time since 1995 (Callis and

Kresin 2015). The apartment industry is simultaneously experiencing a period of

unprecedented growth due to evolving consumer preferences and philosophies about

homeownership (Fuller 2013). This paradigm shift can partly be attributed to the desire for

walkability, urban revival, and the recent housing crisis (Fuller 2013).

As the multifamily sector continues to grow, fee managers have an opportunity to grow

their business by utilizing sustainable practices as a marketing tool to solicit more business

from property owners. Although there is a limited ability to effectuate change due to their

advisory capacity, third-party property managers are well positioned to help reduce the

environmental impact of the housing stock if they have the ability and inclination to

encourage the owners they represent to embrace environmentally sustainable business

practices.

Despite the fact that third-party property managers are well positioned to help reduce

the environmental impact of the housing stock, there is a lack of research on efforts being

put forward within the sustainability arena by property management firms. Furthermore,

there is relatively little information from the property manager’s perspective regarding the

challenges faced when considering sustainability initiatives. As 35 % of Americans rent

their homes (National Multifamily Housing Council 2015), uncovering the level of sus-

tainability initiatives being promoted by property managers can be significant in furthering

adoption. Furthermore, uncovering the barriers to sustainability initiatives can inform state

and federal policymakers who have the ability to provide incentives to foster sustainable

practices within the multifamily property management industry.

5 Data and methodology

The data used to complete this study was collected through a series of interviews con-

ducted with executives representing firms on the National Multifamily Housing Council’s

(NMHC) list of the ‘‘50 Largest U.S. Apartment Managers’’ in 2015. The NMHC, whose

366 E. A. Hopkins et al.

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mission is to provide insight, advocacy, and action in the multifamily sector, assists

apartment industry leaders and the communities they serve. The NMHC compiles an

annual list of the 50 largest managers in the United States by performing an annual survey.

The 35 firms on the list offering third-party property management services comprise the

population for the study at hand, as the objective of the research is to explore the per-

ceptions of managers working in this capacity. 1

The population consists of very large operators with 25,000 or more units under

management. There is an extraordinary amount of variance among the characteristics of

the portfolios managed by the firms included in the sample. For example, many of the firms

manage everything from newly built institutional quality assets to Class B apartment

communities to affordable housing in several different markets across the country. The

geographic scope of the firms ranges from a handful of states to national platforms,

although the majority of the respondents are regional operators. Additionally, the rents

within the portfolios vary significantly due the variance in property characteristics included

in the fee management portfolios.

NMHC’s leadership graciously agreed to contact senior executives at these companies

who were actively involved in the trade organization. This initial email correspondence

included a summary of the research, an informed consent document for those interested in

scheduling an interview, and an endorsement of the study’s value to the multifamily

housing industry. Senior executives representing all of the firms in the population were

then contacted directly by the research team via email and telephone to schedule inter-

views. A total of 25 firms agreed to participate in the research, which equated to a survey

response rate of approximately 71 %. Interviewees included 11 CEOs/COOs, 8 executive/

senior vice presidents, and 6 vice presidents. 2

Since the multifamily property management industry is very large and fragmented, a

decision was made to restrict the qualitative analysis to the largest firms in the United

States as identified by NMHC. Focusing on industry elites in this manner limits the

generalizability of the findings, but it also allows for more meaningful insight into the

strategic decisions made by sophisticated firms with identifiable characteristics (De Wit

1996). This methodological advantage has stimulated renewed interest in elite interviewing

in recent years as a means of gaining a better understanding of the factors motivating

business organizations (Harvey 2010). A broad interpretation of the term ‘‘elite’’ was

adopted in the study at hand to accommodate the inclusion of both chief executives and

other senior leaders in the sample. This is not problematic so long as all of the research

participants have a strong understanding of their firms’ operations and the ability to

influence management decisions to some degree (Harvey 2011).

Semi-structured telephone interviews approximately 1 h in duration were conducted

with all of the executives. Each respondent was asked a series of open-ended questions

about a variety of topics of relevance to the multifamily property management industry,

including several exploring perceptions about sustainability initiatives. Respondents were

specifically asked to describe the extent to which their firms promoted sustainability ini-

tiatives during the business development process, the advantages their clients hoped to

1 The 15 firms excluded from the population are primarily real estate investment trusts (REITs) and large

multifamily development companies that only manage assets in which they have an ownership interest. 2 Invitations to participate in the research were extended to C-suite level executives for all of the property

management firms included in the sample. In a number of instances, the request was referred to a subor- dinate on the leadership team familiar with the firm’s business development process and strategic priorities. C-suite level executives refer to top senior executives such as the chief executive officer, chief financial officer, chief marketing officer, chief information officer, etc.

Promoting Sustainability in the United States multifamily… 367

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achieve, and any barriers to such initiatives. The nature of the research warranted the use of

open-ended questions to allow business elites to fully articulate their ideas and guide the

flow of the interview in a conversational manner (Aberbach and Rockman 2002; Mikecz

2012). Any questions that proved ambiguous to the respondents could also be addressed by

the research team in this setting (De Wit 1996). 3

After completing the interviews, the data was synthesized to create a sustainability

continuum organizing the firms based on the extent to which they promote sustainability in

their business development process. The continuum serves as a useful framework to

analyze the factors influencing third-party property managers’ perceptions about sustain-

ability and the benefits they hope to derive from promoting it as part of their service

offerings. 4 It illustrates that sustainability is not an ‘‘all or nothing’’ proposition, but rather

a set of practices that can be adopted in various combinations and levels of intensity to

achieve desired outcomes. Figure 1 summarizes five unique approaches to sustainability

identified along the continuum by the research team.

6 Results and discussion

The information presented in Fig. 2 demonstrates that 60 % of respondents are using

sustainability as a business development strategy in some way. Approximately 16 % of the

firms in the sample promote basic water conservation, energy efficient lighting, and

recycling initiatives; 12 % actively brand and market their sustainability efforts to tenants;

16 % provide sustainability recommendations and advisory services to their clients on a

consistent basis; and 16 % conduct comprehensive environmental evaluations of all

properties under management as a matter of course. The remaining 40 % of the firms in the

sample are not promoting sustainability as a business development strategy.

Different opportunities and challenges associated with sustainable property manage-

ment practices appear to resonate across the continuum. Companies on the far left of the

continuum do not consistently promote sustainability in their business development pro-

cess because they do not believe it is important to their clients or simply do not view it as a

property management issue. Respondents’ comments clearly illustrate these two related

positions. As one notes: ‘‘There isn’t as much demand as you might think. Clients are

interested in environmental risk mitigation, addressing things like mold and lead-based

paint, but not necessarily [sustainable] property improvements because most operating

expenses are incurred by the resident.’’ Several respondents in this group also contend that

private owners generally aren’t concerned about sustainability; and although institutional

owners care at some level, it doesn’t trickle down to the property management level. These

perspectives often translate into a reactive approach to sustainability, which is particularly

pronounced among firms managing a large number of older assets on behalf of private

owners. An executive working for one such firm states: ‘‘It’s really driven by the client’s

interest and we don’t focus on sustainability as an upfront solution.’’ Another echoes this

3 The advantages of semi-structured interviews have encouraged their widespread use to explore real estate

practitioners’ perceptions about a variety of issues including development decisions, financial structures, investment strategies, and urban planning practices. See Gallimore et al. 2000; Coiacetto 2000, 2001; Keivani et al. 2001; Dixon et al. 2005; Dixon and Pottinger 2006. 4 The notion of a continuum has been used extensively in the real estate literature to examine business

decisions that evolve over time or can be implemented in a variety of ways. See Sagalyn 1997; Coiacetto 2000; Shaw 2008.

368 E. A. Hopkins et al.

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sentiment: ‘‘The market is demanding [sustainability] more and more, but it rarely comes

into play for [older] assets.’’

The next group of companies to the right on the continuum express more favorable

views about the importance of sustainability and actively promote basic initiatives to

conserve water, use of energy efficient lighting, and encourage recycling. The primary

barrier they encounter is cost. Multiple respondents say they do little in this area because

‘‘residents might care about [sustainability], but they won’t pay for it.’’ There is also a

perception that owners are unwilling to bear the cost of such endeavors. As one respondent

succinctly conveys: ‘‘lots of clients like talking about sustainability issues, but not many

like paying for them.’’ Nonetheless, companies in this second group frequently promote

sustainability because it is consistent with the property management firm’s corporate social

responsibility commitments or is perceived to offer modest cost savings to clients. These

respondents also frequently note that any efforts to reduce operating costs via sustainability

initiatives are impinged upon by the fact that most of the utility cost is outside of the

property manager’s control and has a limited impact on the owner’s bottom line.

Sustainability Continuum Level 1

Not a part of the business development

process

Level 2

Promote basic water

conservation, energy efficient

lighting, recycling initiatives

Level 3

Actively brand and promote sustainability initiatives to current and prospective

tenants

Level 4

Consistently promote

sustainability recommendatio ns and advisory

services

Level 5

Conduct comprehensive environmental evaluation of all properties

Fig. 1 Organization of the sustainability continuum

Level 1, 10, 40%

Level 2, 4, 16%

Level 3, 3, 12%

Level 4, 4, 16%

Level 5, 4, 16%

Level 1 Level 2 Level 3 Level 4 Level 5

Fig. 2 Frequency distribution of sustainability initiatives

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A third group of companies emerge that not only promote basic sustainability initiatives

to reduce operating expenses, but also actively brand and market these efforts to

prospective tenants. Using sustainability as a branding technique can be seen in examples

given by respondents such as LEED certification, smoke free policies, low voltaic paints,

bike parking, bike sharing programs, and electric car stations. As one respondent notes

‘‘The lifestyle element of housing has become incredibly important over the last several

years,’’ of which sustainability elements play a part. The primary objective of sustainability

to these firms is pushing rental rates and occupancy levels. One respondent event mentions

that they do achieve higher rents as a result. Respondents in this group tend to believe the

cost savings associated with investments in sustainability are modest at best in the mul-

tifamily housing industry, but there is often an opportunity to use it as a marketing tool. For

example, one respondent notes: ‘‘Our website notes that we have a water conservation

program, efficient waste management practices and a commitment to non-smoking prop-

erties, but [sustainability is] not a business driver.’’ Implementation costs are perceived as a

manageable concern in most markets where there is ample demand for ‘‘green’’

apartments.

Firms included in a fourth group on the continuum differ from those previously dis-

cussed in the sense that they perceive strong demand for sustainable property management

services, especially on the part of institutional clients. Thus, they provide a wide array of

sustainability recommendations and related advisory services to their clients at a relatively

low cost. Specific examples include advising clients on guidelines for purchasing green

products onsite, vendor waivers acknowledging the use of green products, use of low VOC

paint and cleaning supplies, participation in the Global Real Estate Sustainability

Benchmark which issues awards for owners and operators for their sustainability efforts,

and environmental efficiencies. This client-driven theme resonates in several of the

respondents’ comments, including the following: ‘‘Institutional owners are already pushing

their own sustainability agendas; which pushes the property managers they hire.’’ Another

respondent goes on to state: ‘‘People don’t pay for [sustainability], but they expect it.’’

Opinions in this group are split regarding the economic implications for third-party

property management firms. Some respondents note that the need to provide in-house

sustainability consulting drives up their overhead costs and makes them more selective

about the clients with whom they work. Others offer a more favorable view by suggesting:

‘‘Do the collective easy stuff and there is lots of money to be made in [sustainability].’’

The most optimistic views about sustainability exist among a fifth group of firms, who

correspondingly take the greatest steps to leverage it in their business development process.

Firms in this group are differentiated from their peers by having a dedicated staff person or

department responsible for promoting sustainability design features and programming to

both prospective clients and tenants. The responsibilities of the dedicated sustainability

staff include environmental audits, LEED certification, tax credits and rebates, active

involvement in rating agencies like the United States Green Building Council (USGBC),

familiarity with ENERGY STAR, and consulting services regarding items such as

appropriate design elements, recommendations to owners, and other asset evaluations. 5

Additionally, staff conducts a survey of the ‘‘sustainability’’ of an asset on the front end of

an assignment and gives the property a score. This is followed by recommendations as to

what can be down to improve the sustainability of the asset. Like many others on the

continuum, firms in this group express concerns about the cost of providing these services

5 The ENERGY STAR program, established by the U.S. Environmental Protection Agency in 1992, was

created to conserve both money and the environment through energy efficiency measures.

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and are leery about the prospects of generating a direct return on investment. However,

they tend to view these offerings as part of an ‘‘overall package’’ of services helping them

win business and satisfy tenant demands, even if the financial benefits are difficult to parse

out. Economies of scale are often cited as an important factor by these companies, which

allows them to spread out the cost of maintaining staff dedicated to sustainability

initiatives.

Similarities and differences can be seen throughout the sustainability continuum. A

common theme throughout the spectrum is the lack of evidence in the interviews that

technical inefficiencies or hesitance to innovate discourage third-party property manage-

ment companies from promoting sustainability. This may be due in part to the fact that

many of these firms are large enough to have in house construction management services

or an affiliated development arm that engages in sustainable projects. Thus, this outcome

may not be generalizable to smaller property management firms.

Uncertainty about implementation costs is a significant concern across the entire con-

tinuum, with firms on the far left suggesting they are insurmountable and those on the far

right suggesting they can only be overcome in select situations or when they are part of the

entire package of services institutional clients demand. This barrier is further exacerbated

by residential lease structures, which were identified as a fundamental obstacle by groups

across the continuum, because there are very few opportunities for owners to capture

operating efficiencies through investments in sustainable design features or programming.

This may illustrate the need for appropriate frameworks to measure the financial ramifi-

cations of sustainability initiatives as uncertainty remains. Opinions remain relatively

consistent across the continuum that institutional owners care much more about sustain-

ability than private owners. This may suggest such initiatives are more closely aligned with

corporate social responsibility commitments than beliefs that these programs dramatically

increase revenues or reduce operating costs.

Another common theme among firms across the continuum suggest there is tepid

demand for ‘‘green’’ apartments, and even when consumers care they are rarely willing to

pay for it in any substantial way. There are a few comments about consumer groups willing

to pay rent premiums, such as millennials and luxury apartment tenants in select markets,

but overall third-party property managers do not appear to expect significant rent bumps.

Nonetheless, they often promote sustainability initiatives on site that are not very expan-

sive because they feel, all other things being equal, that it might sway a leasing decisions.

However, there are consistent comments that sustainability initiatives, whether big or

small, are nearly nonexistent at older assets or those in poor condition. The reasoning is

that the cost of sustainability initiatives are simply too high for these properties and the rent

premiums that can be achieved too small.

Although one respondent notes that their firm was doing lighting and water and window

retrofits before everything was called ‘‘green,’’ the trend across the continuum is that the

lack of a clear definition and communicative framework is not mentioned as a barrier by

interviewed respondents. While the lack of clear definition was not mentioned in the

interviews, this study supports the idea that sustainability means different things to dif-

ferent respondents. Defining what sustainability means for the property management field

could be helpful in fostering further sustainability initiatives.

Despite a substantial amount of agreement about potential barriers to sustainability in

the third party property management industry, there are notable differences across the

sustainability continuum. While over half of the companies are doing something within the

sustainability initiative arena, 40 % of companies are not participating. This is interesting

because many of these companies, both participators and non-participators, manage the

Promoting Sustainability in the United States multifamily… 371

123

same types of properties, on behalf of the same types of clients, in the same geographic

areas. This suggests there is at least some disagreement as to the benefits that can be

derived from sustainability initiatives. The firms in the sample are acting on this perceptual

differences in significant ways, as several have relatively strong sustainability consulting

capabilities in place.

There is at least some disagreement as to whether sustainability should be exclusively

an owner-oriented enterprise or if property managers should proactively seek to pursue

opportunities to reduce the environmental impact of multifamily housing. It appears that

the third-party property managers who are pushing such initiatives on their own account

are doing so because it is consistent with their corporate social responsibility commitments,

they believe it can help them refine and enhance their brand identity as a service provider,

or they have identified relatively low cost sustainability initiatives that are more about

marketing the efficiencies. The far left of the continuum is plagued by an ‘‘it’s not my job’’

mentality serving as a significant obstacle to sustainability in the third-party property

management industry. This suggests some property managers need to be empowered to

take on a greater role to promote sustainability and be held accountable by the trade

organizations to which they belong if the industry is serious about reducing the environ-

mental impact of multifamily housing.

The primary difference between those doing something and those doing nothing in the

sustainability space is a belief among the former that institutional ownership groups care

about the issue and expect their property management firm to have a working knowledge of

best practices that can be used to reduce the environmental impact of their assets. These

concerns are driving the decisions made by a majority of third-party property management

firms in this group because nearly all of them expressed their desire to take on more work

for institutional owners because that is where the attractive growth opportunities reside.

7 Conclusions, limitations, and recommendations

The purpose of this study is to explore whether large third-party property managers are

utilizing sustainability as a business development strategy; and if so, to identify the various

initiatives being implemented. The results suggest a majority of the third-party property

managers represented in the sample are leveraging sustainability to win business. However,

significant variability exists in the strategies adopted. Initiatives adopted by the firms in the

sample fall on a continuum from rather basic efforts to encourage resource conservation

and recycling to much more expansive endeavors involving comprehensive environmental

audits of all properties under management.

With 40 % of respondents not promoting sustainability as a means of procuring busi-

ness and varying ranges of initiatives, it is clear that barriers persist in the pursuit of

sustainable initiative implementations. Various barriers to environmentally-friendly busi-

ness practices seen throughout the housing industry extend to the market for third-party

property management services. These include concerns about implementation costs,

skepticism regarding consumer demand, and lack of clear definitions and communicative

frameworks. However, reluctance to embrace new technologies was not seen as a barrier in

this study; which suggests that this barriers does not extend to the market for third-party

property management services. Furthermore, inefficient lease structures are seen as a

unique barrier to sustainability initiatives within the third-party property management

sector as illustrated in this study.

372 E. A. Hopkins et al.

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A limitation of this study is that there were voluntary study participants sharing their

views on sustainability within their firm and the third party property management industry.

Another limitation is that the findings can only be generalized to the largest firms in the

country. Additionally, property management practices are rapidly evolving in response to

market demand so the information in this study can become obsolete in a relatively short

period of time. Lastly, this study focuses strictly on third party property management

companies which have limited ability to implement sustainability initiatives in light of

property owner desires. However, the qualitative analysis presented in this paper is one of

the first to the authors’ knowledge to explore third-party property managers’ perceptions

about sustainability in an attempt to address whether barriers to environmentally-friendly

business practices commonly observed throughout the housing industry extend to the

market for third-party property management services and what sustainability initiatives

third-party property management firms are actually using in their efforts to procure new

clients or retain existing ones. Furthermore, this study has assisted with the determination

that sustainability agendas are more about marketing than they are about operational

efficiencies, which is partly driven by owners’ inability to capture cost savings due to

residential lease structures that are pervasive in the multifamily housing industry.

This study suggests there is at least some disagreement as to the benefits that can be

derived from sustainability initiatives. In order to address the information gap within the

property management industry, education and training are recommended. Introducing

sustainability into the housing curriculum within institutions of higher education can be

one way to educate the future property management workforce (Parrott and Emmel 2001).

Another way to educate property managers to more successfully ascertain and consider

innovation information is to establish procedures, norms, and appropriate staff (Toole

1998). As Toole (1998) notes that employees in the housing industry need to be just as

knowledgeable about new products as existing products, the research team offers that this

can be adapted to the multifamily property management sector so that their business

development strategy includes information on sustainable initiatives. This can be done by

training employees on various sustainability initiatives which can empower them.

Continuing to refine the term ‘‘sustainability’’ as it relates to the third party property

management industry will be helpful, as it appears to have different meanings in the third-

party property management industry. This may be problematic because owners and tenants

do not necessarily know what they get when they work with a property management firm.

Greater clarity and consistency is needed to address this information asymmetry. It is

recommended that trade organizations participate in the development of a universal

checklist to make the transfer of information easier to manage. Categories can include

energy conservation, water conservation, green upgrades such as investing in solar power,

bike storage, providing Zipcars on site, waste diversion, and xeriscaping. 6 Furthermore,

lifecycle valuation assessment (LCVA) can be incorporated into this universal checklist to

assist firms with understanding sustainability initiative cost and benefit implications

through a full building lifecycle lens versus strictly an upfront cost lens (Epstein and Roy

2003). This can help managers measure future as well as day to day performance (Epstein

and Roy 2003).

Serious attention should be devoted to exploring residential lease structures that better

incentivize property owners for investing in sustainable design and programming. This can

perhaps be accomplished by creating avenues for information sharing between property

6 Zipcar is an American car sharing company where cars can be rented by the hour or day. Xeriscaping is a

landscaping technique to conserve water.

Promoting Sustainability in the United States multifamily… 373

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owners and managers to create a more integrated approach. Additionally, summoning trade

organization participation in the development of a new standardized lease structure can be

helpful to make the transfer to this new structure easier.

In conclusion, the results of this study demonstrate the need for research examining best

practices in sustainable property management that can be adopted by a wide variety of

firms to improve the financial performance of the assets they operate, while simultaneously

encouraging resource conversation and the responsible use of land. Creating and dissem-

inating this type of information is anticipated to help the multifamily housing industry

move to the forefront of sustainability.

Acknowledgments The authors would like to thank the Institute of Real Estate Management (IREM) for the grant awarded to support this research and the National Multifamily Housing Council (NMHC) for their assistance in gathering the data.

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