Retrofitting with heat pumps is known to deliver tremendous benefits, including lowering energy costs, reducing demand on the grid, improving tenant comfort, and helping landlords on their path to attaining net-zero carbon targets. Still, some rental housing providers have been reluctant to jump on board, fearing the upfront cost and chaos typically associated with any major retrofit project.
But times are changing, and the reluctance is duly waning. Since 2019, REITs and large commercial landlords like QuadReal, CAPREIT, and DREAM Unlimited, have been turning to this cleantech solution and paving the way for smaller rental housing operators to follow. In June, for example, Dream enlisted BONDI Energy Corp to explore heat pump retrofit options for a residential building in Toronto, the ultimate goal being to transition to a 100 per cent net zero portfolio in the coming years.
“This project is significant because it will be one of the first fuel-switching projects of its kind in the region,” explained Belinda Gilbey, President and Co-founder of BONDI Energy, an award-winning cleantech project developer based in Toronto. “The apartment building was constructed in 1915. It has no air conditioning provision and a hydronic hot water radiator system. Our team was brought on to help design and implement a new Variable Refrigerant Flow (VRFV) system, which will significantly reduce the property’s environmental impact and improve occupant comfort.”
The move from gas to electric will also eliminate the asset’s central gas plant cost and secure it against rising energy costs. To accommodate the new heat pumps, Toronto Hydro will need to increase the building’s electrical capacity from the street.
“Our net zero commitments are necessary evolutionary steps in our business and align with our impact investing focus, which has formed an integral part of who we are, how we invest, how we have done business for more than 25 years, and how we will grow in the future,” said Pino DiMascio, Head of Impact Strategy and Delivery, Dream Unlimited Corp. “We are tackling the impact on GHG emissions between now and 2035 that are within our direct control, and by doing that we are creating flexibility to handle the more challenging emissions sources that require collaboration with partners, tenants and supply chains.”
Heat pump technology
Invented in the 1980s, heat pump technology is considered one of the most energy-efficient ways to heat and cool buildings and plays a vital role in the global shift toward decarbonization. Heat pumps draw heat into the building from the cold outdoor air in the winter and push the warm air out in the summer, providing a cost-efficient way to air-condition the living space and improve the tenant experience.
“From a landlord’s perspective, retrofitting with heat pumps really increases the value of the building from day one,” said Aaron Graben, Co-Founder and Vice President of BONDI Energy Corp. “Heat pumps are three times more efficient than other heating and cooling systems, and they significantly lower energy expenses resulting in increased cap rate values.”
In fact, for every electrically heated apartment retrofitted with heat pumps, Graben said the asset value increases by about $25,000; additionally, they decrease the electrical capacity requirements by up to 60 per cent allowing owners to arbitrage the surplus capacity to make room for more EV charging stations and Utility Peak Demand programs.
For gas buildings, heat pump retrofits eliminate the central gas plant cost while securing the building against rising energy costs and fines. Meanwhile, tenants get a better, healthier occupancy experience, which translates into lower vacancies and potentially higher rents.
“Investors today want to see buildings move to a lower carbon efficiency to meet Net Zero and ESG goals,” Graben added. “Retrofitting with heat pumps is not a marginal move—its energy efficiency impact is massive compared to all other retrofits.”
Financing & debt load
Given the current, higher interest rates, many multifamily building owners may be inclined to defer major retrofit projects (particularly if the building is sub-metred) but Gilbey and Graben argue that the investment now will result in benefits that could dwindle the longer they are postponed.
“The business case is currently quite strong to retrofit existing apartments with heat pump technology,” said Gilbey. “Not only are the efficiency gains huge, but governments are looking to multifamily and commercial building owners to lower GHG emissions to reach aggressive net-zero carbon objectives. Carbon taxes are already here, and incentives won’t last forever.”
To her point, qualifying building owners can take advantage of the CMHC MLI Select Program, attaining 100 points, which allows for 50-year amortization and other loan benefits. There are also numerous rebates and government incentives available, including the new 30 per cent federal tax credits, to help make the switch to heat pumps more affordable. On larger portfolios, the Canadian Infrastructure Bank is providing extremely low financing that many institutional landlords are accessing, including Dream and Kingsette. And in terms of the disruption to tenants, working with professionals like Bondi Energy ensure it’s kept to a minimum with one-day turn turnaround times per unit.
“Heat pump retrofits have the potential to revolutionize the way we approach building energy consumption and reduce our carbon footprint,” concluded Graben. “With significant energy savings and a positive impact on the environment, it’s no wonder more and more building owners are opting for this technology. It’s the best way to offset rising electricity costs, interest rates, and inflationary operating costs.”
More reasons to consider a heat pump retrofit:
- Buildings are the largest source of GHG emissions in Toronto today, accounting for 58% of total emissions. The emissions stem from the burning of fossil fuels, primarily natural gas, for heating, cooling, and hot water. Switching from fossil fuels to heat pumps eliminates building emissions by 100%.
- If Ontario retrofitted all 400,000 electrically heated apartments, it would be equivalent to reducing the Pickering Nuclear Power plant’s annual generation by 12%.
- Heat pump retrofits are a great way to create green jobs while spurring new technologies and applications. Currently, over $1 Trillion dollars in building retrofits are expected to be executed over the next 50 to 100 years in North America.
- Governments are implementing carbon fines and taxes (like Law 97 in New York) that penalise building owners that fail to reduce carbon emissions.
- Heat pump technology can increase a building’s cap rate value by $25,000 per suite. (For example, on a 100-unit building, that’s a $2,500,000 increase in value based on a 4% cap rate).
- Heat pump retrofits positively impact values by both increasing efficiency and introducing efficient cooling where it did not exist, improving tenant comfort, experience, and building rental demand.
BONDI Energy Corp specializes in decarbonizing buildings with energy-efficient, cost-saving heat pumps and deep energy retrofits, management, and ongoing maintenance. For more information, please visit @bondienergycorp and www.bondicorp.com.