Utilities: Benefit in Private

Get an idea of the financial benefits of community-driven utility privatization.

Multifamily investors are some of the most financially savvy in the markets. Investing in multifamily is a huge undertaking, with larger-than-life properties and the financing to match. Operating a multifamily property is just one difficult aspect of it, but it is the portion that typically has the greatest correlation to profitability.

There is no single path to success when operating a multifamily property, as all multifamily properties and communities are unique. Keeping the profitability up despite the normal obstacles in addition to the unforeseen troubles that tend to pop up from time to time (we’re looking at you, covid) is no easy feat, and many multifamily investors choose to explore different methods of financial sustainability for their multifamily investments. One such avenue that might be worth exploring is the privatization of utilities in multifamily communities.

The benefits made available by privatizing the utilities at any given community are becoming more and more clear. Effectively giving the developer ownership over the asset (utilities can be viewed as such in this scenario), utility privatization is typically when a community-owned “mini-grid” replaces the standard utility-owned electrical distribution system. Chief among the emerging benefits is the aspect of financial opportunities that utility privatization presents.

First and foremost, privatizing utilities may not be an option for every investor, but for those who can, it seems to be an almost surefire way to open up new streams of revenue. These previously untapped revenue sources can take many forms, but the overall growth of property value is plain to see. Privatizing utilities can lead to increased revenue from additional capital funds, incremental income gains, reduced cash flow burdens, and increased net operating income (NOI).

Private mini-grids can offer owners and operators of multifamily properties a plethora of financial opportunities such as:

  • Reduction in construction capital tied to electric infrastructure.

  • Creation of direct and stable revenue streams in regards to utility aggregation.

  • Elimination of electric and water submetering maintenance costs.

  • Elimination of utility-related debt.

  • Ability to scale utility-based revenue services, such as the installation of charging stations for electrical vehicles (EVs)

The benefits of privatizing utilities can be found outside of financial opportunities as well. Ownership can provide greater flexibility with construction and renovation, improved speed of service and maintenance, drastically lower equipment installation fees, a more fulfilling property management and tenant relationship with a stronger community, more incentives for energy efficiency, and even custom solutions specific to the unique needs of that property. Really, the advantages make privatizing utilities seem like more of a no-brainer than anything else!

What are your thoughts on the matter?