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Solar Income: The Untapped Revenue Stream for Multifamily with Owen Barrett

• Ed Mathews

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Ed Mathews:

I do want to ask, and first off, I want to thank you, because we just found out I was telling our guests, we just found out today that we are a top 15 global podcast in the multifamily space, which we're on a list of about 90 really good podcasts. So thank you. If you are new to the show and you like what you hear today or you listen to some of the other episodes, one of the things you can definitely do to help us grow and help us find subjects and guests who will pique your interest as well is to follow us and always feel free to comment. I read every single comment and I try to respond to as many as possible. So thank you.

Ed Mathews:

And with that I have a guest here who his domain expertise and subject matter expert is near and dear to my heart for a couple of different reasons. One we just signed a big deal to do something very similar to what he does, which we'll get into. It's similar but not the same. And also he's leading the wave of alternative energy and also turns out that it's helping multifamily owners make extra money. With that, Owen Barrett from Shine, congratulations on your success and welcome to the show.

Owen Barrett:

Thanks for having me.

Ed Mathews:

Yeah, so, Owen, for those folks that haven't discovered Shine yet, why don't you give us a little bit about what the company's all about, and then we'll get into it?

Owen Barrett:

Yeah, so Shine is the only turnkey solar solution for the multifamily industry. I think that's really important for kind of a number of reasons. We developed Shine after acquiring 650 units ourselves multifamily units throughout the Midwest and treating that portfolio as a guinea pig in terms of what's the best way to deploy solar on multifamily, and what we noticed was there's a lot of solar contractors that don't understand multifamily and then there's a few software companies out there that understand how to bill tenants once solar is installed. But there was nobody doing both and it's created this sort of nightmare scenario where a multifamily operator owner had to go do the due diligence on a contractor and then work with a billing company. And the more parties involved, the more complicated these projects get and they're already complicated. And we spent about two years developing a turnkey solution, brought the installation expertise with a proprietary billing platform and launched Shine to really try and decarbonize the multifamily space via onsite solar.

Ed Mathews:

Excellent, and when you say decarbonize, let's talk about the impact of that. So how do you track that? What are the KPIs that you're particularly focused on?

Owen Barrett:

Yeah, so just within the decarbonization space. It's a lot easier to decarbonize a new building than it is existing. So you see a lot of people focused on how do I build new buildings the right way, with a lower carbon footprint? That's how we should be building these things Leads. I personally don't put a lot of emphasis on building rating systems because I think the rating themselves are really expensive and you could get to the same results without the rating. I also think how you operate a building is more important than how it was built, and the rating systems tend to focus on how things are built, not what happens once it's in operation.

Owen Barrett:

Of all the buildings that exist today, I think two thirds, or 70%, will exist in 50 years and 40% of global emissions are from the built environment. If we want to have an impact on emissions, we have to go after existing buildings, and multifamily is not known to be the most innovative industry out there. They're slow to move, risk averse. I just thought it was a really interesting opportunity to try and go after this space specifically and come up with a model that's not leading with environmental metrics, saying let's do this for the trees, let's do this for the polar bears, let's do this for the kids. It's let's do this because it will make you more money, it's better for your tenant and, oh, it's also good for the environment.

Ed Mathews:

And so let's talk about the money. Then One of the things and I mentioned on our previous show as well we just signed a, so we've gotten into land development and one of the things that we discovered here in Connecticut was the incentives to work with local solar companies. To build infrastructure is, frankly, pretty lucrative right, and we carved out probably 10, 12 acres, I believe, for a solar farm here in central Connecticut and we're in the process of permitting and getting that entitled and all that, and the local government and the state government have been really supportive. It seems like it's going to happen. So in our scenario, not going on a building, it's going on raw land. It is basically a ground lease where they're putting a five megawatt battery and a bunch of solar panels and connecting it to the three phase grid and off we go. How is what Shine does? How is that different?

Owen Barrett:

We have come up with a business model that focuses on helping owners of buildings, generally existing buildings but we do work with new development to installing on site solar on those properties. To installing onsite solar on those properties. When you think about your typical apartment building, think about a 200-unit garden style property. The common area meters so the electric meters that are covering the leasing office, the fitness center, the pool, the exterior lights that's only responsible for 5% to 10% of total emissions at the property. 90% to 95% is from tenants. You have a lot of solar companies that are pitching owners on let's go install solar on your common area meters. And it doesn't work for a number of reasons. Generally, the numbers are too insignificant to get anybody's attention the owner, the asset manager, whoever it may be. The second piece from a decarbonization story is what's even the point of offsetting 5% of the total emissions? It's a drop in the bucket. What's even the point of offsetting 5% of the total emissions? Like it's a drop in the bucket.

Owen Barrett:

So we tried to think from a first principles approach how could we actually decarbonize multifamily? And in order to do that, you have to install solar on the tenant meters. And in order to do that, in most states. You have to install one small solar system per apartment unit. So each apartment unit is getting its own small solar system, a small residential system that's interconnected into the tenants electricity or utility meter, and then there's software required on the back end to monitor all of these individual systems, to bill all these individual tenants. And it's really been built from the ground up to decarbonize existing buildings and then again it works for new construction too. But it's purpose-built to decarbonize existing apartment buildings, not take vacant land and put a solar farm on it, which is also important. But that space is way more competitive than the space that we're operating in.

Ed Mathews:

Each individual unit has an array of solar panels or at least one, I assume and all the backend infrastructure as well as the software to manage it. So it's not like an Eamon Demon kind of thing where you're bringing in one trunk and then calculating what is the usage right, if I'm understanding you properly.

Owen Barrett:

There's three states in the US, to my knowledge, that have something called virtual net energy metering, where and the states are California, colorado and Massachusetts, where apartment owners can install a large array into the common area meter and virtually allocate the benefit to tenants. Square footage similar to rubs. It's great, it's really easy. The challenge is that there's 47 states that don't have that. So how do you install solar in those 47 states? And you have to install a small PV system into each apartment unit. So a studio may get four panels, a one bedroom may get five panels, a two bedroom may get six. From the roof it looks identical. The roof is covered in solar panels. You'll have, instead of one, conduit pipe coming down the side of the building, you may have three or four, and then from those three or four they kind of branch out to the meter bank. So it's a really clean installation. But for now it's the only way to go after the tenant load, which is for us the most important piece to this whole problem.

Ed Mathews:

And in terms of justifying the expense, what is say, a five-year, 10-year look at a return on investment on a project like this?

Owen Barrett:

It changes, heavily dependent on the cost of electricity. Cost of electricity is the biggest variable in sort of the financial analysis Super expensive in Connecticut.

Owen Barrett:

Really expensive in California, fairly cheap in the rest of the country. To most people's surprise, texas is like next on the list from a residential perspective, commercial, totally different. On average it's about $6,000 per unit to install. That's the gross cost. Solar for now. This could change with the new administration but for now has a base 30% tax credit that is transferable and that is super important because the tax credit has been around for an extremely long time.

Owen Barrett:

Federal tax credits generally have zero benefit to real estate owners because they have so much depreciation that if they're playing the game right they don't have a federal tax liability. Historically tax credit has been useless. Now you can take that tax credit and you can sell it for cash. So $6,000 gross cost has a 30% tax credit. For ease, let's just say it's 33, a third. So the net cost is $4,000. And on average our systems create $620 per unit in NOI. So I don't know what the cap rates are in Connecticut but you put 5, 6, 7% cap rate on $620. It's going to two to three X that $4,000 cost that it takes to install the solar in the first place.

Ed Mathews:

And so how does that? I'm very curious about how you arrive at that number. Is it just perceived value and the building is more valuable, or is it that you can charge higher rents or your infrastructure costs?

Owen Barrett:

Obviously, they go down right, yeah so it's taken us a long time to get to the best model, what we found and again a lot of this comes from our experience as owners. The vast majority of tenants and prospective tenants evaluate apartments on apartmentscom just looking at rent. So we felt like it would actually hurt a property to try and increase the rent because you're decreasing utility costs. Tenants of our installations lease the solar equipment from the building owner. So if you're a tenant pre-solar, you may pay the local electric utility $100 per month.

Owen Barrett:

We come in, we install solar on everybody's meter. Everybody's electric bill drops to $50 per month. Of that 50, you're going to pay the building owner $45 per month and so now the tenant, you have a net savings of $5 per month. The building owner is making an additional $45 per month in what we call solar income. It's that mechanism that has to exist to justify the initial CapEx cost in the first place. If you can't somehow drive the value back to the owner, then they're never going to spend a million dollars or whatever it's going to cost to install solar to begin with.

Ed Mathews:

Yeah, the return is excellent. Just in the $540 a year, just an additional revenue right On a $6,000 expenditure. It's a no-brainer.

Owen Barrett:

Yeah, and it's actually a $4,000 expenditure when you transfer the tax credit. Yeah, the numbers are persuasive. It's usually mid-teens. Irr it's a double-digit cash on cash return. We think it makes sense on the business case, sure does.

Ed Mathews:

So after this show, I'd like to have a conversation about a very close friend of mine who has a couple hundred units that might be interested in this. Let's do it, okay. And so how does what's the process to go through to make sure that the building itself is appropriate to install solar in the building, because I would imagine there are certain configurations that it just doesn't make sense.

Owen Barrett:

Yeah, the best use case is garden style, just because there's the most roof area per apartment unit. Mid-rise works too Not as well, but it does work. High-rise doesn't really work. Usually when we get into a high-rise scenario, if there's surface level parking, we'll install carport solar to just go after the common area load. But garden style is the best.

Owen Barrett:

The age of the roof is really the thing that we look at the most closely. We don't like to install solar on roofs that are about 12 years or older. There can be certain situations where roofs hold up than others, but generally 12 years or newer is when we will install. And then what's really interesting from our model is a lot of times in what's called CNI solar commercial and industrial you have to do a site visit before you can give hard numbers or even soft numbers, because oftentimes you have to upgrade the electrical service because the amount of energy that your solar system is producing is too much for the main service panel to handle. You have to do an upgrade, costs a lot of money, takes a lot of time because you have to go through utility, Because all of our systems are so small.

Owen Barrett:

Each individual system is so small. On aggregate it's fairly big, but the individual systems are so small. We have not run into an instance where we have to upgrade any electrical infrastructure. It's huge, yeah. So electrically, we have not run into a building that doesn't work. We have seen some with roofs that are too old and we generally suggest that they replace the roof before they put solar on, because we don't want to be that company that puts panels on and then the roof has to be replaced.

Ed Mathews:

Yeah, five years later, right, Exactly. And so, as you're going through, you got to do a site visit Like what's the process? So walk me through. Ed calls Owen and says hey, man, I'm ready to move forward. What happens next?

Owen Barrett:

So first we'll do a remote analysis.

Owen Barrett:

That is usually within 5% in terms of how big the system size is going to be, what it's going to cost, what it's going to save. If that looks good, we'll do a site visit to confirm any assumptions, just make sure we're not missing anything and then we'll move to an installation agreement. Once we firm up the numbers, we can't dictate how long it takes that insulation agreement to be signed. Sometimes it's a week, sometimes it's six weeks, sometimes it's three months, just depending on lawyers. But once it's signed we'll move into engineering. Permitting. That usually takes two to four weeks. Once the plans are submitted. That depends on where it's being submitted.

Owen Barrett:

California, new England, generally take two to three months. Everywhere else usually takes six-ish weeks and then the physical installation takes about four weeks. Wow, that's it. If done correctly, it's very repeatable. This model it's a bunch of small residential systems on an apartment building, so it sounds really complex and there's a lot of administrative work that goes into it a lot of permits, a lot of engineering, a lot of interconnection agreements. But the physical installation is probably the easiest part.

Ed Mathews:

So the other thing I'm curious about is selling it back to the power company. Is there additional energy that gets stored somewhere? And, if so, how do you store it?

Owen Barrett:

And also, what do you do with it? So there's not, thankfully, because that would make our model a lot more complicated. In most instances, in garden style properties, our energy is being used in real time for baseload, so we're only offsetting 30 to 50% of total consumption at the unit level, which we see as a good thing, because once you start producing more than 50% and you start exporting energy, the model gets a lot more complicated because you have to understand the net metering rules. What is the value of electricity that the utility is giving you, if any, when you export it to the grid? Thankfully, our systems export little to no energy, which makes the financial modeling a lot easier.

Ed Mathews:

Yeah, and to understand on the building owner side as well, exactly, okay, all right, what question am I not asking you that I should be asking you? I've tried to get as geeky as I could, but my solar knowledge is only so deep.

Owen Barrett:

Yeah, a lot of the questions we get all the time is oh, and if you're telling me that it's a 17% IRR and a 10% cash on cash return, why is everybody not doing this? It's education and that's our job. That's why I'm going on all these podcasts. That's why I'm trying to get the word out. Until last year, literally there was no way to monitor systems and bill tenants for this unique installation approach where you're interconnecting into every single apartment unit. Now it exists. We're just trying to get the word out. Multifamily is in a tough spot right now. Expenses are up, Rent has stagnated. People need to get creative in how they're creating value, and so we're just trying to get the word out that there's a new way to generate a lot of income that almost every group has not come across before. It's like the early days of bulk internet.

Ed Mathews:

Yeah, being a recovering Silicon Valley guy myself, let me ask you technology-wise, where do you think we are relative to the birth of the internet? Me and my friends always talk about it's for AI. It's literally 1997 in where we are, so we're just in the beginning. So, I'm curious where you think solar is and this technology in particular.

Owen Barrett:

Yeah, so we're not using any novel technology. We're installing off the shelf stuff, and I think that's important too, because we don't want hardware risk. Institutional investors, especially, are very risk averse, so if we start telling them that we're manufacturing our own products to install, it's going to be a lot on their heads.

Owen Barrett:

I think the solar market is fairly mature. Every year we see solar panels get incrementally more efficient and historically they've gotten incrementally cheaper. That could change with tariffs. I don't think you're going to see any leaps in technology. I think you are going to see incremental progress. I think a lot of the bigger leaps in technological advances are going to be on storage and batteries, because that's much newer than solar modules.

Ed Mathews:

Yeah, and obviously that's not something that you're dealing with today. Is that something in the future that you're contemplating or yeah.

Owen Barrett:

So what's really fascinating about our model is, historically, apartment owners only have insight into the consumption of their common area meters. They have no idea how much whole building energy is being used. Because we're doing an interconnection into every single apartment unit, we know exactly how much solar energy is coming in, how much utility energy is coming in, and so we can build this holistic whole building energy picture. And then, once incentives start to take off for onsite storage, we can then use the data that we've collected and go back to owners and say now it makes sense for you guys to install storage. It didn't seven years ago, but now it does. So we're always paying attention to it, but it works in so few markets that it's not high up on our priority list.

Ed Mathews:

Yeah, it's interesting you say that because Connecticut, for instance, had legislation it was on the Hill here in Hartford to talk to. One of the things they were contemplating was building owners had to disclose what the energy consumption cost was for each unit, and the building owner lobby, the landlord lobby, basically said we have no practical way to know what that information is lobby, the landlord lobby basically said we have no practical way to know what that information is.

Owen Barrett:

Some utilities will give you whole building energy data, but they will never give it to you at the unit level because that's proprietary or it's the ownership of the tenant. This is an interesting workaround to that it's value adding, it's income generating and you get a lot of data.

Ed Mathews:

All right, hey Owen, I could go ahead and get geeky with you and talk about the intricacies. Unfortunately, they only let me talk for 30 minutes, so we got to start to get into the lightning round here. One of the things that I'm really interested in is talking with property owners and entrepreneurs and leaders like yourself and, frankly, what makes them tick right, and so I'm curious about your purpose and how do you think about your purpose in terms of, professionally, what you're trying to accomplish and, frankly, what gets you out of bed on Monday morning.

Owen Barrett:

So as an energy manager I had the Nitchesco for a while and now for the last I think eight years, I've been working on decarbonizing multifamily. So I don't think I could have a job that doesn't somehow touch decarbonization space.

Ed Mathews:

Excellent. I love that. So I'm also interested in the mentors you've had in your professional life and personal life. What's the best advice you ever got and who gave it to you? Your professional life and personal life what's the best advice?

Owen Barrett:

you ever got and who gave it to you. So it wasn't a mentor, but it was a potential investor that ended up not investing in an earlier company and he told me I do not invest in part-time entrepreneurs. It was like if you're not committed enough to go all in, you shouldn't expect anybody to write a check for you.

Ed Mathews:

All right. Speaking of walking away, something I've learned in my corporate world as well is that I just don't believe in mistakes. I don't believe they're bad. I fundamentally. I mean, some of them are bad, right, but the lion's share of them are simply lessons to be learned, and I absolutely believe that we learn way more from our mistakes than we do from our successes. So I'm curious, professionally, what's a decision you'd love to have back and how did you navigate it?

Owen Barrett:

I quit a very cushy corporate job in 2012 to start my entrepreneurial journey. This was right when LED lighting was taking off. I thought the technology would sell itself, that I could just quit this job, start a lighting company and buy a yacht. I went 18 months without making a dime. I sold off my entire 401k to survive. I was on food stamps. I was a week away from having to move back to Connecticut with my parents. Most businesses fail not because they're bad ideas, but because the time it takes to get revenue is like three to five times longer what anybody expects, and people just run out of runway. And the other piece of advice that I wish someone would have told me was the second. You start a company, you are in charge of sales. Figure out how to sell, because if you can't, sell, you're going to fail.

Ed Mathews:

100%. Agree with that as well, and I learned that hard lesson myself with a consulting firm. I had, way back in the day, all right. So the other thing that I'm really intrigued by is how leaders consume information. So I'm curious what's the book on your nightstand, literally or figuratively, and who are you paying attention to these days?

Owen Barrett:

Yeah, literally right now. It's a book called Money for Couples. I'm married, I have two kids. I heard this guy I don't know who the author is, but I heard him on a podcast and he just talked about how typically in the U S, in every couple there's a money person and a non-money person, and regardless of how much money you have, it causes sort of tension in relationships because one person understands everything and the other person understands nothing or less. I heard this and I was like, oh man, like this is totally true for myself and my wife. I'm the money person and so I'm reading that book to hopefully eliminate the knowledge gap and get everybody on the same page and just see where, if anywhere, it leads.

Ed Mathews:

Excellent. And then the last thing. I'm always intrigued by how people define success in their own world, and so I'm curious how you do that.

Owen Barrett:

Yeah, with this company, shine, it's pretty easy. It's how many units have we decarbonized? For me, I'm driven by impact. Fortunately, impact and financial success are closely correlated in this business model. I think we're just lucky in that regard.

Ed Mathews:

All right cool.

Owen Barrett:

So when you're not talking about decarbonization or real estate or solar, specifically, what do you like to do for my wife and I just moved to park city, utah, so that we can spend more time in the mountains. I'm a big rock climber, she's a big trail runner, so just trying to get in the mountains as much as we can.

Ed Mathews:

Yeah, I'll bet. Oh, that's one of the most beautiful places on earth. A couple of very close friends that live out there as well. If folks want to get in touch with you or learn more about shine, what's the best way to do that?

Owen Barrett:

Our website's get shinecom. There's a contact form you can fill out. We just launched a really cool AI tool where building owners can see how much solar they can fit on their property, how much NOI will be generated. The only social media that I'm on is LinkedIn. Owen Barrett on LinkedIn.

Ed Mathews:

Okay, Owen Barrett, thank you so much for your time today. I got a lot smarter about your product, so I'm excited and I'm serious about having that conversation with you about my own portfolio. Thanks for joining us and continued good fortune.

Owen Barrett:

Yeah, thanks for having me.

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