Mercy Housing: Arden Aire Apartments


Mercy Housing is one of the largest nonprofit owners of low-income affordable housing in the U.S. and prioritizes efficiency through its Green Hope environmental sustainability program, designed to reduce waste and consumption while creating a healthier living environment for residents.

Arden Aire Apartments is a low-rise property consisting of 53 affordable units, 19 of them permanent supportive housing for chronically homeless with severe mental disabilities. Originally built in 1960, Mercy acquired it in 2007.

In early 2017, Mercy Housing implemented an energy retrofit of the property that resulted in overall energy savings of 21%, with a reduction in common-area energy consumption of 67%. In addition, water savings measures reduced the property’s water consumption by about 4%. 



A key innovation of the project was fuel switching gas-powered hot water heating systems with high efficiency electric heat pumps, one of the first examples of doing so in a multifamily structure in the U.S. The project was part of a larger initiative that included fuel switching at five other properties, in addition to other efficiency measures. 

Financing the replacement of gas-powered hot water heating systems with electric heat pumps is particularly challenging due to high upfront installation costs and long payback periods. The project was possible as one of the first examples of applying the Energy Savings Service Company (ESCO) model to a multifamily affordable housing nonprofit property, which requires no upfront costs to the property, allowing lenders to be paid back through savings. The work was also supported by Mercy Housing’s retrofit installation partner, Bright Power, which evaluates opportunities for upgrades and installs measures.

The ACE Model

Mercy Housing signed a 10-year agreement with its ESCO partner, Affordable Community Energy Services Company (ACE). ACE applied a portfolio approach to maximize energy and water savings across 48 properties, using larger projects with more immediate savings potential to cover the costs of smaller measures that have more modest savings with longer paybacks.

Because Mercy Housing could not provide real estate liens as collateral for the financing of the upgrades, ACE put a lien on the installed equipment itself and held ownership of the equipment. ACE is also responsible for operations and maintenance of the equipment throughout the life of the contract, ensuring continuing savings sufficient to cover the total cost of the intervention over the 10-year period.

After significant research and outreach, ACE engaged Reinvestment Fund (RF), a community development financial institution, to finance the projects. To mitigate risk from the project’s inherently limited cashflow, RF established a “price floor” for utility costs that are the basis for how the lender is paid back. The price floor guarantees a minimum payment to the lender, similar to financing structures found in Power Purchase Agreements.

The deal was augmented by California’s higher utility rates and excellent state and utility incentives for energy and water efficiency measures. ACE managed the process of applying for and receiving the incentives and rebates.

ACE bills each of the properties on a quarterly basis after reviewing that quarter’s utility bills to determine actual savings. Mercy Housing receives 20% of the savings, while ACE receives 80%, which covers its costs, O&M expenses and the cost of the loan.


    Arden Aire Apartments

    The Arden Aire Apartments project was implemented in the first phase of the 48-property efficiency project.  The property was selected due to its location in a disadvantaged community (DAC), making it eligible for California’s cap and trade funded Low Income Weatherization Program (LIWP).  

    The comprehensive energy efficiency and water conservation measures at the property included:

    • Domestic Hot Water: Fuel switched from gas hot water heaters to high efficiency electric heat pump water heaters.
    • Hot water recirculation: Installed domestic hot water recirculation flow control
    • LED lighting: Installed LED lighting in all units and common areas
    • Washing machines: Switched from top load to front load ENERGY STAR® washing machines
    • Water fixtures: Installed low flow aerators and showerheads in all units
    • Insulation: Insulated attic and domestic hot water piping and heating ducts


      Mercy Housing won the National Apartment Association’s Return on Energy (ROE) Energy Reduction - Whole Building - Mid-Rise/Low-Rise Award in 2019 on the strength of the Arden Aire retrofit project. The Return on Energy Awards spotlight action and results in energy management beneficial to the multifamily industry; the Energy Reduction Award recognizes the property with the largest increase in ENERGY STAR score from pre- to post-implementation.



      Annual Energy Use

      (Source EUI)
      Baseline (2015)
      75 kBtu/sq. ft.
      Actual (2019)
      59 kBtu/sq. ft.

      Energy Savings:


      Annual Energy Cost

      Baseline (2015)
      Actual (2019)

      Cost Savings:


      Sector Type



      Sacramento, California

      Project Size

      43,200 square feet

      Financial Overview

      Project Cost: $140,000