5 Ways Technology Can Improve Net Operating Income in Real Estate

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Using technology to improve net operating income in commercial real estate

Real estate owners and operators are increasingly turning to technology to reduce costs and improve net operating income in the face of flattening revenue progression.

Here are five ways technology is being used to optimize real estate operations:

#1: Lowering Maintenance Costs


The Building Owners and Managers Association (BOMA) estimates annual maintenance costs at $1.82 to $2.09 per square foot for multitenant and corporate facilities. For a 250,000-square-foot property, this equates to $455,000–$522,500 per year.

Sometimes, small issues with equipment systems remain undetected and lead to advanced deterioration. In addition to the potential capital expenditures of new equipment, this can also add costs through maintenance crew overtime and calling in outside vendors.

Preventative maintenance, while important, is usually insufficient. Because schedules are time-based instead of based on usage, maintenance costs are wasted both over and under-maintaining equipment.

Keeping boilers, chillers, exhausts fans and other critical building systems operating efficiently across a portfolio is nearly impossible without technology. Even Building Management Systems (BMS) that control these systems in Class A buildings are often not enough, as they can be mis-programmed after maintenance activities.

Now, technology can track every piece of equipment in real time and leverage analytics to recognize when equipment fails or deviates from its intended schedule.

But tracking is not enough to ensure smooth day-to-day operations. If an elevator stops working, exhaust fan breaks or HVAC compressor starts short-cycling, building operators are instantly notified of the root cause of the problem.

In addition, predictive analytics are being utilized to uncover issues with equipment systems before a fault develops.

By transitioning maintenance to a proactive approach, maintenance crews can cut down the amount of time addressing issues and eliminate redundant activities that take time away from solving problems.

#2: Automating Tenant Submeter Billing


The process of submetering and invoicing tenants is time-consuming and error prone. Generally, manual meter readings are entered manually into spreadsheets. This inaccessible data then must be transcribed to generate bills for each tenant.

Multiply this process by the 12 months of the year, and you’ve identified a major opportunity for improvement. Traditional billing practices use more human resources than necessary, making the process expensive and inefficient, and distracting staff from value-add activities.

As the tasks are conducted manually, the risk of human error is significant. Incorrectly calculated bills may lead to further losses as well as provoke disputes with tenants. Keeping tenants satisfied is crucial for portfolio profitability. Happy tenants are more likely to renew a lease, while dissatisfied occupants may not renew their lease. Turnover can be a large expense for a building operator. Lost rent, preparing the apartment for new tenants and marketing the property require human and financial resources.

You do not need a team of meter readers to manually collect submeter readings and enter data into spreadsheets. Software can perform the same functions more quickly, accurately and for a fraction of the cost. On the backend, the invoicing process can also be automated, while all the records are stored in the cloud for easy access from anywhere — no more binders on the shelves!

Automation eliminates the risk of human error, so a tenant is never overcharged (or undercharged) by mistake. This approach frees building management staff from the repetitive, time-consuming task of producing bills every month. It also significantly reduces the volume of tenant inquiries and complaints.


#3: Optimizing Energy Consumption


The heating, cooling and ventilation (HVAC) system accounts for up to 80 percent of a building’s energy usage. It is estimated 40 percent of buildings have misconfigured HVAC devices.

According to the Department of Energy’s Lawrence Berkeley National Lab, poorly maintained, degraded and improperly controlled equipment wastes between 10 and 30 percent of the energy used in commercial buildings. A lot of equipment, even if it performs its intended function, is inadequately sized and generally draws more energy than is necessary.

Without constant analysis, it’s nearly impossible to identify which equipment systems are on when they could be off. As mentioned, even buildings with a BMS can be mis-programmed and end up being wasteful.

Technology can now quickly identify anomalies in energy consumption and save thousands of dollars in operational costs.

A significant volume of literature suggests that the commissioning of existing buildings reduces annual energy consumption by 5 to 20 percent, and in some cases even up to 30 percent. With fault detection of equipment systems, these gains can be maintained and the problem of “energy drift” can be avoided.


#4: Lowering Demand Peak


One of the major opportunities in reducing energy bills and increasing net operating income is lowering a building’s peak demand.

Peak demand is the largest instance of power usage in a time frame, usually a 15-minute window. Peak demand rates vary greatly by region, utility provider, pricing structure and tariffs. In some regions, utilities have a “ratchet clause” in place, which allows them to bill customers for their highest one-time peak demand over the entire billing cycle.

Real-time energy consumption data can now predict when the demand for electricity will reach its peak and which equipment system are likely to contribute most. Equipped with this knowledge, a building operator can implement no- or low-cost measures to reduce the energy usage at peak time and slash the cost of the bill.

With accurate visibility into building operations and individual sources of energy consumption, building operators can develop a robust peak demand reduction strategy.

#5: Streamlining Compliance


On April 23, 2015, Congress passed the Energy Efficiency Improvement Act, a small but important bill focused on improving efficiency in U.S. buildings. The bill provides provision for a Tenant Star scheme, a voluntary certification and recognition program within the Energy Star program, to promote energy efficiency.

Over 400,000 commercial buildings are already using Energy Star’s Portfolio Manager to measure, track, assess and report their energy use. The program’s effectiveness study conducted on 35,000 properties shows that organizations benchmarking consistently in Portfolio Manager have attained average energy savings of 2.4 percent per year. Achieved savings have measurable financial benefits. For example, for a 500,000-squarefoot office building, cumulative energy cost savings of $120,000 increase asset value by over $1 million.

Now, owners and operators can leverage technology to take the performance data used for continuous commissioning and export it directly to compliance and certification systems. Some operators have not opted into these programs simply because they don’t have the administrative staff to keep up with requirements. By digitizing and automating the process, the benefits of programs like Energy Star’s Portfolio Manager can be realized without the drawback of reporting costs.

Enertiv's technology can help increase NOI in commercial and multi-family real estate portfolios. Request a demo today to see how!