According to the Building Owners and Managers Association (BOMA), electricity and maintenance costs account for roughly $3.50 of the almost $8.00 per square foot in annual operating costs.
Given the scope of the problem, it’s surprising that so many landlords treat maintenance and energy costs as fixed and unavoidable. Management of these systems, and their associated costs, are essential to maximizing asset value, yet a shockingly few number of portfolios have an effective strategy in place.
Maximizing returns for commercial real estate (CRE) can be difficult even during the best of times. Operating costs are particularly hard to manage because they are challenging to precisely measure. Because of this, operational expenses are often looked at as the cost of doing business, when they could be treated as a managed asset.
To change this, management has to approach operational performance management proactively, not as something they are powerless to change.
In order to manage operational costs, managers must have a finger on the pulse of their buildings. Even with a modern Building Management System (BMS), this is easier said than done. Fortunately, innovative solutions can now deliver equipment-level performance tracking that can be viewed in real time.
Armed with the right information, building operators and property managers can significantly improve the performance of their buildings and transform how they view utility bills and maintenance costs.
Replacing equipment is something every operator or manager of a real estate portfolio wants to avoid. When motors, fans, boilers, AC equipment or other critical systems fail, the time between failure and maintenance actions can be the difference between a momentary setback and a completely shutdown.
What if a notification was sent out to both managers and maintenance staff the moment a fault was detected? Surely, being on top of which equipment systems are failing would help bring standard equipment commissioning closer to a managed asset. But what else could be done?
Racing to fix malfunctions that have been detected in real time represents a significant improvement over the current state of operations. Still, this is just the beginning. Artificial intelligence algorithms can now automatically identify the operating profiles of hundreds or thousands of pieces of equipment per building. By factoring in data from previous equipment failures, these technologies can anticipate potential breakdowns before they happen. If performance deviates – a spike in temperature or a reduction in a motor’s RPMs – notifications can be triggered and adjustments can be made preemptively.
Machine learning algorithms have been utilized by tech and financial firms for years. Now, similar strategies are being used in CRE to help identify problems, predict outcomes and lower costs of running the critical functions of a building. For example, let’s say a motor that runs an exhaust fan consumes a consistent load of energy over a 24-hour period. Should that fan belt start exhibiting signs of being over worked, software can notice a distinct change in energy consumption, compare that to previous situations and generate a prediction on the reason.
Like algorithms that predict a stock's future performance, these algorithms predict the future performance of building equipment and the environmental consequences of a malfunction. This is an example of how fixed costs can be managed as an asset that contributes revenue to the bottom line by reducing expenses and improving tenant comfort and satisfaction.
Operators and managers of CRE portfolios are on a constant quest to increase the efficiency and productivity of their organization. The question is, what can be done to raising not just the productivity of machinery, but also the people who interact with it?
Knowing when and where to send engineering teams is hard. Things break all the time. Sometimes they have to be replaced immediately, other times a quick patch-job will do. Wouldn't it be great if managers could review the notifications that their team members are receiving in real time?
Staff time and salaries are not fixed. The decisions made on where to send them, and what to have them work on, can be the difference between profit and loss.
Nobody likes reporting. Compiling data and producing readable reports takes time away from value-add activities. There is no reason that reports should not be sent out automatically, showing each role exactly what they need to know without having to compile the data themselves.
Management's time is best spent on high-level strategy decisions. These decisions must be informed by data, but any time allocated weekly or monthly to compiling information, or trying to decipher complex data streams is a waste of time.
The process of preparing and delivering tenant bills are a major cost that wrongly gets categorized as "fixed" all the time. Why would an organization pay people to go out to each building, read meters, bring the data back to the office, compile it, print it into binders, and send out bills?
All of these processes can be handled automatically, and with much greater accuracy, when left up to digital meters and software.
Experience may be one of the biggest hurdles in the way of many CRE organizations. Experience tells managers that it is not worth the time and resources necessary to address energy and other utility costs. Experience tells them that maintenance is, and always will be, a hectic dash from one issue to another.
These beliefs have been true for a long time. But that's only because the proper technology did not exist. If a manager 10 years ago were to try to reduce his energy consumption, he might be able to find a firm to perform an energy audit, and identify some areas for improvement (sometimes at a huge upfront cost and long pay-back period). There simply was no way to continuously monitor equipment and discover inefficiencies over time.
Likewise, the rise of smart phones and tablets has opened the door for real-time management of property operations. In addition to being able to access the internet from anywhere in the world, developing a healthy two-way communication between staff and management is now much easier, assuming the right tools and processes are in place.
The lesson is that even in an industry where assets last decades, the way we operate them does not have to remain fixed.
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