The Case for Improving Operations in Net Leased Assets

On paper, it doesn't make much sense for owners of net leased assets to invest in cost savings when the tenant is responsible for paying for maintenance, utilities, taxes, etc. In this video, Comly Wilson makes the argument for improving operations despite not paying directly for the costs.  

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Video Transcription

Hi, my name is Comly, and I’m the Head of Marketing here at Enertiv. Today, I’m going to make the case for improving operations in triple net leased assets.

Why are we talking about this? Because on paper, it might not make sense for a landlord to care about their building operations if the tenants are paying for the maintenance of the equipment, the utility bills, the taxes, and the insurance. But that’s not the full story. If you take the long view, it matters what’s happening in that building even if you’re not directly paying for it.

Now why is that? Because here’s the process in most portfolios. The owner purchases the critical equipment, such as the boilers and the chillers, which are large capital expenditures. But it’s up to the tenant to operate and maintain that equipment. The problem is that the landlord does not know what’s happening when that is taking place.

Now maybe, in some of the best run portfolios, the landlord is doing quarterly, maybe biannual, inspections of every single piece of equipment. But this is a tedious process, it creates a lot of data, and it’s time consuming.

Worse, even when these inspections are made, we have to evaluate each piece of equipment on whether it’s good to go, whether it needs to be repaired, or whether it needs to be replaced, decisions which are largely based off rules of thumb and people’s opinions, frankly. Even if they’re expert engineers, that’s not the ideal way to operate your portfolio because it leads back to equipment purchases that are perhaps too early or incorrect in the first place.

So, obviously, there’s a lot of waste in this process, and potentially a lot of bad decisions along the way. How can we improve this?

The answer is with data. If we can get data from every piece of equipment in a portfolio, not only can we provide transparency for the landlord about how this equipment is being maintained and operated, we can provide the tenants with the information they need to maintain that equipment more effectively.

That’s a differentiator in terms of a tenant service and it helps you in the long run maintain your equipment and extended the lifetime of that equipment.

In addition, it streamlines the inspection process. So, instead of sending a technician to every single piece of equipment, and creating an evaluation, we can have all that data already stored, and potentially send an inspector to only those pieces of equipment that are in need further investigation. We can chop off a huge chunk of that manual, tedious process.

And finally, when it comes down to that evaluation, we can use that data to benchmark against every other piece of equipment in the portfolio and broadly against the industry to create better evaluations and ultimately better purchasing decisions, so it’s not only up to people’s opinions, we can actually use data to drive better decision making.

So, that’s my case for improving the operations in triple net leased assets. If you have any questions, feel free to reach out to us. I hope you learned something, thank you very much.