By Bob Geiger, principal, Partner Engineering
As 2018 comes to an end, many property owners and facility managers will turn their focus to planning for the year ahead. Day-to-day operations of any building have many moving parts that require reactionary management.
However, the best line of defense and NOI optimization involves proactive preparedness. This means creating a detailed, realistic and flexible facilities budget to keep facilities functioning to their fullest potential, saving time and money, and leaving funds for unanticipated maintenance expense.
Finally, if you are looking to acquire a new property, lenders will want an itemized forecast of your facilities budget. Owners who plan strategically can be more flexible and better prepared when selecting a future site.
1. Up-To-Date Facility Condition Assessment
Any solid property budget preparation process should start with consulting the property’s Facility Condition Assessment (FCA). An FCA is used to predict short and long-term costs for the maintenance of your building’s systems and capital needs, among other maintenance requirements. This includes:
• Routine and/or deferred maintenance requirements
• Systemic deficiencies
• Remaining Useful Life (RUL) of all major building systems
• Capital replacement needs
• Overall system compliance with the original design/engineering intent
• Compatibility with contiguous systems
• Prioritized list of repairs
To get the most accurate budget in place, it’s important that the FCA is accurate and up-to-date. If the building use has changed significantly, there has been renovation since your FCA was written, or if the components of your property have not performed as predicted in your FCA, you may want to order a new assessment.
Many portfolio managers keep their building data fresh and their projections accurate by ordering FCAs on a three- or five-year cycle. Your planned expenditures, as well as your risk tolerance posed by operating under dated information, will determine how often you order an FCA.
2. Major Ticket Items
Now that your FCA is in hand, you can start planning for your biggest financial considerations on the property: HVAC/mechanical/electrical systems, plumbing, and your roof (addressed separately below). These systems are pricey and typically have a 10-25 year shelf life, depending on care, use, and maintenance. If the property is 10 years or older, you may want to start setting aside g a contingency budget now for deferred maintenance or a larger cost item down the road. Lenders will also take these big-ticket items into consideration during transactions to ensure that the property value doesn’t depreciate.
Roofs are the single biggest ticket item for real estate owners, especially for retail, industrial and multifamily properties.
They are expensive to replace, serious damage is often difficult and expensive to fix, and damage can have catastrophic impact on the rest of the building envelope and structural integrity.
Proactive roofing maintenance is the most important budgeting item, even aside from other major ticket items and systems. This can extend the useful life of the asset by delaying replacement, and prevent expensive emergency fixes that can be caught early on. Engaging with certified roofing consultants, who are experienced in performing roofing assessments and solutions, is an important first proactive step.
They can engage with you in performing a detailed inspection such as a Roofing System Condition Assessment (RSCA) or a warranty review, provide a record of maintenance and even help you to plan a future replacement timeline.
Should inclement weather or an accident result in unexpected roof damage, having certified roofing consultants and maintenance paperwork in place will streamline repairs and restoration.
4. Maintenance Budgeting
Large-ticket items are a critical building consideration, but smaller items that may not seem so obvious can still add up quickly.
A rehabilitation or renovation that results in change of layout space may require a complementary change in office furniture or equipment. What about those little day to day things, like replacing light bulbs in fixtures, building drinking water service, upgrades, office supplies, and even filters in HVAC systems? Everything little detail adds up and should be accounted for in your budget.
5. Preventative Budgeting
Budgeting for ongoing maintenance and upkeep increases the life of your systems, better preparing you for large line items in the future. HVAC systems should be regularly maintained (new filters, duct work cleaning), plumbing can be regularly checked for leaks and repairs, and installation of energy-efficient lighting or energy.
These may not only stave off large fixes in the immediate future but may decrease overall operating costs.
No matter the size of your property or portfolio, preparing a realistic, comprehensive budget can seem like an overwhelming task.
A current, accurate FCA is the first critical step to assessing the value of your property and gauging the landscape of maintenance needs.
From there, working with a qualified, knowledgeable consultant can help you interpret your FCA to effectively prioritize resources, put together a maintenance schedule, budget for large and small items as well as contingencies, and even identify opportunities for cost savings.