FEATURE ARTICLE, OCTOBER 2005

BUILDING VALUE BY REDUCING OPERATING COSTS

Rowen

One of the first areas to examine is the engineering staff and how effectively and efficiently they operate the building. The owner needs to know that the right team with the right talent is in place. While technical skills are important, customer service skills are a critical component of an engineer's success. Determine whether the person currently in charge of engineering is a “telephone engineer” or a true engineer. Someone who knows who to call rather than knowing what to do is a disaster waiting to happen. The engineer is a key player of the management team and makes operational decisions on a daily basis that impact utility consumption, which is the biggest expense of the building. That's why an owner should expect and demand the best available talent. If not, it's money down the drain.

From there it's important to take control of the building. Interview tenants, determine levels of customer satisfaction, identify areas of concern and develop an action plan to ensure that service providers such as janitorial, security, elevator and landscape contractors are all on the same page with management. Ensure the building's electrical, mechanical and vertical transportation systems are operating at maximum efficiency. This includes ensuring that the building hours of operation conform to lease provisions and that comfort control and air distribution systems are properly calibrated and maintained. Reducing energy consumption is a critical component of adding asset value. Lighting is an often overlooked area that is considered “low-hanging” fruit. Take advantage of low-cost energy saving measures such as lighting retrofits, rebates and refurbishments. It is also advantageous to look at the option of installing variable frequency drives on air-handling units, cooling tower motors, circulating pumps and chillers that can maximize the operation of many building systems.

How well maintained are the building's records and files? Is there a comprehensive preventive maintenance program in place? Can you easily identify and document whether building equipment has been properly maintained? If not, you may compromise the maximum sales price during the disposition process. Major capital expenditures for equipment upgrades such as elevator modernizations, new chillers and roof replacement can be significant and could very easily jeopardize the sales transaction.

What happens when you've done an excellent job maintaining and operating the building, but it still isn't enough to realize significant savings and lower operating costs? What if after all the “low hanging fruit” projects are completed and it still isn't enough to create any measurable increase in asset value for the client to maintain market competitiveness?

Sorrento Towers, a 264,700-square-foot project consisting of two six-story Class A office buildings constructed in San Diego in 1989, was such a case. Utility operating expenses averaged $2.60 per square foot when the utility rate jumped 62 percent. The owner needed to see operating costs reduced by a minimum of 50 cents per square foot.

The existing DX central plant, the heart and soul of the building, utilized inefficient reciprocating compressors and a manual control system. Although the central plant was far from reaching its useful life, the property management team evaluated all the various alternatives to this costly operation. It identified a new type of oil-less chiller system and automation system that could control and reduce the escalating utility costs. The team proposed to the client a complete central plant retrofit, which was a significant capital expenditure. However, it was only recommended and approved after a thorough energy analysis demonstrated that the payback would come in less than 2 years. This is especially important in today's market considering the current short-term exit strategies of many owners.

The result? The two new central plants, at a cost in excess of $380,000, qualified for a 50 percent utility rebate. In addition to the rebate, the new system reduced energy costs by more than 50 cents per square foot per year, compressing the payback to less than 2 years.

Now more than ever, to continue to meet the value-add demands of building owners, engineering and maintenance must be considered a key part of the solution. Like any fine automobile or timepiece, the care taken to properly operate and maintain a building will ensure long-term customer satisfaction, enhanced operations and increased asset value.

Based in Newport Beach, California, John Rowen is senior vice president of operations and engineering services for PM Realty Group.

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