Long-term capital planning is key to successful property management

Successful property management requires development of a capital plan and budget that will sustain the building structure, support its function for years and enhance the bottom line for all shareholders. It is important to have a structured and consistent approach. Each property manager should have a process in place to gather objective analytical information regarding building structure condition, enabling the management to pinpoint exactly where repairs and upgrades need to be made, calculate estimate costs of those requirements, prioritize requirements according to individual objective and run finding scenarios that demonstrate the impact of different spending levels. Knowledge of available tax incentives and rebate programs is essential in implementing all possible cost saving into capital budgeting. A critical aspect in developing credible capital plans is the validity of the underlying data. Accurate cost and detailed condition information forms the basis of the strategic capital planning and property management process and is paramount to developing defensible budgets and obtaining funding. Preventive maintenance is a subject often omitted in capital planning and a main cause of building failure caused by gradual deterioration that erodes function and value. Inadequate building performance can stem from the envelope's failure to control moisture or the degradation of mechanical systems, design shortcomings, or emerging priorities such as protective design, energy efficiency and sustainability. Proper capital planning requires collection of detail data on building's condition and its deficiencies. Turning a strategic plan, which often has a five- to-seven year horizon, into an actionable annual budget can be challenging. Funding all identified capital requirements can be accomplished by prioritization and implementing all available tax incentives and rebates. The process of prioritization begins by categorizing identified requirements. These categories typically include major operations and maintenance projects, including system renewal, strategic capital projects, and mandated projects such as those involving regulatory compliance or lease obligations. The capital planning process often identifies opportunities to bundle similar capital projects, based on the building system affected, physical location, or by the trades involved. This bundling enables property managers to obtain better prices for materials and more competitive labor cost. When property managers and shareholders have a basis for making informed decisions about project prioritization and capital budget allocation, they are less vulnerable to the hefty premiums of emergency repair projects. The ultimate result is a budget based on an objectively ranked list of capital needs, with clear funding and cost assumptions. Sustaining and maintaining the program is a critical final phase in developing an accurate budget that reflects current priorities. A major cause of under-funding is the lack of budget credibility. Accurate data and predictive tools enable development of realistic and defensible multi-year capital budgets. Implementing newest technologies and innovative sustainable materials is essential in building efficiency and cost saving opportunity in building operations. Energy-efficient buildings produce real savings, which fall directly to the owner's bottom line. Improving buildings' energy efficiency also enhances property value and significantly reduces operating costs, sometimes by as much as hundreds of thousands of dollars a year. A detail understanding of lifecycle renewal timelines and costs is important to effectively prioritize systems requirements and avoid unanticipated spikes in required funding over time. Property managers should monitor the ever changing regulatory compliance as well as state, federal and local incentives available to building owners. New York State is one of the national leaders in terms of providing incentives for energy efficiency - estimated at $250 million per year. NYSERDA's Multifamily Performance Program offers commercial, industrial, and multifamily (75+ units) customers rebates on equipment upgrades, performance-based custom incentives, and co-funded energy audits. Pre-approved projects are eligible for 50% co-funding for Level III energy audits, up to $67,000. Post-audit, customers can apply for rebates toward energy efficient capital upgrades. Local power companies offer various utility rebate programs. Since 2007, energy savings programs have been implemented to more than 4200 multifamily buildings. The following are just a few examples of how commercial and multifamily property can benefit from proper capital budgeting, funding allocation and implementation of available incentive programs: * Riverview Court is a 343-unit affordable housing that was able to save 25% or $319,875 on annual energy costs. Riverview earned $411,600 in construction incentives and qualified for a bonus payment of $205,800 for achieving energy savings greater than 20%. Riverview Court received the total of $617,400 in NYSERDA incentives, which constituted 25% of total project construction cost. Energy efficiency was accomplished by replacing aging windows, lighting, refrigerators and installing electricity sub-meters. * Trump Tower at City Center in White Plains, NY reduced its energy use by 21%, qualified for $280,000 in incentives as well as the loan to fund the remaining part of the project. Construction improvements paid for themselves in just over three years. * Phipps Garden Apartments is a two-building apartment complex in Queens that was required to upgrade its #6 oil-burning boiler. They have decided to invest in a comprehensive energy upgrade, earned $300,000 in incentives and are now saving $180,000 on energy annually. Long-term capital planning with multi-year forecasting allows to deliver substantial cost savings and efficiency gains, reduce financial, operational and legal risks, and provide long term benefits to all shareholders. Dorothy Wasiak is director of capital planning/senior asset manager of Matthew Adam Properties, New York, N.Y.