A Reinvestment Approach to Budgeting

A Reinvestment

Approach to Budgeting

By: Christopher Lelle, C.E.M

As we continue towards the end of another budget season, many of us are moving through a marathon of long hours to create our budgets. We are working to create a budget that meets the needs of the building and the financial requirements of the owners.

All too often we end up with a budget that has just enough money to pay the utility costs, insurance, security costs, janitorial costs, and maintenance costs. There is very little left in the coffers for projects to replace aging equipment or to fix the items we know are nearing the end of their life.

CHANGING PERSPECTIVE

Is it possible that we can use this year to be the start of a new process? Can we look at budgets from a different perspective that will help better the lives of the tenants, the management team, and the owners alike?

The simple answer is a resounding YES! What does this entail you might ask? It involves looking at the budget as a road map to manage the property the way you need to.

This might sound like a difficult task given that you’ve always included the items that need to be completed only to have them removed year after year due to budget limits. Let’s look at the budget from a different perspective.

Let’s look at it from an owner’s perspective and use the items we know we need to complete as investments. Our year one investment approach to the budget needs to include items and projects that have a short payback of one year or less.

Such a short payback seems like a daunting task, and we often think that there are not many things remaining to do at our properties that have such a short payback.

This is the part where we need to get creative and look at things such as our staffing levels, staff experience, tools on hand, upcoming maintenance, equipment review, and recent energy audits.

All energy savings projects that you can include in the budget need to be implemented as soon as possible in said budget to allow for maximizing the recovery during the budget period.

Some additional budget considerations you need to consider are tenant caps on controllable/ noncontrollable items, tenant base year expenses, and amortization of energy savings costs.

Amortizing projects that result in energy savings is a way for an owner to recover the expense for an allowable capital project over the useful life of the equipment.

UTILITY IMPROVEMENTS

Let’s look into a few examples of ways to create investments in year one. Inventory all motor controllers for your pumps and fans. If you find that you have motors that do not have variable frequency drives (VFD), plan to install a VFD as soon as possible.

A cost-effective approach in year one for pumps is to run the VFD at a fixed speed that meets the system flow requirements. This is accomplished by opening throttled vales fully and then setting the system flow rate by adjusting the VFD speed.

You can order a Pete’s Plug test kit for less than $300 that will allow the inhouse engineering team to balance the water flow to design requirements which will offset testing and balancing expenses.

For motors on air handling equipment, investigate the static pressure setpoint and make sure you have the correct setpoint and adjust the variable drive as necessary. When you are calculating the payback for VFD installation, make sure you include all available rebates. Remember that a 10 percent reduction in motor speed saves about 27 percent in energy use!

From a HVAC maintenance perspective, do you have chillers and SWUD units? If you do, a great way to save is by cleaning the chiller and SWUD tubes in house. The equipment necessary for the work can cost over $3,000 but this is a one-time expense that will pay dividends.

You will need to budget for overtime labor for the engineering team, but this is a task that a well-trained team can perform. If the property doesn’t have the money to purchase the equipment in year one, it may be possible to split the cost among a group of properties.

Technology is becoming a great way to offset labor and to perform tasks that people can’t. One of the best uses of technologies from an investment approach is to implement analytical software, often referred to as “AI” or “artificial intelligence.” The AI software platforms are great at improving utility use efficiency. AI systems added to the building automation system or BAS can monitor all equipment in the building to ensure that all setpoints are properly maintained and that equipment is running only when it is supposed to.

AI on a BAS has less than a one-year payback if the correct system is installed. This can allow for you to budget the expense as a direct offset to the electricity account. A great benefit for AI on the BAS is better HVAC system performance which leads to fewer HVAC complaints thus freeing up the engineering team’s time to complete other projects in-house which creates additional savings.

Another use of AI is for controlling irrigation systems. A proper AI platform for irrigation control monitors the actual soil moisture and salinity content and develops an efficient watering schedule to maintain the necessary moisture content for both the soil type and the foliage type. This is another system that has less than a one-year payback.

MAINTENANCE PROGRAMS

Cost-saving measures are easily identified in utility improvements but can also be found in proper maintenance programs. This can include items like tree care. Does your property have trees that are aging? Even if it does not, the trees require maintenance to keep them alive and looking great.

It is important to consult an arborist to review your trees and create a management plan. Items like soil injections and pruning will result in fewer die-outs and emergency calls to remove dead limbs.

Another group of maintenance items that can cost you less in the future by paying a little more today is HVAC maintenance. This includes water treatment and preventative maintenance. Water treatment is a small cost in the overall budget but can end up costing you a lot if a proper program is not in place.

A great program minimizes the impact of scale and microbiological growth. A poor program will cost you more in energy expenses and in replacing corroded equipment and piping components.

A proper HVAC pm program will help diagnose problems before break downs and expensive repairs are needed. It will also help keep equipment operating efficiently which saves on electrical expenses.

REINVESTMENT BUDGETING

The previously mentioned examples are items that can be implemented in year one with minimal to no impact on the overall budget. The key is that the property team needs to understand the importance of these items and demonstrate the financial impact to the owners.

Once you make it through year one, you are on your way to creating a reinvestment budget. You can use the savings that you are realizing and apply them to more projects that will improve the property, engineering team efficiency, and tenant experience. Here’s how.

The money that you saved on buying the chiller and SWUD tube cleaning machine can go towards adding the VFD’s to the BAS and letting them automatically vary their speed to meet systems’ needs. This will further the energy savings. The savings from less HVAC emergency repairs can be used to paint the back of the house spaces or to upgrade the lighting at the facility to LEDs. Having healthier trees can allow you to improve the overall landscaping for the same budget.There are numerous priorities that can be adjusted to meet the property’s needs once we create a budget that has the flexibility to create savings within itself.

This is known as a reinvestment approach to budgeting. As you create the savings in the budget, you will be able to better control the operating expenses which will add value to the property and improve you and your team’s quality of life.

As we draw near another budget season, this approach may make it much easier to look forward to budget season and your new roadmap to operating the property.

About the Author

Chris Lelle, C.E.M is a Senior Operations Manager at Lincoln Property Company. In this role, he manages the MEP operations of 2.55MM rsf across a 32 building portfolio. Chris enjoys the challenges of energy savings while improving the tenant experience in the office environment. He has been involved with several buildings where greater than 20 percent energy savings were realized through a variety of operational and capital improvements.

REsurgens Plaza earned a 94 ENERGY STAR Score in 2021, Learn How on CRE Insight 365

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