UTILITIES-THE INVISIBLE INFRASTRUCTURE As the global financial crisis deepens we are all becoming marc cost conscious. The boom days of easy money and spendthrift ways have given way to a more sober and fru gal perspective . Value for mon ey is now more important than e ver and thi s is also parti cularly true for owners co rporations and their expenditure of ow ners' money. Often, when we receive our levy noti ces, the first reaction is to wonder where all the money goes and is it reall y necessa ry. So planning realistic and prudent budgets beco mes increasingly important in reccssionary tim es parti cul arl y whcn ow ners are not seeing any immediate capital gains in t heir real estate values . Howevcr, it is also important in thcsc times to not throw the baby out with the bath water. In other words, we need to ensure we do maintain the asset value of thc pmpel-ty and to continue to look after and maintain the property without cutting costs too far to the long term detTim ent to the asset value of the building. For these reasons this newsl etter is dedi cated to a discussion of thc cost basis of running a building wise ly with a prudent perspective to its long te rm viab ili ty along with an un dersta nding of exactl y where the mon ey does go . For many owners fail to appreciate th e types of expenditure necessary to maintain a modern compl ex strata plan precisely because a lot of these items go unseen o r unnoti ced, particul arl y thc utilities or invisible infrastructure. W e wa lk into a modern high-rise and must negotiate a high tech security intercom system that allows us to enter and keeps out unwanted 'Buescs'. W e then proceed to a lift that also has a securi ty access syste m , a fir e alarm phone and lift eme rgency phone . Need-less-to say the whole building will have a smoke alarm system, fir e sprinkl ers and other mandatory fir e measures that need to be maintain ed and certifi ed regu larl y. There will often be a gy m, poo l, spa and asso rted shared fa cili ti es with possibly gas BBQ' s in a well maintained and landscaped garden. The fo yer, stairwells, lifts and all other common areas must be cleaned, up kept, painted and maintained to a high level of presentation and appearan ce . Ho use lights ensure common areas are sa fe ly illuminated at all times . Large buildings will often have their own air conditioning or heating units. Bu ilding facades, roof membran es, gutters and downpipcs and othe r plumbing fixtures and fittings all need to be mainta ined in good wo rking ord er. The who le bui lding must be adequately va lued and insured. The safety of all residents, visitors and tradesm en who may fr equent the site must be ensured under the O H&S legislat ion . All of these items require constant atte ntion and expenditure so that the average owner can peacefully enjo y their chosen lifestyle and so that the lo ng term viability and value of the property is maintain ed and enhanced over time . Yct so many of these items are taken for granted and are too often forgot when we receive o ur levy notice and wonder where the money goes . That em ergency li ft phone that just might save som eone's life is seld om noticed when we rid e the elevator to our apartment. W e rightl y expect and demand that all these 'services' opel-ate efficientl y, quietl y and without trouble and if the executi ve and the stl-ata manager does their job well you will not notice the in visible infrastTucture precisely because t hey do wo rk and yo u can take them fo r granted. But all of these fa cili ties do cost money and th is is where the bulk of yo ur levies go: the gardening, cleaning, lift maintenan ce, fire certifi cation, insurance, electri City, phone , build ing manager, lifestyle faci lities and presentation of the building . In pruning costs it is often difficul t to decide what must go and what stays.
BECOMING MORE COST CONSCIOUS PRUDENT BUDGETS THE UNSEEN COST STRUCTURE: INFRASTRUCTURE SAFETY PRESENTATION LIFESTYLE COMMON PROPERTY MAINTENANCE RESPONSIBILITIES SERVICE DEMANDS & EXPECTATIONS SHARED FACILITY COSTS
Inside this Issue: Purchasing power • Energy • Electricityauditsusage • Water efficiency • Phone lines • Bank Fees • Reports • Expense summary •
Strata News
B&D
PURCHASI
G POWER
In an effort to contain owners' costs Bright & Duggan is always on the look out for securing better financial deals with suppliers by using its collective purchasing muscle. We have been doing this over the last several years with most utilities: electricity, telephone, asset maintenance reports, banking, insurance premiums and policies. This is not always just a matter of plice - it could also mean higher service levels or better conditions, as for example insurance clauses or better reports. We have done tills by building strategic alliances with either major suppliers or industry brokers to develop custom products for the specific advantage of Bright & Duggan clients. We will continue to source and create new products and opportunities to cut costs and deliver better service outcomes.
ELECTRICITY SUPPLY Electricity is a resource all owners corporations use to a greater or lesser extent and can account for a sizeable section of a building's budget (approx 8% - see table page 4). This is particularly important in the cunent climate of carbon trading and escalating power costs where over the next year electricity prices are set to rise by at least 10%. Bright & Duggan have developed a strategic alliance with Energy Action, an energy broking firm, to assist in minimising these cost increases. The electricity market is split into two: small customers (who have general supply contracts) and large customers (who have contestable contracts). There isn't a black and white line between the two but generally, small market customers spend less than $20,000 on electricity per year. The electricity rates for small market customers are regulated by IPART and updated each year. IPART has recently approved increases willch come into effect on I July 2009, these increases will mean an average increase of 18-19% for small market customers. Large market customers ' bills are split into three sections: • Energy - or the cost of electricity, is contestable and B&D sites have had their contracts priced via reverse auctions hosted by Energy Action and typically accounts for 50% of an electricity bill. • Network - the cost of using the poles and wires to transport electricity to each strata plan. This section is not contestable, the charges are regulated by IP ART and updated each year. Network charges typically make up 45% of a bill. • Other charges - environmental and administration charges, these make up only 5%. As of 1 July 2009 IPART has approved an increase of25% to the network charges. A 25% increase to 45% of the bill will result in total increases of around 11-12% for large market customers. Energy Action provides monthly reports giving a detailed breakdown of electricity use and site audits which identify ways in which buildings can reduce their electricity use. 15 site audits have so far identified approximately $100,000 of savings. If you are interested in having an energy audit of your building done please contact your strata manager.
WATER USAGE Although, not as large an expense as electricity, water is a potential source of utility savings for large buildings. One CBD high-rise recently had a water efficiency audit done to examine water usage in the property and recommend water efficiency options. Both individual apartments and COlmnon property were inspected for leaks and inefficient taps and shower heads. Water wastage is an unnecessary drain on strata funds. The resultant savings in cold water usage was 21 % plus a substantial decrease in hot water usage created further savings in electricity and gas expenditure. Overall the building is saving $60,000 per year off their utility budget and reduced their carbon footprint by 36 tones. This is an excellent example of win-win cooperation between owners, their executive, the strata manager and Sydney Water to reduce costs and save the planet. Unfortunately, because water is a strata expense there is often little incentive for residents to be water wise causing excessive water use and waste in high rise buildings. Every Drop Counts is a pilot scheme designed to decrease water use in high rise towers by up to lO%. The pilot provides up to $20,000, cofunded with the oc, to implement identified effi.ciency meaSLU·es. If you are interested in participating in these schemes to save money and the planet please contact your strata manager.
Strata News
T ELEPHONE LI NES
C HRI S' CO LU MN
We have recentl y changed all lift and fire emergency lines to another supplier securing both reduced costs and enhanced service levels. By using a broker we have immediate access to a dedicated account manager rather than waiting on the line for up to 45 minutes which is usua l with both Telstra and Optus. Call cost saving are between 10 and 50%.
Dear Valued Owners, Many of the phone calls and letters we receive are in relation to conflict amongst owners or are a result of factionalism and a schism in the social fabric of a buildi ng. This conflict or adversity can be the biggest speed-hump to the successful running of a strata scheme and also has the ability to cause the greatest impact on the value of your asset, including an impact on your emotional well-being. In previous issues of the B&D newsletter we have touched on the need to create communities that share a common vision, sense of community and genuine desire to live harmoniously. The road is often rocky and a utopian society might be a little out of reach but Bright & Duggan believe the following basic steps can assist in creating such a sense of community and equality: • Don't make it personal - If and when issues arise, address it with your strata manager to enable the matter to be dealt with at arms length and by professionals with no conflict of interest or alignment with any factions; • Respect your neighbours - By-laws and management statements are guidelines for acceptable behaviour and house-rules for your building. All owners buy into a scheme on the basis of adhering to these rules and must respect the rights of others in the oc; • Get involved - Knowledge is power and often disputes and misunderstandings arise from not being fully aware of the bigger picture in your building. We encourage all owners to attend meetings and participate in the direction and decision making of your future. Warm Regards
B AN K FEES For many years now, B&D trust bank accounts have been fee free . This is a deal we negotiated on behalf of owners with both nab and now ANZ. Although, credit card payments do attract a merchant fee this is in accord with current banking ind ustry practices of user pays rather than the owners corporation. We also continuously scan the trust accounts to move funds into higher interest bearing in vestment deposits where we have been abl e to negotiate higher returns.
BUIL D ING REPO RTS As the level of legislative compli ance increases the financi al and liti gious burden on a strata plan, B&D have built a strategic alliance with Solutions IE, a leading industry supplier, to develop custom Bright & Duggan branded Sinking Fund Forecast and OH&S Reports. These are simpler, more user fri endly, easi er to implement and cheaper than the market. We have also created the ro le of an in-house bui lding consultant to check maj or bu ilding works, reports, etc to ensure owners get value for money on these often expensive repairs. We encourage all bui ldings to avail themselves of these services.
G1f? ~-
To be able to ma nage these co ll ecti ve decisio n makin g o ppo rtuni t ies effecti vely , Bri ght & Duggan rese rve the right to use and change utili ty supp liers as it sees Fit at any po int in tim e to secure the best financial and ser vice deal fo r all owners. Unfortunately, thi s means w e do not always have the tim e to in form comm ittees of impending changes - for exa mp le the e lectri city suppl y auctions ta ke a matter of minu tes and we do not kn o w t he o utco me be forehand. If yo u cl o not wa nt yo ur sche me to par ticipate in these co llective dea ls please info rm yo ur strata manager im med iate ly. W e ca n assure all owners we always act in t he long te rm best financi al in terests of o ur cli ents and encl eavo ur to co mmuni ca te as bcst we can with yo ur execut ive abo ut t hese importa nt matters.
If you have an y fee dback, con cern s or suggestion s r egarding our custom er ser vice , p lease co ntact C hr is D uggan o n 990 2 7100 o r cduggan @ bright-duggan .com .au
Strata News
MAJOR COST ITEMS To assist in the understanding of ' where the money goes ' we have prepared a list of the top 20 expenditure items for all 650 strata plans under management with Bright & Duggan . This li st may not be totally applicab le to your particular scheme but is a good indicator of the major categories of expenditure for owners in general. The percentage is the approximate percent of the total spend across all buildings for each code:
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Building / Estate Manager Building Maintenance Insurance Premiums Electricity Cleaning Fire Protection Strata Management Security Gym, pool, spa Lift Maintenance Grounds Maintenance Plumbing Painting Electrical Water Legal Fees Consultant & Engineers Fees Strata Disbursements A ir conditioning Gas
11% 11% 9% 8% 7% 7% 6% 5% 5% 5% 5% 4% 4% 3% 2% 2% 2% 2% 1% < 1%
Now no individual building will exactly reflect this breakup but it is indicative of the major categories of expenditure across the board for all owners, particularly those in larger buildings with many facilities. Obviously, smaller properties may not have lifts, pools, spas, gyms nor need essential fire services or employ a caretaker. However, by studying the table and app lying it to your budget it will assist in understand ing where your levy dollar goes and perhaps how to drive it futiher. It is important to remember that the owners corporation also has a statutory responsibility to maintain common property in good and safe working order so some items may not be adj ustable. Others are a lifestyle choice and the reason owners have bought into a particular building. Some are essential if the long-term asset value of the real estate are to be maintained and enhanced. All of these factors need to be considered when preparing your next year's budget. Good Luck!
Sheri has been the face and voice of Bright & Duggan for m ore than 8 yea rs now as Director of First Impressions being in charge of our very busy recepti o n . Yo u have all experi enced her fr iendl y di spositi on and in cr edible effi ciency as she expertl y directs up to 500 ca lls per da y to o ur vari o us staff and m anagers, not to m ention the constant fl ow of peopl e through reception . Pri o r to joining Bright & Duggan , Sheri was a flight attendant with Qantas on internatio nal flights for 10 years ga ining first hand and invaluable ex pe rience in custo mer service. This experi ence not onl y saw Sheri see the world but also learn about and respect aspects of other nationaliti es and cultures. Sheri is uni ve rsall y loved by all staff and visitors to our offi ce and is one of those rare peopl e who can make everyo ne feel speCia l, welcome & cared fo r. She is kind hearted, fri endl y and fun but a consummate profess io nal when it comes to delivering first class custom er service .
WHO CAN HELP ME? Every strata scheme has a dedicated Strata Manager and Manager's Assistant responsible for your bUilding. Your Executive Committee members have direct dealings with your Strata Manager in financial planning and other major issues.
Other enquiries should be direaed towards:
Levy Accounts
- Accounts Dept.
Insurance
- Manager's Assistant
Repairs and Maintenance
- Your caretaker or if none Manager's Assistant
Change of Address - Mail, email or fax us General Enquiries - Manager's Assistant All the above
- www.bright-duggan.com.au