By Jeffrey S. Lapin, CPM®

You did all your homework. You created a good scope of work, you got three qualified bids for the job and you put them on a spreadsheet to clearly compare and contrast the bids for your property owner. You are recommending the lowest bid as you know that the bid includes all the work. The bidder is well qualified, has the time and manpower to complete the job successfully and you are otherwise comfortable with them. You recommended the work as needing to be done for tenant comfort, etc.

But the owner just rejected your proposal outright. Why did this happen and how could you have prevented this outcome? The basic answer is that you and owner are speaking a different language.

The Language of Finance

Have you ever tried to have a conversation with someone that speaks a different language only to give up in frustration? If you were dropped into a foreign country where no one spoke your language, you would need to learn some key words and phrases to express to others in a meaningful way what you are trying to say. To have someone understand you and vice versa, first you need to share a common set of terms and the meaning of those terms. In other words, you both have to speak the same language.

Many property managers experience this frustration when speaking to the property owner or the owner’s representative. The fact is that most of these folks, especially those who have spent considerable time managing assets or who have advanced degrees in business or finance, speak a different language than property managers when it comes to money. Let’s call it the language of finance.

If you, as a property manager, want to communicate effectively with your clients (which all of us should) and particularly with regard to capital improvement projects, you will need to learn this language. I’m not suggesting that you go around using financial terminology in your day to day conversations with your tenants, family and friends. That would be off-putting as they do not likely speak the language of finance.

But when speaking to the owner or asset manager, most of whom analyze investments in terms of payback period, ROI and cap rate, an understanding and proper use of such terms when appropriate will allow you to get their attention and hopefully, their buy-in to what you are proposing.

The Project – Repair or Replace an Air Conditioning Unit

Let us consider a typical project for which property managers need to seek approval – a new rooftop air conditioning unit. Assume that your property is 25 years old and still has several of the original rooftop package AC units. You have had long-standing problems with this particular unit and have had numerous service calls on it because the tenant constantly complains that the unit is not cooling sufficiently. Now your trusted HVAC technician is advising that an expensive component, the compressor, has failed and needs to be replaced.

The cost to replace the compressor is $3,500.00 including parts and labor. The HVAC company is telling you that they cannot guaranty that, even after replacing the compressor, the unit will not have additional components fail. This type of equipment, according to ASHRAE (American Society of Heating, Refrigerating and Air-Conditioning Engineers – www.ashrae.org ) generally has a useful life of about 15 years. As stated above, this one is 25 years old. It is well past its useful life.

The replacement unit, including the equipment itself, the labor to haul away the old one and install a new one on the roof including the crane needed to do that, will cost $8,500.00. So, as mentioned above, you do all your homework (you think) and present your bid analysis to the owner, along with your recommendation to replace the unit. But the owner rejects your proposal based on the information that you provided.

The owner’s decision was made solely based on which option cost less right now. In other words, it was based on approval or rejection of an “expense”, not on approval or rejection of an “investment”. These are entirely different perspectives.

The property may be experiencing some vacancy or has had a lot of large repair costs recently and cash is tight. Whatever the reason for the owner’s decision, it was clearly made without the benefit of all the relevant information. And just as clearly, you did not present the proposals to the owner in a way that leads him/her to the best decision.

Payback Period

Instead of just sending the owner the comparative proposals and asking him/her to bless your recommendation, consider instead a better method. Approach the decision from the point of view of the owner. In other words, propose the project using the language of finance.

You know from experience that replacing a major component like a compressor in an old rooftop package unit is a bad business decision. Once an expensive piece of equipment like an air conditioning unit gets beyond its useful life, it is almost always better to replace it with a new unit. But you need to convert that knowledge into a presentation that will appeal to the owner’s financial acumen and which will lead him to the same decision.

One of the criteria that financial managers consider when they look at investment decisions is payback period. In the simplest terms, payback period (PP) is the amount of time it takes for an investment to produce enough revenue to cover the cost, after which we make money on the investment. The formula is as follows:

PP =      Cost of the Project/Investment ÷ Annual Cash Inflows

So in our example, the cost of the project is the replacement cost of the AC unit or $8,500.00. The annual cash inflows are the savings from operation of the new unit. Here is where it gets interesting. We need to determine from our contractor or the manufacturer of the unit, how much that new, energy efficient unit will save in utility, repair and maintenance costs over the existing, outdated unit.

Let’s say that we learn from the manufacturer that the unit we are considering is designed to be very energy efficient. In fact, the manufacturer projects that the unit will save over $700.00 average per year in electricity and maintenance costs over older, less efficient units. Note that no manufacturer will tell you with any degree of certainty what the exact savings will be for your building – there are just too many variables.

Plugging the projected savings into our formula above, we see that the payback period is 12 years ($8,500.00 divided by $700.00). Is that good? The answer is “It depends”. If the owner of the property considers any investment that has a five year or shorter (shorter is better of course) payback period to be a good investment, then this one would not be a winner. The minimum payback period is different for every owner. Do you know what your client’s minimum payback period is? You should find out.

Payback period is a fairly elementary form of investment analysis. But we have considered it first here as a way to introduce these concepts. Consider that we have now gone from a decision about what costs less now to a decision about how long it will take to recover our investment and start making money.

In this case, a payback of 12 years seems on face, to be a bad investment. But if the unit will last at least 15 years (our existing one has gone over 25), after recovering the cost (12 years), we’ll be in positive territory. Not a bad deal.

Would a real estate investor look at two competing property investments purely on which one costs less now? No, they most certainly would not. Even the most unsophisticated investor would look much beyond the immediate cost of a property and consider the net revenues over a projected hold period. This is what using the language of finance is all about – thinking about these things as investments, not expenses and proposing them to the owner in that way.

Return on Investment (ROI)

Sticking with our HVAC repair or replace decision, let us consider the next type of investment analysis, ROI or Return on Investment. This is a cousin of the payback period. ROI is a measure of the return on our original investment, expressed as a percentage. Here’s the formula:

ROI = Total Revenue – Total Cost   X 100  ÷ Total Cost

Here, we would take the total revenue (savings in our case), subtract the initial cost and divide by that initial cost factor. We said that the savings were projected to be $700.00 per year. Let’s say that over the projected useful life of the new unit (15 years), we will save approximately $10,500.00.

And using our cost of $8,500.00, we end up as follows:

ROI = $10,500.00 – $8,500.00 X 100   ÷   $8,500.00

This investment would produce an ROI of 23.53% on our initial investment. Now how does that stack up against the repair decision in which there is no return on investment? In fairness, the owner would have to hold the property for all 15 years to realize the full return on his investment. And the unit would have to work well for the entire 15 years without us having to put a lot of money into it (normal maintenance). But all investment decisions are made on a set of reasonable projections.

So, if you can determine your owner’s minimum acceptable ROI on investments (and again, you should know that) and propose these type of projects as “investments” rather than “expenses”, you will get a better outcome, I guarantee.

Cap Rate

The last type of investment analysis that we will discuss is the cap rate. This is an abbreviation of the term capitalization rate but most people that speak the language of finance simply refer to this as cap rate analysis.

The cap rate is the ratio of net operating income (NOI) to the value of an asset. Most owners use cap rates to compare two or more proposed investments. The one with the higher cap rate is the one that provides the investor with the higher potential return (all else being equal).

In our case, it is the ratio of the projected savings from the new AC unit compared to the cost of the unit. So, using our previous assumptions about the savings per year ($700.00) and the cost ($8,500.00) of our proposed investment, the cap rate analysis is as follows:

Cap rate = $700/$8,500.00 = 8.24%

So is this a good investment? Again, the answer is “It depends”. If the owner or owner’s asset manager considers any investment that has a cap rate of 8% or higher to be favorable, than yes, this would pass that test. You need to find out what the minimum cap rate threshold for this owner is before presenting this investment for consideration.

Conclusion

For many property managers, the language of finance and the methods of investment analysis presented here are new. For others, the terms are familiar but they have not used these types of analyses when seeking the property owner’s approval for such proposals.

For CPM’s ® and CPM® candidates who have taken IREM’s ® course entitled Budgeting, Cash Flow and Reporting For Investment Real Estate , these terms, concepts and methods are familiar and applicable ways of presenting proposed projects.

For property managers with ambitions to move into an asset management role in the future, understanding and using these concepts is a must. In such a role, you will be analyzing and comparing investments and financing alternatives using these and more complex analytical tools on a regular basis. And then you will welcome this kind of perspective coming from those managing your properties. It shows financial folks that we are not just collecting rents and cleaning buildings (a very unfortunate but all too common perception of what we do).

The next time you need to get the owner’s approval for a large projected repair or replacement project, think about it in terms of an “investment”, not an expense. Consider not only the immediate cost of the proposed investment but the cost over the projected life of the item (known as life cycle costing) and the return on investment from savings over time.

In other words, use the language of finance. Try it and let me know how it goes.

 

 

 

By: Jeffrey S. Lapin, CPM(r)

It’s 2:35 am. You are sound asleep in your nice warm bed. You are suddenly awakened by your phone ringing. Your first thought is “Oh shoot!” (or some variation of that). No good calls come at this hour so you know it cannot be good news. It’s not.

The caller is your fire alarm monitoring company. The operator asks for you and then tells you that they have received “Multiple smoke alarms and water flow alarms” from your property. The caller tells you that the fire department has been notified and is in route to the property. You have a fire – not a false alarm and not a trouble signal – a real fire.

You force yourself to wake up and get hastily dressed and into your car. You head to the property and as you drive, your mind is racing about what to do first, second, third, etc. Should you call your maintenance person? Should you call your boss? What about the insurance company and the owner?

As you get close to the property, the police stop you about a block away and will not let you any closer. You tell the officer that you are the property manager and must get to the property, but he is not having any of it. So you park your car and stand out on the sidewalk, watching as thick black smoke is billowing from the roof of one of the buildings illuminated by the now dying flames. The fire department trucks are all over the outside of the property with hoses stretched everywhere, water clearly being poured onto the still burning structure.

But you are not alone out on that sidewalk. All of your residents are out there with you, having been evacuated minutes earlier. They are all in their bed clothes, shivering cold, frightened and upset. They spot you and soon all of them are descending upon you, asking when they can go home, where they are supposed to go tonight, what will happen to all their stuff and on and on. They want to know your plan.

Just then your cellphone rings and it’s the property owner. He has been alerted to the fire and he wants to know what your plan is for dealing with this. The fact is that you had always planned to have a plan for just such an emergency, but you just never got to it. And now the emergency is upon you.

This fire will end up destroying five apartment units and will inflict heavy smoke damage on ten additional units. Lots of your residents are effectively homeless, their property lost or heavily damaged. The residents, your owner, your boss, his boss and a lot of other people are depending on you to lead them through this disaster. The fire is not the worst part of the emergency – the aftermath is. And without a workable plan, you are making it up as you go.

You are a good property manager and you will eventually get through this. But your job as emergency manager would have been made infinitely easier and less stressful if you had developed and practiced an effective emergency plan. No one really likes to think about such things occurring at their properties but it is a very important part of the property manager’s job.

Emergency Procedures Manual

Every property, regardless of size or type (including our own homes) should have an Emergency Procedures Manual (aka an Emergency Plan). Such a plan takes into account every conceivable type of emergency that could occur at that property. The most common emergencies are fires, floods, earthquakes (if you are in earthquake prone areas), power failures, death on property and hazardous material spills. But there are others depending on the specific property.

Sadly, most properties do not have emergency plans in place. This is often the result of too many other items taking priority. And perhaps you have gotten lucky in that past in that your emergencies have been small and you and your team were able to take care of things on the fly without a plan. Or perhaps you have been REALLY lucky and have not had a fire, flood, earthquake, death, extended power failure or other property emergency. I suggest that your luck will not continue forever.

The plan should be a team effort, not one person’s ideas only. The more people contributing ideas and solutions to problems the better. The strongest plans have had their procedures challenged by the team and made better as a result. Another common element of good emergency plans is that they are constantly being amended based on new facts. For instance, if a portion of the property is changed, altering the exiting path, that must be reflected in the plan.

Finally, a good emergency plan will be simple enough to be used but complete enough to have all the elements needed for a proper response to anticipated emergencies.

So now that we have identified what an emergency plan is, what emergencies need to be included and how to use the plan, let’s get started. Because starting a new task is often the hardest thing to do (overcoming the inertia of standing still), I recommend getting your team (whatever that means to you) together in a conference room and start the conversation over lunch.

Flood Emergency Procedures

Of all the emergencies that we property managers encounter, floods are the most common by far. Most of us who have done this job for any length of time, regardless of the type of properties we manage, will have experienced serious floods. This is largely due to the fact that all buildings have plumbing running through walls, ceilings and floors and the supply side of the system is under pressure. So when a leak occurs, a lot of water can go where it is not supposed to go in a hurry.

Your emergency plan therefore, needs to have several elements dedicated to dealing with flood emergencies. These elements will include at a minimum, a step-by-step procedure for shutting off the water that is the source of the flood (include a map of shut off locations), contacting a reliable restoration contractor, mitigation of damage and notification to your insurance carrier if the flood is substantial enough to warrant a claim.

I suggest as well, that it is good practice to establish a relationship in advance with a reliable flood restoration company. If a flood occurs during a widespread disaster (such as a hurricane), you will hard pressed to get any contractor out to your property unless you have established a favored status with them. That may mean that you have the contractor’s insurance certificate on file, that you have them in your payment system and perhaps that you have met with the company owner and have a handshake or written agreement that they will come to your site as a top priority. In the mayhem that often exists right after a major flood, you do not want to be searching for a contractor that will respond.

Depending on the property and its history of floods, it may also behoove you to purchase and store some floor fans (special fans used to dry carpet or hard flooring) and water extraction wet dry vacuums. For smaller floods or wet spills, this equipment will save your owner thousands of dollars.

Lastly, you should know that the fire departments in virtually all areas are equipped to deal with large floods. The same pumps that send water out of fire hoses and onto a fire can be reversed to pick up water (a lot of water) quickly. And most fire trucks have large fans on board. I’m not suggesting that you call 9-1-1 for a leaking toilet or shower valve. But if you have a large flood involving a lot of water your emergency plan should include a provision for calling in emergency services.

Fire Emergency Procedures

Fires in commercial or multifamily properties are fairly rare. And since most buildings built since the 1970’s (I say most) have automatic fire sprinklers, fires that do start are usually extinguished fairly quickly with minimal spread and injury to occupants. Therefore, our fire emergency procedures should deal mostly with the safe, quick and orderly evacuation of occupants from structures when a fire is discovered and how to handle the aftermath.

For emergencies such as fires, local or state law often dictates some parts of the plan. For instance, the local fire marshal will require that you have working smoke detectors, emergency exit lighting and if the structure is a high rise (usually more than six stories), annual fire drills. But your plan must go much farther than the minimums required by code. Your plan, for instance, should be inclusive of what to do to prevent a fire in the first place such as performing regular written fire prevention inspections.

For fire emergencies, your plan must also consider exiting plans for getting residents or office tenants in different areas of the property from their units to the nearest emergency exit and out to the street or parking lot, well away from the danger of fire or explosions.

A proper emergency plan would also include regular training of residents or office tenants in the proper response should a fire or smoke alarm be activated. This training, called “exercises” in the emergency management world, is the only way to ensure that a plan that sounds great on paper can actually work in real life. And regular exercises of the emergency plan also get residents/tenants used to doing the right thing in an emergency when panic can often set in.

I highly recommend annual training and exercises for all building occupants as part of your fire emergency plan. This is true regardless of the height of your building. Fires happen in single story buildings too. And although the evacuation of such a structure is a lot less complicated than a high rise building, occupants should be trained in a realistic fire evacuation exercise (fire drill) at least annually.

When I say realistic, I mean that all such exercises should be unannounced (fires don’t warn you in advance), should be accompanied by an audible fire alarm (if the building is so equipped) and should include the full, 100% evacuation of all persons in the structure to the designated Safe Refuge Area. The Safe Refuge Area is the predesignated area away from the subject structure by at least 100 feet where evacuees are trained to assemble and await further instructions.

I also recommend that your fire procedures include an annual training of all occupants/residents in the proper procedures to follow when a fire is discovered. It’s best to conduct this training right before the evacuation exercise so that the right procedures are fresh in your resident’s minds.

Earthquake Emergency Procedures

For property managers with properties in areas prone to earthquakes (do you know if your area is included?), a viable emergency plan must contain procedures for dealing with them. Earthquakes do not provide any warning – they just occur. And while the vast majority of earthquakes are small enough to do little or no damage, especially to structures designed to withstand moderate quakes, a larger earthquake will almost certainly do some damage.

Just like fire emergency procedures, earthquake procedures should include proactive steps that you and your staff will take to inspect all areas of the property and secure loose items that may fall and injure someone, remove falling hazards that can be removed and otherwise do what you can to prepare. Another must have for earthquakes are sufficient emergency food, tools and other supplies. Most experts advise that in a serious earthquake, we should prepare to stay at the property for up to three days and nights without outside assistance. Good sample lists of emergency supplies and even prepacked kits are available on the internet – check it out.

Preparation exercises for earthquakes are a must for your emergency plan to be realistic and workable. Unlike fire emergencies, during and after an earthquake, we do not have the occupants evacuate. Instead, we train them to “Drop, cover and hold”. This is a well-established procedure which involves taking cover under a heavy desk or table when the shaking starts and staying protected until it stops.

Following the initial quake and immediate aftershocks, each tenant/resident will need to have and use their own supplies to treat injuries, free trapped persons and shelter in place for up to three days with no outside assistance (including perhaps assistance from you and your staff).

If you think about all the things that you and your tenants will need to have in place to deal with a major earthquake and the aftermath of same, having pre-practiced emergency procedures ready to employ is an absolute necessity.

Other Emergencies

In addition to the aforementioned procedures, your emergency plan must also have provisions for other, perhaps more rare emergencies. These include power failures, bomb threats, terrorism and others that I’m sure you can envision. For each such emergency, there are certain logical steps to take to respond, contain and recover from the event. The internet is a great source of specific information about planning for such emergencies. IREM® and BOMA® are also good resources for such information.

The most important thing is to stop procrastinating about putting an emergency plan together and get started. As suggested above, what works for many managers is to gather staff, contract personnel, others from your company, etc. in a quiet setting and start brainstorming. For each type of emergency, ask what resources you have available, what is likely to occur during such emergencies and how your property and tenants will be affected.

And remember that an emergency plan that is carefully developed and then put on a shelf to gather dust is almost as bad as having no plan at all. Almost immediately upon completion of your first plan, it will become obsolete. This is because the property changes, the tenants change and resources change. Your plan must be seen as a living, breathing document that must constantly be revisited, revised and rehearsed.

Part of the process of constantly revising your plan is to challenge the plan participants on the assumptions in the plan. For instance, if your fire emergency plan contemplates that the safe refuge area across the street will be a good place for your residents to gather away from danger, but that area is now under construction, your plan needs to be changed and the residents retrained.

Another part of a healthy planning process is to do regular exercises of the plan to test its viability. Exercises can be the “live” or “table top” variety. Live exercises involve realistic recreations of a disaster scenario. This would include for instance, live fire evacuation exercises (fire drills) wherein we ring the bells without prior warning and evacuate everyone in building to the safe refuge area on a timed basis.

Table top exercises are easier to do and generally consist of the planners (whoever that is in your world) sitting around a table (hence the name) and discussing different scenarios. You might have some pre-printed cards passed around the table with a likely (or not so likely) scenario on them. Everyone reads the scenario (example – we have just experienced a magnitude 6.3 earthquake and much of the building has been collapsed) and you all discuss what steps need to occur to deal with that scenario.

Ideally, you would do both types of exercises. Obviously, table top exercises are easier and less costly than live exercises. Experts in this field will tell you that you need to do both. The purpose of these exercise is to test your plan and its procedures and if holes are discovered, they can be fixed before an actual disaster occurs.

Conclusion

Going back to the start of this article, wherein we laid out a fire scenario at a multifamily property in the middle of the night, would the manager’s response have been different if she had a plan in place? The obvious answer is “Yes”.

If an emergency plan had been in place, and it dealt specifically with a scenario in which a fire occurred such as we imagined, and exercises had been conducted so that everyone involved (including the residents) knew what to do, I can guaranty you that the result would have been different. The property manager would have still been startled initially. But then, she would take out her copy of the latest emergency plan which would be in her car at all times and would start to work the plan, step by step.

Just having the plan in place would have brought a sense of calm and assurance to an otherwise chaotic situation. Instead of wondering what to do first, second and third, the manager would have the plan ready and it would guide her actions.

Instead of an angry mob of displaced residents wanting to know from the manager what the plan was for where they would go for the night, and the manager not really having an idea of how to respond, she would simply refer to the plan. The plan would have already contemplated having displaced residents be able to take advantage of a reciprocal arrangement with a nearby hotel that would be in place for these folks to stay at a discounted rate. It might have a 24/7 contact for the Red Cross.

I hope that this advice will inspire you to take action and start constructing an emergency plan for your property. The first step is the hardest but you can do it. And you will reap the benefits the next time disaster strikes in the middle of the night.

Be safe out there!

By: Jeffrey S. Lapin, CPM(r)

Property managers are often faced with the decision as to whether to use in-house maintenance personnel or call a contractor or vendor. These decisions are more prevalent when the property is a multifamily structure because it is more common to have on-site maintenance folks in this environment than at say office buildings or other commercial properties.

The tendency to use our maintenance folks to do “everything” is dangerous but understandable. It often stems from certain owner’s (incorrect) perceptions that all repairs or maintenance tasks are equivalent. Such owners may be even be persuaded by their experience in self-managing smaller apartment complexes in the past, during which they or their on-site manager’s spouse did all such work and never called contractors. But as property management professionals, it is up to us to educate and inform so that the right thing is done from a risk management perspective.

The decision as to whether to use employees of the owner or the management company to perform maintenance tasks or to contract out with a qualified third party for this work must be made as part of the process of assigning maintenance duties under your Maintenance and Risk Management program. If you are now asking “What program?”, read my article entitled Good Maintenance Procedures Can Reduce Risk at our Properties at http://www.jeffreylapincpm.com).

This decision is less critical and results in less risk for lower skilled work such as painting or landscaping maintenance (assuming it does not involve the use of tall ladders). More highly skilled work however, such as maintenance of HVAC or electrical systems at the property, which involve more risk to the owner (including financial risk if maintenance is not done or done improperly), should be outsourced in many cases.

An Honest Skills Assessment

Often, the decision comes down to an honest assessment of our worker’s skills. The skills assessment piece requires the property manager to have an in-depth understanding of what training, tools and experience each in-house worker has. It is not sufficient however, to simply ask what they can and cannot fix. Most of us overstate our knowledge and experience when asked by a supervisor – it is a natural human tendency.

I suggest that for all such personnel, a written skills assessment be used, accompanied by an actual supervised evaluation by an experienced technician. Such information should ideally be gathered during the hiring process so that we do not hire someone to do work for which they are not sufficiently qualified. But if you already have personnel on staff and you are not sure of their level of skill and experience, now is the time to make these determinations. File such information in the employee’s permanent personnel file, along with a detailed, written job description listing the exact tasks that this employee is approved and more importantly, not approved to do.

Once we know with certainty for instance, that Bob is very skilled at air conditioning repairs and that before working for us, he was a certified AC mechanic, we can safely include such repairs in his written job description. But of course, this is rarely the case. More often, Bob will be a hard worker, willing to try anything but not necessarily qualified to do every task needed. This is where the property manager, on-site manager or supervisor needs to step in and make the decision to hire a professional.

Cost/Benefit Analysis

Even when our on-site folks have the requisite skills to do a particular task however, we still need to determine if having them perform that task is best from a cost/benefit perspective.

Be aware that what may seem to be a cost saving measure may actually end up being much more costly in the long run. If maintenance is done poorly or not often enough, or a worker is injured as a result of attempting to do work that he/she is not qualified to do, the intended economies disappear rather quickly.

For example, if an in-house worker is attempting to make repairs to the electrical system at a property and ends up injuring himself in the process, he or his estate may sue the owner for negligence. These cases are not easy for the owner to defend as more often than not, the owner will not be looked on sympathetically by a judge if he/she is viewed as being motivated solely by cost savings.

Another example is a worker who is not injured but fails to fix the problem correctly and actually causes the equipment to fail prematurely. That equipment may be a costly item that now has to be replaced long before the end of its useful life. Again, the marginal savings of having the maintenance person do work for which he was not qualified are nonexistent.

A good rule to follow is if the job requires specialized knowledge, governmental licensing and/or significant risk, it is usually better to transfer the risk to a qualified contractor who has the appropriately skilled personnel, specialized tools and sufficient insurance to accept the risk. There are exceptions of course, but following this rule usually results in the right decision.

Another element in this decision is the flexibility allotted by utilizing contracted labor. If the building is sold or the owner decides to change management companies and the maintenance is being performed by employees of the management company, people will likely lose their jobs. Similarly, if a large repair job requires extra technicians to assist the primary technician, the contractor can likely just schedule that extra labor for the specific job. If work is being done in-house, extra bodies may not be available.

Educate the Owner

Finally, a critical part of this process is educating our owners, clients or our supervisors about our decisions to use in-house labor or contract the work and how we made them. This may require showing them your written skills assessment and explaining your other decision making criteria.

Some owners think that the profit, overhead and parts mark-up charged by most contractors can be avoided by using the owner’s or manager’s employees to do the work. But you must explain that this is a false economy in cases where the worker’s skills are not up to the job or where the unseen costs exceed the benefit. Moreover, if parts or material mark-up is excessive, consider purchasing parts directly if the contractor is willing to stand behind the parts you purchased. If not, are you really saving anything when that part fails?

The real cost of using in-house labor when you factor in taxes, burden, benefits and vacation coverage plus tool purchase, uniform purchase and cleaning and training costs often rivals the cost of out-sourcing the job, especially when you consider the risk mentioned above.

Having on-site maintenance workers is a luxury and does save considerable dollars and time in many cases. It would hard if not impossible to operate many properties without such personnel. But there are definite risks associated with having such staff do more than they should.

Risk management is a key and critical part of the property manager’s job. The risk of using our valued in-house personnel to do tasks for which they are untrained and unqualified is just too high relative to the perceived (but often false) benefits. Your job is not to do it the way it has always been done or to ignore your better judgement.

The property owner hired you or your company because you have the expertise to properly manage all aspects of property operations. You may have to overcome some preconceptions by the owner or your supervisor. But if your analysis is sound, and your reasoning is valid, you should be able to persuade them that certain things are best out-sourced to a qualified third party. If not, a word to the wise – document, document, document.

 

 

By Jeffrey S. Lapin, CPM®

Most of us who have been in this great profession for a while have learned the hard way – by making mistakes and learning from them what NOT to do. In over 36 years as a property manager, I’ve never been sued, fired or had a disciplinary action by the board of realtors. And I’ve also never lost an account due to any circumstances within my control. But that’s not to say that I have not made a ton of mistakes. Trust me, I have.

This job is hard to do well. There is a tremendous body of knowledge that a good property manager must have to be considered competent. We wear a lot of hats and must be knowledgeable in marketing and leasing, tenant relations, contract administration, maintenance and repair, financial management, disaster planning and management and so much more.

Because a significant part of the property manager’s job deals with managing other people’s money, there is a need to recognize that awesome responsibility and act diligently. This is the area of the job that above all others, can get the property manager in trouble quickly.

Here are the top five things that if not handled correctly, can be career ending mistakes.

1. Our tenants are not our friends.

Tenants are our customers, not our friends. It’s natural and normal when you work with the same people day in and day out, to develop a close relationship. We often spend more time at our properties and with our tenants than we do with our families (sad but true).

It may seem like our tenants (some of them anyway) are our friends. Many a property manager has discovered painfully that this is not the case. Friends share intimate private information and trust each other to keep such information confidential, have each other’s back, and give each other the benefit of the doubt.

As the owner’s representative, we cannot share a lot of what we know or are told by the owner. We are entrusted by the property owner to keep the owner’s private information private, especially financial information. We can be successfully sued by our client (the owner) for disclosing things that we should not have.

And even if you trust your tenant contacts as you would a friend, it is rarely mutual. If the tenant wants or needs something that violates the terms of their lease, they may attempt to take advantage of your relationship with them to get what they or their supervisor wants. We do not expect the tenant representatives to share intimate information about their employer, including perhaps that the tenant’s business is in bad shape and may soon default on the lease. Doing so would violate the tenant’s duty to their employer. So the tenants should not expect you to violate your duties to your client.

Moreover, as the party charged with enforcing the terms of the leases, the property manager is the one that often has to be the bearer of bad news. For instance, the tenant wants to perform alterations to their space and wants the business owner’s brother in law (an unlicensed amateur handyman) to do the work. We have to tell the tenant that the work will require a permit and is of a nature that must be completed by a qualified, licensed contractor. Bad news.

The tenant and the property manager are now at odds with each other. If the tenant contact thought you were his friend and is now offended, there goes the future working relationship. Or consider the case wherein the property manager has to collect past due rent or CAM charges. It is a lot harder to be the tough collector if the tenant is your friend. The tenant knows that and may try to take advantage of it.

Tenants who know that their property manager is fair, honest and treats all tenants as valued customers will usually be happy to stop short of a “friendship” with him or her.

So the lesson here is that we already have friends. We want to be cordial, professional and yes, friendly. But the relationship with the tenant is ultimately a business relationship. We have to stop short of getting ourselves into a position wherein our professional relationship and our objectivity is threatened. It’s a delicate balance but it is ultimately in everyone’s best interest to strike and maintain that balance.

2. Accepting Gifts or Items of Value from a Contractor or Vendor May be an Ethical Breach

It’s important to have great relationships with our property vendors and suppliers. They can make us look like heroes or make us look incompetent. And we want to be heroes in the eyes of our clients and tenants whenever possible don’t we? But like our tenant relationships, friendly does not mean “friends”. And we need to be especially careful about observing good ethics.

The ethical challenge comes when the property manager crosses the line by accepting valuable gifts or lavish outings from his or her suppliers. It is the vendor’s job to try and get close to the property manager. Their boss gives them an expense account and expects them to wine and dine property managers and sometimes give gifts to us. After all, many contracts are awarded as a result of a close relationship between a vendor and a supplier and that’s OK if it does not cross an ethical line. But it often does.

In order to ensure that there is not even the appearance of impropriety, the property manager needs to tread very carefully when it comes to relationships with vendors and suppliers. Most property managers are ethical people who would never knowingly violate good ethical standards. But sometimes the lines can be blurred by the actions or inaction of the property manager.

Here are some basic rules to follow so that you are never even suspected of doing anything improper. First, do not, under any circumstances, accept anything of “value” from a company or an individual who is or wants to do business with you. What is “value”? The answer is that this is 100% in the eye of the beholder (meaning someone judging your ethics).

A lavish lunch at a fancy restaurant once in a blue moon will not likely cause you a problem, especially if other managers are present. But do you really have two hours to spend being “schmoozed” by a salesperson? Most of us do not. And if that lunch becomes known to your employer or your client, would it cause him/her to question your objectivity with regard to that vendor? Is it worth it?

The best way to judge the propriety or lack thereof of such an invitation or offered gift is to ask yourself “Would a reasonable person see this as unethical?” In most cases, if there is any hesitation in answering this, it is likely not a good idea. Accepting lavish meals, expensive gifts or out of town trips offered by someone that wants our business (or already has it) may be in reality an innocent act, but it is easy to see that it might not be viewed that way by others.

Secondly, politely declining such an invitation or gift is perfectly acceptable and should not cast you in a negative light or make you an outcast at the BOMA® meeting. And if that vendor is a quality company, it is likely that their employees also have to adhere to strict ethical standards too. It’s just the way the world works in these litigious times.

Moreover, there is a good business reason to keep a respectable distance from vendors. When you bid out contracts for goods or services, you want it known that you are open to proposals from any pre-qualified supplier and that you do not have an exclusive relationship with XYZ Company. In this way, you will get good, competitive bids and you will be fulfilling your fiduciary responsibility to your employer and to your property owner.

More importantly, you will never have to worry about others questioning your integrity or ethics.

3. It’s not your money

We property managers are entrusted by property owners with their valuable assets, including the rents from their tenants. This places a tremendous responsibility on us to act in a fiduciary capacity. The fiduciary duty is the highest standard of care possible. The duties placed on a fiduciary cannot be overemphasized and a breach of such duties is often the subject of breach of duty lawsuits.

Most property managers that I have known take this fiduciary duty very seriously (as they should). But some also mistakenly think it is OK to spend the owner’s money without proper authorization. They may not know or understand that the express approval of the owner is often needed before contracting for goods or services, entering into a lease or even refunding money to a tenant that may be perfectly legitimate in keeping with the terms of the tenant’s lease.

The authority to enter into contracts, approve expenses or refund a tenant’s security deposit are, or should be, specifically spelled out in the management agreement. Have you read the management agreement for the properties you are managing? If not, do so right away and understand what it says or get help interpreting the meaning.

We must always remember that it’s not our money. We may even think we have the owner’s permission to spend their money. And you might go along for years without being questioned about your decisions. But there may come a day when something goes wrong (it might not even be your doing) and the owner decides to audit the actions of the manager or the management company. All of a sudden you may discover that you have been violating the terms of the management agreement without even knowing it.

Do not get yourself or your company into that situation. Read and understand the terms of the management agreement and specifically your authority to sign contracts and leases and spend the owner’s money. Know with certainty how rents are to be handled once collected, whether security deposits are to be kept in separate accounts and if the owner’s money is going into a trust account (if required).

The best rule to follow is “If in doubt, ask.” If you are not sure whether you have the authority to sign that contract or approve an expense, it’s best to stop and verify before you proceed. It may save your job and save your employer a lot of headache and expense.

4. We are Not Attorneys

Over my many years in this business, many of which have been spent as a supervisor of property managers, I have been asked whether such and such tenant is allowed to do this or that. Or whose responsibility it is to fix the air conditioning, etc. My answer has always been the same – “What does the lease say?”

The property owner pays high priced lawyers to draft long and complex leases for a reason (other than to drive you nuts). The entire sum of the landlord/tenant relationship is represented in the lease document. Before determining how to handle a tenant need or request, just read the lease. And if there is language in the lease that you do not understand, get someone in your company to interpret it for you or better yet, call the owner’s legal counsel for interpretation (get approval to do this – see It’s Not Your Money above).

Tenants do not always appreciate being told that they cannot do such and such a thing because the lease prohibits it. Or that they must do a certain thing because the lease requires them to do so. But in my experience, tenants are generally happy to rely on the lease language when it inures to their benefit, especially since “It’s in the lease”.

Do not be afraid to tell a tenant that, as much as you would like to allow them to do such and such, the lease specifically prohibits it. And do not rely on the lease abstract or your knowledge of the “standard” lease for the property. Every lease is unique and you need to read each one thoroughly. You will never go wrong by hanging your argument on the written document that everyone signed. It is intended to guide the actions of the respective parties – let it.

Similarly, any changes to the rent, term, square footage, etc. must be properly documented by an amendment to the lease, executed by all parties. I know a lot of property managers who regularly draft leases, amendments and other legal documents. Do not do this, even if asked by the client or your supervisor.

You are not an attorney (unless you are) and drafting legal documents or changing the language in a document drafted by an attorney is strictly prohibited under most states’ real estate license regulations. If it is not so prohibited, it should be and is likely not allowed by your company. As proficient as you think you might be at “cutting and pasting” from an attorney-drafted lease to create a new lease, amendment, etc. your lack of a legal license and errors and omissions insurance makes you and your company sitting ducks if you screw up.

Simply make it an iron clad rule for yourself and those who report to you that any drafting or changing of legal documents will be done by licensed attorneys only. Period.

5. Learn How your Property’s Mechanical Systems Operate

I purposely saved this one for last because I’ve seen so many property managers who fail to gain a working knowledge of mechanical systems (primarily heating and air conditioning), even after being in this business for years and years. This knowledge is vitally important.

If you look at the budget of any office building, commercial building or multifamily property, chances are that the largest utility expenses and repair expenses are driven by the HVAC (heating, ventilation and air conditioning). Similarly, for most properties, the largest recurring capital expenditures are likely to be for replacement of HVAC equipment. The exception might be in triple net leased industrial buildings wherein the tenants are often responsible for their own mechanical system maintenance and replacement.

The fact is that this is where a lot of the property owner’s money is going. And if we are to do our fiduciary duty properly (see It’s Not Your Money above), we must be able to do a competent and professional job of bidding out such work and controlling these expenses. To do that, we have to have a working knowledge of these systems. That does not mean that we are going to don our overalls, grab our tools and fix that chiller that has quit working.

Competent property managers should however, be able to understand what equipment is located at their properties, what it does and how it works. Again, we are not expected to be able to diagnose what caused the AC unit to quit cooling. But when the contractor or your in-house engineer tells you that the unit has failed and must be replaced, you want to be able to say “Show me the problem”. Insist upon accompanying that technician to the roof or the mechanical room and understand the issue. Ask questions, poke around and most technicians will be more than happy to explain these systems to you.

Many property managers will read this and think “I’m not going to do that! That’s not my job.” But it is our job. Again, we are the ones upon whom the responsibility is placed to spend the owner’s money wisely. And as stated above, this is where a great deal of those dollars are being spent. We simply cannot rely on our contractors or even our in-house technicians to advise us without having a good working knowledge ourselves. As the old adage goes, “Trust but verify”.

I highly recommend that every property manager take professional education classes on mechanical systems, especially HVAC. IREM® and BOMA® offer such classes as part of the required curriculum for the professional designations that they offer. IREM® and BOMA® also offer shorter half day or lunchtime seminars on these topics in local markets. Check their respective websites.

Professional training companies such as TPC Trainco (www.tpctrainco.com) offer live classes in most major metro areas as well as webinars. I’m not a big fan of webinars for technical subjects because they just don’t offer the same ability to work directly with seasoned instructors and ask a lot of questions as live classes do. Professional engineers with lots of experience generally teach these classes and they are a valuable resource for any property manager.

Most importantly, ask a ton of questions. Do not worry about appearing to be “dumb”. No one knows everything and everyone can learn something. You need to be educated enough to ask the right questions of the contractor and make him justify his assertion that the piece of equipment or system is not working properly (ask “Why?”), cannot be repaired (ask “Why not?”) and must be replaced by an expensive new system (ask “Really?”).

By observing, asking questions, getting professional training and insisting on ample justification for the proposed expense, you will grow in both your knowledge and the respect of your client, your supervisor and your peers.

Conclusion

The five items presented here are by no means an exhaustive or complete list of all things that we property managers must or should know. That tremendous body of knowledge is still growing. That is why I love this business. I learn something new every day.

These five items are, in my experience, some of the most important things to know because each of them can, and has, caused many a property manager to fail when done wrong. Trying to be our tenant’s friends can be very problematic indeed when the tenant tries to take advantage of the relationship or the property manager’s objectivity is compromised.

Accepting gifts or things of value from vendors and suppliers may seem on face innocent but can often create the appearance of improper influence. Asking yourself if a reasonable person would perceive your acceptance of such things as a conflict of interest is the best way to let that little voice inside of you speak loudly and clearly that you are entering dangerous ethical waters.

Understanding that property managers are money managers and that the money belongs to someone else, reminds us that we have a fiduciary duty to our clients. This is a sacred trust and must not be violated no matter how seemingly innocent our actions may be.

Remembering that we are not attorneys is vital to keeping ourselves and our employers out of hot water. And while it seems innocuous enough to draft up a simple lease amendment based on one that an attorney drafted, it takes us out of our area of expertise, violates real estate license rules and is just not smart. Just as we would not want our attorney to manage our properties, we should not do their job either.

And finally, gaining a good working knowledge of mechanical systems that provide heating and cooling at our properties is especially important given how much of the property owner’s money is going into these systems. It is not acceptable to rely solely on the opinions and advice of contractors and technicians when recommending to our clients that they spend thousands of dollars on replacing equipment or performing major repairs. The competent property manager needs to get some professional training, ask a lot of questions and be prepared to get a little dirty on the rooftop in order to fulfill our fiduciary duty for our owners.

I hope you will continue to learn and grow in this great and noble profession.

 

 

 

 

By Jeffrey S. Lapin, CPM(r)

The Object of Inspections

When it comes to conducting inspections of commercial or multi unit residential properties, there are some basic tips and techniques that have been proven to be very effective and are therefore shared here. The object of the inspection is to quickly and efficiently perform a visual audit of the entire property in order to identify items that are lacking in proper maintenance or add risk and need to be either fixed or replaced.

Use a Written Checklist Every Time

First, always use a written checklist such as the ones that are attached as Exhibits at the end of this Plan. The checklist gives the inspection team a logical flow or sequence of items to visually inspect and note that item’s condition and prevents missed items. Once the inspection is completed, the written and dated checklist serves as the reference document for follow up and evidences the occurrence of the inspection.

It is highly recommended that the Manager be accompanied on the inspections by those persons identified herein as responsible for specific items at the Property. At a minimum, the Manager should be accompanied by the assistant property manager (if there is one), the janitorial supervisor and the Chief Engineer or Maintenance Supervisor. If services are provided by contractors, a senior representative must accompany the inspection team.

The Manager should have the following items with him/her on the inspection tour:

• Written inspection checklist on a clipboard
• Camera to take photos of conditions found
• Caution tape to cordon off unsafe conditions found
• A working flashlight

Any team member that notes an item requiring attention should advise the Manager who will combine all the findings on a single inspection checklist and if necessary, take a photo of the item. Use all of your senses including your sense of smell. If you see health or safety hazards, these must be addressed immediately. All parties should stay together for the entire inspection so that items in need of attention are seen by all.

Start on the Roof

Start on the roof of the first building and walk the entire roof, noting conditions ranging from open seams or tears in the roof membrane to items improperly stored on the roof. Note any clogged roof drains or scuppers which must be addressed immediately. Property managers are not roofing experts but should be able to identify (with the help of trained maintenance personnel) roof-related issues that require correction such as those mentioned.

Also note any ponding on the roof (if the roof is dry, ponding areas can be identified by staining left on the roof surface). This is caused by low spots or clogged drains and must be addressed by a licensed roofer. Pay careful attention to the perimeter of the roof where the flat roof surface meets the parapet walls. The joints and seams in these areas, along with flashing (sheet metal covering) around roof penetrations, are areas where leaks frequently occur.

Note the condition of any rooftop equipment such as A/C units, fan housings, pipe jacks, satellite dishes and antennas, exposed ducting and lighting. Any items that are rusted, loose or otherwise in need of maintenance should be noted. No items must be sitting directly on the roof surface – all must be on raised “sleepers”, properly flashed, to keep them off the roof membrane.

Rooftop mechanical rooms must be inspected at this time, noting the general condition of these areas including improper storage or disorganized work areas, leaking pipes or tanks, dirty areas, and dark/poorly lit areas. Note the condition of signage for mechanical equipment Missing or unprofessional signage should be noted, including warning signs for hazards. Verify that chemicals are properly stored, in original containers with proper secondary containment. PPE (Personal Protective Equipment) must be available and used when handling hazardous chemicals.

Start Working Your Way Down the Building

Once the roof walk is completed, move on to the top floor of the building. It is recommended that the inspection team use the emergency exit stairwells and not the elevator to move from floor to floor. That will allow the team to note the condition of the stairwells (which must have nothing stored on landings and all lights and signage in operable condition).

Walk the entire floor, including leased areas, vacant areas, restrooms, utility closets, telephone/electrical rooms and any other rooms or areas on the floor. If the Property is a multifamily residential property, the apartment units should be inspected at this time, including vacant and occupied units. Remember to provide the lease-required notice of inspection to the residents.

Inspect fire/life safety devices including fire extinguishers, fire hoses (if equipped), smoke detectors, horn/strobe devices, pull stations and other devices. All must be in good repair, properly mounted and functional. These devices are tested by your fire/life safety contractor in accordance with state law but the inspection should reveal any obviously broken or missing devices.

Train team members to have their “heads on a swivel”. This means that they are constantly looking up, down and sideways, noting any small issues that might normally escape notice such as cob webs, dirt, stains, lights out or flickering, carpet tears or loose seams, etc.

Restrooms Deserve Special Attention

Restrooms in commercial properties deserve special attention during this process. All team members, male and female, should observe every inch of both male and female restrooms. Of course, make sure the restroom is unoccupied before entering. Pay close attention to horizontal surfaces such as the top of partitions, tops of light fixtures and tops of light switch plates. All should be dust free and feel clean.

Examine the corners of toilet stalls, behind and under plumbing fixtures and the underside of toilet seats. Look for hair, dust, paper, insects and any staining. Carefully examine all bright work. Chrome surfaces must be clean, shiny and free of finger prints, water stains and grime. Faucets must not leak or drip and soap dispensers and paper dispensers must be full and work properly. Trash facilities must be clean and have the correct plastic liners in place. Floors must be clean, stain free, dry and properly sealed.

Laundry Room

If the Property is multifamily, inspect the laundry room (if equipped). The laundry room must be clean and be free of trash, debris, empty laundry soap containers and so forth. Check that fans and other ventilation equipment is working properly and that no mildew smells are present. Excessive humidity in laundry rooms is unhealthy for residents and can lead to mold. The laundry room must be well lit and present a clean and safe environment. Check behind laundry machines for puddles of water, lint, trash or other debris. Check lint traps on the machines to make sure that they are clean. Flexible dryer ducting becoming blocked with lint buildup is a major cause of apartment building fires. For risk management purposes, it is strongly recommended that closed circuit cameras be installed in the laundry room along with signs advising that videotaping is in progress. DVR (digital video recording) devices with recorded images held for a period of time before being overwritten are a good way to get forensic evidence if a crime is alleged.

It is also recommended that laundry rooms stay locked with self-closing doors and combination locks. Residents can be provided with the lock code and it can be changed when needed by the manager.

Storage Areas and Mechanical Rooms

If tenants/residents are provided with storage areas, these rooms or closets must be periodically inspected (remember to provide appropriate notice). No flammable items or liquids can be stored, including gas, oil, solvents, gas powered tools or equipment. No perishable items can be stored in tenant storage. Vacant unit storage areas must be cleaned out and inspected when the unit is vacated.

Storage areas that are only accessed by building personnel must be kept neat and organized. Any discarded parts, equipment and tools that are no longer needed should be sold, donated or disposed of properly. No flammable items can be stored other than in OHSA approved locking cabinets. These rooms must clean, free of cob webs and debris and must be well lit with proper signage.

Mechanical rooms, like building storage areas, must be clean, well lit, free of discarded items and safe for use. There must be adequate clear space around all equipment for air circulation and avoidance of fire hazards. Any flammable items must be in approved storage and non-flammable items must be neatly stacked on shelves, properly labeled and easily accessed. Nothing should be kept on the floor – all tools and ladders must be hung properly from walls. If chemicals are used in mechanical rooms, such as fuel, grease, oil or other chemicals, they must be properly stored in original containers, sealed and properly labeled. PPE (Personal Protective Equipment) must be available and used when handling such chemicals.

A neat, safe and organized mechanical room imparts a sense of pride in the maintenance staff.

The Lobby

The lobby should receive a great deal of attention to detail as this is the public “face” of the building. Observe the condition of the path of travel that tenants/residents and visitors take from the parking lot or garage, into the lobby, past the directory of tenants/residents and lobby desk (if equipped) and into the elevators.

Pay special attention to the floor of the lobby. If it is stone or tile, it must be clean, dry and properly sealed with a low slip floor finish at all times. Slip and fall incidents are very common on slick lobby flooring and represent a major liability risk. Maintenance procedures for such floors must be inclusive of proper barricades and warning signs to keep the public off of any wet areas. They must also include frequent inspection and elimination of slip and fall conditions during normal operations. It is strongly suggested that a written log of such inspections be kept at the lobby desk or management office. It will be invaluable as a defense in an injury claim.

Any walk-off mats must be clean and reasonably dry. The corners must lay flat on the floor and no seams, tears or wrinkles may be allowed as these are trip hazards. Any mats not meeting these criteria must be removed immediately and replaced with safe ones.

Note the condition of signage for the building, including address signs, leasing signage, tenant directory signage and so forth. All signs must be correct, secured properly and look professional. Handmade paper signs or signs printed on a computer printer are to be avoided as they deter from the professional appearance that we’re striving for. Any special notices should be in a frame and mounted to a wall or on a professional sign stand.

If the Property is multifamily, observe the directional and identification signage for the manager’s office, as well as the look, feel and smell of the manager’s unit. Verify that this “face” of your property is sufficiently professional.

Any lobby/office furniture must be in very good repair, clean and free of stains, rips and holes.

Now the Elevators

Next, note the condition of each elevator, starting with the hall call lanterns (up and down arrows), call buttons and floor buttons and indicators. The doors and thresholds of each cab must be clean, free of grease and grime, fingerprints and any dropped items such as wrappers. The walls of the elevator cab must be clean and free of any flyers, marks, gouges, graffiti and dirt. The cab floors must be clean and free of spots, stains, holes, tears, rips and debris. All lights must be in working order and fixtures clean.

Check the communication devices in each elevator. If hands-free, push the intercom button or lift the receiver and see if the call is answered promptly and professionally. The person answering the intercom (usually the elevator company) must be able to determine without asking, the address of the building and the specific cab you are in. Let them know that you are with the building and testing the communications device, thank them and move onto the next cab.

NOTE: Keep a written log of the testing of these devices along with your other inspection forms.

Note whether the cab is leveling properly and if doors automatically reopen if an object is inserted in the path of closing doors. These two areas are major sources of injury liability claims. If there are any issues here, the elevator company must be notified immediately. If necessary, take the car out of service and post a professional notice until it is repaired.

If the Property has stairs to access upper floors, ensure that the stair treads are clean, dry and not a slip and fall hazard. Verify that stair railings are clean and properly secured. Again, risk mitigation is our primary concern.

Moving Outside

Once all buildings in the complex have been completed, it’s time to move outside. It is recommended that the inspection team (which should now be supplemented by the landscape contractor) walk out to the street in front of the building/complex and simulate a tenant, resident or visitor arriving at the Property. Note the “curb” appearance of the Property from the street. Is the Property attractive and inviting?

Have the team walk onto the Property from the street via the all entrances. Note the condition of signage including address signs, Property identification signs, leasing signs and directional signage. All must be in very good condition, clean and easily visible. Cobwebs, dirt, mud, landscape clippings and such should not be present on any signs. Have the light timers or photocells overridden for the inspection so that all lights can be checked, including lit signs.

Look at each face of each building from ground level and identify any open voids in joints (where sealant is missing, shrunken or damaged) including vertical control joints, horizontal expansion joints, window to frame joints and other areas where dissimilar materials are joined. These voids can result from building settlement, structural failures and even bird activity (birds like to peck out caulking material). If these areas are not readily visible from the ground level, it may be necessary to have a window washing vendor do a close up inspection and provide a map of issues found.

Walk all around the building and look at where the building façade meets the ground level pavers, walkways, etc. Verify that all caulked joints are properly sealed. Note any deficiencies.

Verify that landscaped planters, grass areas, shrubs, grass and trees are all well maintained. Note any areas that need more attention. If possible, have the landscape contractor activate irrigation devices so that any overspray or missed areas can be spotted. Look for hazards such as sunken areas, wet areas, exposed tree roots and landscaping tools and equipment left in the path of travel.

Next, look at the hardscaped surfaces including asphalt, concrete and pavers. Note any slip-and-fall or trip-and-fall hazards and if any are found IMMEDIATELY cordon those areas off with a high visibility barrier. Notify maintenance to have repairs done ASAP. This is a very frequent cause of injury liability claims.

Verify that all exterior lighting is working properly. Note any burnt out bulbs, malfunctioning fixtures or areas that are not properly lit. As you and your team walk the entire exterior portion of the Property, note any deficiencies in lighting wherein a person arriving or leaving in dark conditions might experience an unlit or under lighted area. These items must also receive top priority as the risk of injury is very high.

Pay special attention to walkways around the base of mature trees as root systems often lift concrete and hardscape pavers, creating a hazard to pedestrians. Also note the cleanliness of parking areas, including excessive oil stains where cars park. Oil and grease are major causes of slip and fall law suits. An application of absorbent sand or clay over oil spots will temporarily remove the hazard until proper clean up can occur. Make sure that the absorbent used does not create its own hazard.

If the Property is equipped with a parking structure, have the team walk the entire structure from top to bottom. Note any deficiencies in lighting, signage, missing or damaged bumper stops, etc. Look up and in corners for dirt, grime, cob webs, bird droppings, papers, cups, trash and debris of all kinds. Check all parking structure ramps for proper speed warning signs, speed bumps, painted stop lines, etc.

Swimming Pools/Spas

Pools and spas are sources of thousands of injury claims and millions of dollars of legal fees each year. They often present more liability than the benefits that they provide. If the Property is equipped with pools or spas, they must be inspected often to control risk. Verify that fences and gates designed to prevent young children from getting near the water work properly and close automatically and firmly.

If life preservers or hook-and-rescue poles are provided, they must be present and in good working order. Signs warning of “No Lifeguard on Duty” or other warnings must be easy to read and in proper condition. If the pool or spa is provided with a disabled lift, it must be in good working order and inspected often to be sure it works safely.

Chlorine or other pool chemicals must not be accessible to anyone other than those that are properly trained to use them. PPE (Personal Protective Equipment) must be available and used when handling such chemicals. This is a task that should be considered for outsourcing due to risk.

Next Steps

Once the inspection is completed and the inspection checklist is completely filled out, it’s time to follow up on what was found. Have the team meet in a conference room immediately after the inspection and review the results of the inspection. Take the combined notes from all team members and add them to the inspection forms if not already done. Do not file the report away just yet!

The Manager must now create priority lists and work orders for each Plan member to address the findings of the inspection. Top priority should be given to items that cause risk to the property owner such as we’ve identified above. It is vitally important that anything that was found that poses a hazard to tenants/residents, visitors or invitees to the Property be communicated to those who need to know.

The tenants/residents and anyone who enters upon the Property must be notified of any hazardous condition(s). If the hazard cannot be repaired immediately, then the area must be cordoned off with a highly visible barrier and that barrier must be inspected frequently to insure that it remains effective.

Items found that do not pose immediate health or safety hazards such as dirt or stains should be assigned to a team member for resolution. A written close out of the work orders addressing these issues must be put in the file with the inspection records.

Conducting regular full property inspections, using a written checklist and immediately following up on items found during the inspection will minimize risk to the property owner and help to ensure that the property is in the best shape possible at all times.

Greening your Property Does Not have to Cost a Lot of Green

By Jeffrey S. Lapin, CPM®

 Sometimes, despite our best efforts to be responsible stewards of the planet, property managers’ desired green projects do not survive budget discussions with our owners. In my experience, the cause of a rejected proposal is often the way in which they are presented. More about that below.

We want to do certain projects that reduce energy usage and operating expenses, increase net income and value and yes, make the property greener. So we need to get creative and figure out ways to do these projects less expensively or alternatively, package them in more financially attractive terms that our owners can get behind.

Some energy efficiency improvements are classified as “Low Hanging Fruit”. That means that they are relatively inexpensive (relative to the savings attributable to those investments) and therefore provide a return of the initial investment in a relatively short period of time. Some can be completed within our already approved maintenance budgets using in-house maintenance labor.

The payback period for such investments (the time it takes to recover the cost in energy savings) is usually within the “sweet spot” (3-5 years). In this article, we will explore some of these green investments and how they fit in the larger scheme of greening our properties.

The immediate financial benefits of improving our facilities with low cost green upgrades include increased NOI (net operating income), increased value and the extended life of equipment. The benefits that are harder to quantify but are very real are improved tenant comfort and better community relations.

Consider this wisdom – just because it’s working as designed does not mean that it’s working efficiently. Older equipment and fixtures are simply less efficient than newer replacements.  That means that replacement with newer, energy efficient equipment usually makes great sense economically. Manufacturers are constantly turning out more and more energy efficient products because the marketplace demands them. Let’s explore some possibilities.

Benchmarking your property – how does it stack up?

The best place to start is to compare your property’s energy usage and expenses to similar buildings. This process, called “benchmarking”, is used by facility managers and asset managers around the world to determine if the subject property is performing better than, the same as or worse than similar properties in the same age range, size range, sub-market, etc.

Fortunately, property managers have a lot of resources available to benchmark their buildings and establish the baseline or current condition of their properties. You don’t have to call around to other managers and ask what their energy usage and expenses are.

Web based sources of comparative expense data include IREM’s ® Income/Expense Analysis Reports (available through IREM’s® web site – www.irem.org) and IREM’s® partnership site with Green PSF® (www.IREMSustainability.org ). These sites and others like them, such as Energy Star® (www.energystar.org), are huge data bases of building data including the age, size and type of buildings and their respective energy costs. Simply sign up, enter your data and compare it to the other properties of similar make up.

Energy Audits

In addition to web based information for benchmarking, numerous energy audit providers exist in almost every area who, for no cost or very low cost, will come to your property and conduct an energy survey or audit. Often, these groups work hand-in-hand with licensed electrical contractors and utility providers to provide these services in conjunction with state or federally mandated energy reduction programs.

These programs usually have large pools of government grant funds associated with them and the energy providers are mandated to get those dollars converted into lighting or other equipment retrofits designed to reduce energy usage. In other words, they want to invest in your properties.

The usual energy audit consists of a full inspection of the building(s) by an experienced contractor who will look primarily at lighting and HVAC as these are the largest energy users in a typical commercial building. Then the auditor will use his findings, along with your energy bills to issue a written audit report detailing the findings and recommendations. Expect a lighting retrofit recommendation, along with associated rebate savings offered by a licensed contractor who is working with the utility provider to utilize government funding for at least part of the cost.

The audit report, also usually free, will likely detail the products recommended and guidance on how to implement the program and the projected savings plus payback period analysis. These reports are invaluable to the property manager as they provide an “independent” third party analysis of projected savings for upgrades that really make a difference in the property’s energy bills over the short and long haul.

Heating, Ventilation and Air Conditioning (HVAC)

HVAC is likely the largest single user of energy at your properties. For most commercial properties, HVAC usage comprises up to 50% of the total energy usage. So a retrofit of this equipment will usually have a big impact on utility costs. But even if you don’t have the ability to retrofit your tired, old HVAC system right now, there are positive steps you can take.

Start with your controls, including thermostats. Depending on the age and design of your property, you may have a simple system of package units on the roof providing both heating and cooling to your tenant spaces. In such cases, and depending on the age of the building, these units may be controlled by simple analog thermostats located in the tenant spaces. Many older properties (more than 10 years old) do not have EMS systems (Energy Management Systems). Or if they do have such systems, they are early versions and not much more than time clocks to start and stop equipment.

Consider upgrading your thermostats (T-stats) to digital, programmable units. Digital T-stats have the ability to be programmed to the exact temperature range that you specify (which may be set by ASHRAE)HH. They are also more precise and if locked, cannot be “fiddled with” by your tenants. You can even program a range of temperatures that are available for the tenants to select. This alone will save a lot of money as it prevents the tenants from setting the summer temperatures down to 68 degrees or the winter settings up to 75 and leaving for the weekend. It also will likely increase overall tenant comfort.

If your building has an EMS system, consider yourself lucky. But even sophisticated EMS systems require some maintenance. When was the last time the software running the system was updated to the newest version? If it’s been a while, this may be a great investment. The software is the “brains” of the system and the manufacturers of EMS systems spend a lot of money to constantly upgrade the software to do more and manage better. If your version is more than two years old, consider this upgrade.

And speaking of starting and stopping big equipment, managers should know that their electricity rate is based on peak electrical usage as determined by the meter. So if your big motors, fans, chiller, cooling tower fans or other large energy users are programmed to all start at the same time, you are likely setting a peak usage at a very high level. Instead, use your EMS (or time clocks if that is what you have) to optimize or stagger the start of this equipment so it gradually comes on in the morning instead of all at the same time. And it’s a free improvement!

Solar gain or heat loss from windows, especially older single pane windows, can increase or decrease the temperatures inside the occupied areas of a building more than other sources such as lighting and people load. Take another look at window treatments such as solar film. New technology in such films has vastly improved the look, longevity and effectiveness of such products. 3M’s Prestige® line of film is virtually invisible from inside and outside the building and can greatly reduce solar heat gain.

And while you’re at it, take a fresh look at your window coverings. Are you still using metal mini-blinds? These can often act as a “heat sink”, absorbing and holding onto heat, adding to the amount of heat that your tenants feel when it’s hot and that the HVAC system needs to remove. In such cases, a modest investment in roll down solar shades may drastically reduce solar gain and have a very short payback. These shades allow the tenants to look outside, but block up to 97% of the solar radiation entering your building. They also keep heat in and they look great. Maybe it’s time to change your tenant improvement standards.

When was the last time you had a contractor look at the condition of joint sealant at your property? Over time, sealants wear out, shrink, move and get pecked out by birds. This includes the joints between panels on the exterior of the building as well as the window frame to panel joints and the seals of the glazing itself. Voids left by inadequate or failed sealants allow warm air to escape from the building in winter and cool air to escape in summer. These conditions are easy to fix and will have a dramatic effect on energy usage.

Similarly, all door seals to the exterior should be checked regularly to ensure that weather stripping and gaskets are in place, not damaged and doing what they were designed to do. By the way, do your tenants prop exterior doors open for smoke breaks or convenient no-key entry? You might as well leave the windows wide open.

Lighting Retrofits

The reason why retrofitting lighting from incandescent, older fluorescent (T12 style), high-pressure sodium (HPS), halide and other older technologies is usually on the menu for any greening program is that lighting in most commercial buildings is the second largest single user of electricity. Per Energy Star®, lighting averages 25-30% of a commercial building’s energy usage.

Many property managers do not even explore or recommend such programs due to the large upfront cost and inconvenience to tenants associated with such endeavors. It is well worth the property manager’s time however to pursue lighting retrofits because of the “bang for the buck” they provide. And if you are able to take advantage of generous tax dollars which utility providers are mandated by law to utilize for such programs, you can end up with a net cost to savings that results in a very acceptable payback period (often 3-5 years).

But if you cannot take advantage of such programs and do the big lighting retrofit, see the next section for the “Low Hanging Fruit” items that you likely can do for little cost and still be a hero to your owner.

What Can You Do Now? – Lighting

Even if rebate programs are not available or if your owner does not want to spend any significant money on green projects, you can still complete upgrades that will have an immediate impact on your property’s bottom line.

First, focus on the largest users of energy. As stated above, after HVAC, Energy Star® has found that lighting is overwhelmingly the biggest user at 25-30% of your usage. Retrofit kits can be purchased relatively inexpensively to convert existing lighting fixtures to high efficiency LED. Talk to your lighting supplier about available options that can be installed in small phases.

If your building is currently outfitted with fluorescent fixtures that utilize either T12 or even T8 type bulbs, you’ll be amazed at the difference an LED retrofit will make in both the energy usage (it’s a fraction of fluorescent) and the improved levels of lighting achievable. And best of all, once you install LED, you won’t have to change those bulbs for a long, long time. Some are convinced that LED light colors are too harsh but newer LED has solved a lot of that objection. Many LED fixtures are dimmable – check it out.

And lighting is not just the light bulbs. Installing motion sensors to control lighting in occupied areas as well as common areas (don’t forget electrical rooms, mechanical spaces, storerooms, etc.) is a great way to reduce your building’s energy footprint. Why light unoccupied areas?

Updating your building’s tenant improvement standards (the specifications for all new buildouts) is an important step in moving your properties toward energy efficiency. As new suites are built out, bring lighting up to LED lighting standards, install motion sensors and controls and use other technologies to gradually reduce energy costs.

Speaking of controls, computer technology has allowed the property manager and engineers to micro-control the lighting and HVAC usage in commercial space to a degree never before imagined. Some states (like California) require most new tenant improvements to include energy management systems to harvest daylight, meter electrical usage and reduce HVAC zoning to very small areas. And while these technologies are not cheap, it is all relative to the associated savings. Think payback period and lifecycle costing, not initial expense.

NOTE: ONLY A LICENSED ELECTRICIAN SHOULD PERFORM WORK ON ELECTRICAL SYSTEMS. SOME FIXTURES ARE CONNECTED TO HIGH VOLTAGE SOURCES AND UNTRAINED PERSONNEL SHOULD NOT ATTEMPT TO REPAIR OR REPLACE SUCH FIXTURES DUE TO THE RISK OF SEVERE INJURY OR DEATH.

Water usage

We sometimes forget about the amount of water we use in commercial buildings. Things like cooling towers, water cooled chillers and even our landscaping are big water users (and often water wasters). Consider as additional Low Hanging Fruit, upgrading fixtures such as toilets, urinals and faucets to low-flow type devices. Installing motion sensors on faucets and toilets can save significant water. And usually these items can be installed by your in-house maintenance crew, saving significant money.

Also look at drip irrigation as a great way to use water more efficiently. And a new computerized controller with a rain sensor will pay for itself rather quickly. By the way, are you watering sidewalks, parking lots and such instead of plants? Adjusting spray heads is a must.

Switching out older water heaters and boilers to tankless models is not inexpensive but the payback period is typically fairly short. Even if you can’t toss out your old equipment now, consider upgrading when you do need to replace this equipment. And consider installing a recirculation pump on the hot water loop. This ensures that tenants won’t be running the hot water for two minutes before it’s actually hot at the tap.

Enlist the Help of Your Tenants

My final suggestion is to use another free option to green your property – your tenants.

If tenants understand what you are trying to do (reduce costs and be environmentally conscious) they will often get on board and help you. After all, most people today are more conscious of their carbon footprint and want to feel good about saving the planet. Consider holding a green building tenant event with a speaker who can address these issues. And ask the tenants to conserve, be a part of the effort, etc. Make a game of it. You will be surprised how the tenants will compete to see who can be the best at policing the T-stats, closing doors, turning off lights, etc.

And remember that the tenant’s computers, monitors, copiers and specialty lighting are all adding to the energy usage at the property. Make them aware of that and encourage them to upgrade to more energy efficient equipment too.

Conclusion

Most of us who operate commercial properties do not have unlimited funds to spend to green our projects. Even investments that have a short payback (3-5 years) may be disapproved due to a lack of funds. That is the reality in which we live.

But by being creative, showing the lifecycle costs and using some of the other ideas presented here, you can be a green hero with your owner and with your tenants. Many of the foregoing ideas are zero or low cost and can often be accomplished with little outside labor or materials. You have a lot of resources that are there for your use – especially those provided by IREM®.

Start by benchmarking your project against similar buildings in the market. If you can show the owner that your energy costs are higher than they should be, which is likely hurting the leasing effort, you’re on your way to a greener property. Take advantage of government grants to reduce the net cost of retrofitting lighting and HVAC.

Lastly, learn to speak the language of finance to sell your energy efficiency projects to ownership. Instead of presenting a lighting retrofit as a cost of $X.XX, consider presenting the lifecycle cost and payback period of a proposed project. You may just find that presenting your ideas consistently with the owner’s way of thinking of investments is a winning strategy.