How to Avoid the Tenant Submetering Death Trap

Introduction

When the decision is made to submeter tenants for their utility usage, either at the development stage or in an existing building, the owner or property manager is making a choice that could impact their bottom line for decades.

Even with tenant relationships and potentially millions of dollars at stake, choosing a submetering vendor is often an afterthought. In fact, landlords usually don't make a decision at all. More often than not, the company in charge of submetering is selected by the design engineer because they provide cheap hardware and have been around since the 1980’s.

Without realizing it, owners and managers are entering into a “Death Trap” in which they are forced to use an inferior service and cannot make a change even when they want to. Even worse, because the hardware is “closed,” meaning it does not communicate with other systems in the building, the landlord is paying for the privilege of residing in the Death Trap.

There are a lot of problems with manual meter readings from analog meters, and that setup should be avoided at all costs. But even remotely read, digital submeters can lead to issues down the road. The problem with the Death Trap is that there are no cost-effective ways out. If an owner wants to switch, he is going to have to rip the problem out from the root – something that nobody wants to do.

Property managers are putting a lot of trust into submetering companies. Disputes with tenants over invoices that are too high can become very frustrating, and the opposite - charging too little for utility bills - directly hurts revenue streams. But the vendors that profit from the Death Trap have been around so long, and are so comfortable in their position, that they tend to not appreciate those they serve and have no incentive to innovate.

To add insult to injury, companies in the Death Trap may find extra “nominal fees” from the vendor for common situations such as tenant move-ins/move-outs in the middle of a billing period. And why not? The manager is already in the Death Trap and he can’t access the data to split up the invoice between two tenants anyway. The truth is, the “nominal fee” is paying for someone at their company to do something that should be handled automatically with software.

As submetering increasingly becomes common practice, and even mandatory in places like New York due to new regulations such as Local Law 88, it’s important to know what to ask to avoid the Death Trap.

1. Putting the Trap in Death Trap

The first question any owner or property manager should ask when deciding on a submetering vendor should be about the hardware that they install.

First, does the meter have a digital output to support remote, real-time meter reads. Secondly, is the hardware “open” or “closed?” This can be the difference between being locked into a provider and remaining flexible in your choices.

Imagine this:

You hire a company, they install their meters and start providing service. For a while, everything is going fine. They are reading your tenants’ consumption, using that data to produce bills and sending the invoices to your tenants in a timely manner. After a few years, you begin to notice that the invoices are not getting to your tenants on time, and sometimes they are incorrect. When you try to bring up the issues you are having, the vendor is not responsive to your inquiries.

Eventually, you get fed up and want to change providers. But the submetering company’s meters use closed protocols and no other provider can get access to the data. Now you are forced to decide if you want to pay the large capital expenditure to have new meters installed, or settle in with poor, frustrating service for the foreseeable future.

Now imagine:

You hire a company, they install their meters and start providing submetering services. They are reading your tenants’ consumption, using that data to produce bills and sending the invoices to your tenants in a timely manner. Because readings are taken in real time, bills are always accurate. Even better, because their hardware is open, the invoices are automatically imported into the existing accounting system to save time on the back end. The money saved is instead used on productive improvements to the building and the tenant experience.

The point is, to avoid the Death Trap, always make sure the hardware of the vendor uses open protocols so that building management can remain flexible and effective. You want your tenant submetering provider to earn your business regularly, not just inherit it by default.

2. Data Granularity

Now that we’ve avoided the trap of closed hardware, we can start looking at the nature of the data we’re gathering.

Some vendors’ hardware only takes one reading per day. This may sound like a lot more than the utility, which may only take one reading per month, but it is a far cry from taking a reading in real time! There are a lot of implications with this difference.

First, billing periods are not standard. While it seems like readings are monthly, sometimes they are 28 days, sometimes they are 32. Without taking readings continuously, it’s impossible to get tenant invoices accurate, which means either angry tenants or lost revenues.

Moreover, by pulling data at daily intervals, there are no insights that can be gathered for either property managers or tenants. For example, when peak demand for a month is reached, the manager will have no idea who contributed to that peak. If there are premiums or discounts on utility costs in the lease, a lack of granularity can have major ramifications.

On the other hand, readings taken in real time allow managers to get a clear view of what is happening in their building, and make decisions accordingly. Having access to these data can prove to be very helpful when tenants complain about overbilling. A property manager can share a detailed breakdown of their consumption over the period in question to quickly resolve the dispute with the actual data.

3. Seeing is Believing

Granular data is especially valuable when there is a way to visualize it.

Unfortunately, many submetering vendors do not provide any software for owners, property managers or tenants. In the cases where they do, the last line of code was likely written before Y2K.

There is no reason for tenant submetering to be a black box that is ignored until there is a problem. Paying upfront for tenant utility consumption is a real cost to owners, and outlay recovery can have a big impact on cash flow.

Understanding and predicting utility spend in the middle of the month can save a lot of headache when the bill finally comes. In addition, while utility bills are difficult to understand, software can intuitively visualize data so that it can quickly be digested by anyone.

Lastly, younger and more technology savvy tenants are starting to demand the same. According to a recent Freddie Mac survey, tenants are more worried about escalating utility bills than rising rent: 70% vs. 63% respectively.

Combining real-time data with software allows landlords to transform utility submetering into a tenant amenity. Services such as alerts to tenants of peak demand or when they are running their appliances during off-hours can help tenants keep their energy costs down and even command a premium in competitive markets.

4. Talk to Me About Service

Unfortunately, there is no Yelp for tenant submetering companies. Still, don’t assume that the company that has been around the longest or the first one the design engineer suggests is going to provide the highest level of service.

Check in with industry contacts that are using that vendor.

Do they find themselves making a lot of calls to the vendor? Does the vendor usually pick up? When they do, are the representatives on the other line helpful?

It should be a red flag if another owner or property manager says they make a lot of calls to deal with issues around data collection or billing, or even if it’s necessary to call to understand what the data is saying for the month.

If they are calling and do not get a response, perhaps it is because they are receiving so many incoming calls from clients having issues. Maybe they are not helpful because they are complacent as a status quo service provider.

Always remember, not all submetering companies are made the same. Falling into the Death Trap can keep you stuck in an analog world while your competitors become increasingly digitized and efficient. Follow these guidelines and you will be safe from the Death Trap and free to go back to your core responsibilities.

Crunching the Numbers of Tenant Submetering Waste