Summary
- The dual forces of lower rental revenue and higher costs due to COVID-19 mitigation have put the squeeze on every budget.
- Even a few layoffs can be the tipping point to cause corners being cut and the conditions for larger problems down the road.
- This article quantifies the value of a digital transformation for maintaining one piece of equipment, which can be scaled to match the size of any asset
An outlook report published by CBRE last November suggested that “resilient economic activity, strong property fundamentals, low interest rates and the relative attractiveness of real estate as an asset class” meant 2020 would be a very good year for commercial real estate… “barring any unforeseen risks.”
In the ensuing months, of course, the mother of all unforeseen risks has created severe economic disruption that has reverberated across every sector of the economy. In commercial real estate, this has translated to lower operating budgets and layoffs.
Even high-quality portfolios with a strong cash position haven’t been spared. The dual forces of lower rental revenue and higher costs due to COVID-19 mitigation, along with the uncertainty going forward, have put the squeeze on every budget.
Though necessary in tough times, letting go of even a few members can be the tipping point for those who remain to be able to get their work done. If no changes are made, this inevitably leads to corners being cut and the conditions for larger problems down the road.
On the bright side, there are countless workflows that commercial real estate operators do to manage their buildings that take much more time than necessary. This presents an opportunity to leverage technology to increase productivity so on-site teams can do more with less.
For simplicity sake, this article will quantify the value of automating and digitizing the workflows necessary to maintain one piece of critical equipment. From there, the savings can be extrapolated to match the size and makeup of assets large or small.
Preventative Maintenance
The Costs
Let’s say that, including salary and benefits, a building operator costs a real estate company $150 per hour. For this piece of critical equipment, an elevator, pump, boiler, air handler, or chiller, they’ll spend two “wrench hours” per quarter performing basic maintenance rounds and inspections. That adds up to eight hours per year, for a total cost of $1,200.
The Solution
Rounds and inspections are primarily for data collection purposes. Unfortunately, this is often done on paper, never to be seen again.
The immediate solution is to digitize this data collection so it is being recorded to the cloud where it can be trended, analyzed and retrieved instantly at a later date.
In addition to saving time and democratizing information, this initial digitization can be a stopgap while sensors are installed (or pulled from the BMS where possible) to completely automate the data entry aspect of preventative maintenance.
Sensor data paired with an analytics engine also unlocks conditions-based maintenance capabilities, where actions are only performed when the data indicates it’s necessary instead of based on a static calendar schedule.
There will still be some work necessary, but we can safely assume that this would reduce the wrench time by 75%, a savings of $900 for this piece of equipment.
Travel and Prep Time
The Costs
Of course, in addition to wrench time, to understand the full costs involved in preventative maintenance, we must consider the time spent preparing materials and printing out the work order and traveling to the equipment. Let’s assume each quarterly inspection takes an hour to prepare for and 30 minutes of travel time, adding up to four hours of prep and two hours of travel per year at a total cost of $900.
The Solution
The solution is the same above. The savings from automating data entry and reducing the number of visits with conditions-based maintenance should flow down to travel and prep time. At a 75% decrease, that’s another $675 in savings.
Ordering Parts
The Costs
As equipment requires maintenance, operators must bid out and order parts. This process is relatively streamlined in most portfolios thanks to good relationships with a small number of parts vendors. However, it still takes an hour a quarter per piece of equipment, four hours a year for a total of $600 to go through this process.
The Solution
Software can now run the bidding process automatically, across a wider range of vendors, to quickly get the best price without needing direct input from the operator beyond the part needed and where to ship it. Assuming this brings the time it takes to bid out parts down by three quarters, that’s another $450 in savings.
Troubleshooting
The Costs
So far, we’ve covered workflows that are routine and take a relatively small amount of time. Ideally, this preventative maintenance reduces the chances of equipment breaking down. However, it’s impossible to prevent all breakdowns.
When something does go wrong, operators must run a full battery of troubleshooting tests and diagnostics to determine the root cause. Assuming there are two breakdowns a year and each one takes six hours to resolve, that’s $1,800 a year spent on troubleshooting.
The Solution
Like preventative maintenance, troubleshooting can be streamlined immediately by digitizing the process, enabling operators to pull up maintenance manuals from their phone instead of having to physically find it in the chief engineer’s office.
Again, this short-term digitization can be augmented with a range of sensor data. When this sensor data is connected to an analytics platform that has seen every type of breakdown before, the software can pinpoint the root cause in seconds instead of hours. Conservatively, if this brings down troubleshooting time from six hours per breakdown to one and a half, that equates to $1,350 in savings per piece of equipment.
Coordination Time
The Costs
One of the most overlooked aspects of waste in building operations is the coordination time spent between technicians and property managers when gaining access to the site. If the property manager also costs about $150 per hour all in, six hours a year of coordination between the two adds up to $1,800 in total costs.
The Solution
In general, there is very little transparency into who is on-site at any given time, how long they stay there, and what they do while they’re there.
The short-term digitization strategy is to place QR codes at the entrance and on equipment so that technicians can “check in” to the building and each piece of equipment, with real-time notifications going out to property managers. This would remove the need for so much coordination between the parties, saving an estimated $1,350 in total.
Return Visits
The Costs
If the costs of troubleshooting and coordination seemed high, then multiply those costs by two to get the cost of return visits by the technician. Some incidents will be fixed on the first try, but others will take three or fours returns because, without information at their fingertips, technicians are making their best guess as to what the issue is.
The Solution
Improving troubleshooting with documentation at operators’ fingertips aided by sensors will improve the resolutions that are implemented. Sensor data will dramatically improve this by pinpointing exactly what went wrong (i.e. a refrigerant leak). If this reduces return visits per equipment from one per year to one half per year on average, this would save $5,400 per year
Cost of Parts
The Costs
The amount of preventative maintenance, breakdowns and troubleshooting translates directly to costs for parts. Even if the bidding process is streamlined and prices are good, ordering more than necessary is waste that cannot be afforded under tight operating budgets.
For example, for HVAC equipment, parts generally cost 4.5% of tonnage per year. That’s $3,889 for a good sized, 175-ton unit.
The Solution
The solutions above should flow directly to the need for parts. Conditions-based maintenance and improved troubleshooting means less parts are needed. While it won’t be a one-to-one drop with maintenance time spent, we can conservatively say a 25% reduction in the total cost of parts is safe. For that 175-ton unit above, that’s $972 saved per unit.
CapEx Reserves
The Costs
Taking the 175-ton HVAC unit above, we can assume that each ton costs $1,200, adding up to $210,000 for the cost of the replacement. If it lasts for 20 years, that means that CapEx reserves for that piece of equipment should be $10,500 per year.
The Solution
In the long term, digitized maintenance practices translate to fewer breakdowns, which extends equipment useful life. A study by JLL found that proper preventative maintenance extends equipment life like the 175-ton HVAC unit mentioned above by 20%.
If that same unit can last 25 years and, as importantly, asset management is confident in that fact due to the transparency they have gained from the digitized operations, the CapEx reserves for that equipment can be reduced.
In this case, a 20% longer lifetime means that CapEx reserves can be reduced by $1,750.
Energy Efficiency
The Costs
While the energy costs for the building may be a significant line item, it is relatively small for a given piece of equipment. For example, that 175-ton HVAC unit, which costs $210,000 to replace, only uses about $1,800 worth of electricity per year.
The Solution
Nevertheless, when budgets are tight, every dollar of waste must be eradicated. The sensor data used to perform conditions-based maintenance can also ensure that the equipment is not wasting energy by running when the building is unoccupied or cooling when it’s already cold outside.
Conservatively, we can expect a 15% reduction in energy consumption from these insights in a well-run building, adding another $270 worth of savings.
Goodwill with Tenants
The Costs
Obviously, getting tenants to resign their lease is one of the most important things that can happen during a recession. Replacing a tenant can cost over $500,000 compared to a renewal due to the tenant improvement allowances, broker commission rate, marketing costs, and vacancy costs.
The Solution
The building operations are going to be a relatively small factor in that decision making, but if we assume that it is 1% of the overall decision to renew, that’s still $5,000 worth of value that can be achieved through proactive maintenance of the HVAC and elevators, which directly affect the tenant experience.
Conclusion
In total, simple digitization strategies and low-cost sensors can created over $18,000 worth of value for just one piece of equipment. Multiply that by every elevator, pump, boiler, air handler, and chiller in the building to get a sense of the potential value a digital transformation can bring.
When budgets are tight and teams have the same (or more) work to do, something has to be done to level the playing field.
True, this digital transformation will require an investment. But for pennies per square foot, the value that is gained far outweighs the costs in even the hardest hit portfolio.
Remember too, that this is a phased digital transformation. The first steps of bringing workflows into a digital interface can be taken immediately, with the option to gain greater value as budgets allow.
Want to start your digital transformation to compensate for reduced operating budgets? Schedule a demo to see how the Enertiv Platform works.
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