While there’s plenty of room for data to improve the construction process, this story starts at the handover from the developer to the owner after the property has been tested, certified, commissioned and placed in service.
The concept of implementing a data-driven approach early in the operational lifecycle is important because of how rare it is. Excluding some Class A offices built in the last 15 years, deploying technology to streamline building operations is generally an afterthought, brought in years down the road to boost NOI or solve chronic pain points.
However, data is not just an after-the-fact thing. It can drive the strategy and daily decision making from the beginning of the building’s lifecycle. The case for digitizing operations early is simple; at no other point will there be the level of concentrated engineering or design intellect put into the asset.
In this “steady state,” equipment is in mint condition, controls and settings are optimized, and supporting documentation is well organized. From then on, every aspect of the building and associated operations will begin to degrade, either quickly or slowly depending on how it’s managed.
This is sometimes characterized as performance drift, which is a very real phenomenon of systems becoming about 20% less efficient 1-2 years after commissioning, often due to operators adopting a shotgun approach to addressing mechanical problems and tenant comfort issues.
The truth is, degradation goes well beyond equipment efficiency, or even equipment at all. If you walk into the mechanical rooms of most commercial assets that have been operational for more than a few years, it’s likely to look something like this:
This represents a degradation of organizational knowledge, where information goes from explicit (documented and accessible) to tacit (learned and personal). Usually, this leads to deferred maintenance, which ultimately causes equipment failure and a depreciation of the asset.
The real question is, if everyone is doing it, does it matter?
Interestingly, according to Clinton Capital Management, nominal cap rates (cap rates before necessary maintenance CapEx) still dominate the real estate market. But if quoted nominal cap rates are achieved because of skimping on CapEx, the property usually later sells at an impaired price. At the end of the day, the economic cap rate (with necessary maintenance CapEx included) represents the true economics of the property.
Sooner or later, maintenance must be paid for, either as ongoing operational and capital expenses, or in the form of a depressed sales price. The more the processes and configurations that drive these costs are aligned with the original specifications, the lower they will be. Now, technology is making it easier than ever to capture and maintain that ideal state.
Years 0 to 15
It’s common practice for developers to provide physical and electronic copies of critical system information at the end of the construction phase of a project. This data dump is incredibly valuable, including technical reference documents such as equipment specs, an asset inventory, and O&M binders; dynamic documents such as maintenance tags and critical parts lists; financial documents such as capital budgets and certificates of insurance; legal documents such as service agreements and warranties; and administrative documents such as contact lists.
Unfortunately, for one reason or another, these documents become unusable or inaccessible over time. In turn, the unnecessary time spent searching (sometimes in vain) for this information becomes a drag on resource management, productivity, maintenance efficiency, and vendor management.
A data-driven approach to building operations doesn’t always mean real-time analytics. Simply storing these documents in a digital repository that operators can access in the field would be incredibly valuable.
Once that is covered, more advanced analytics can prove incredibly valuable by preserving the engineering smarts that went into commissioning each piece of equipment. While a building management system (BMS) can be helpful in setting controls and parameters for equipment, a smart building platform can provide the redundancy necessary to detect and quantify the cost impact of any departure from the optimal state.
Years 16 to 40
By the end of the 15th year, the asset has likely changed ownership, maybe several times. In addition, critical equipment is entering the twilight phase of useful life. In fact, according to a study by JLL, some pieces of equipment may already need to be replaced if degradation has occurred due to poor maintenance strategies.
While real estate investment trusts (REITs) generally have long-term investment horizons, many private real estate companies are under pressure to return cash to their investors by selling their assets. As such, there’s a direct incentive to extend the life of critical equipment long enough to complete the disposition. This is true even if costs are capitalized to remain below the line because, as noted earlier, the economic cap rate will eventually come to light.
So, how can owners extend the useful life of equipment and meaningfully reduce necessary CapEx? By measuring KPIs such as mean time to repair (MTTR) and holding staff and vendors accountable to those numbers. The premise is simple; there’s a short window in which a small issue with equipment can be addressed before a much larger string of costly events occur.
Fortunately, this is enabled by the same qualitative and quantitative data captured in the early years. In addition to detecting any deviations in controls from the ideal state, smart building platforms alert operators and/or maintenance vendors to impending and unexpected equipment issues. When the technician arrives, technical and troubleshooting documents are easily accessible from the digital repository and the same sensor data can track how long it takes to bring the system back online.
When it comes time to sell the asset, not only will the economic cap rate reflect that there is little necessary CapEx, but the digital footprint of the work performed would likely be a more defensible estimate of the costs necessary to sustain ongoing performance than any buyer had previously seen.
Late Years
In older buildings, the name of the game is deferring obsolescence. There are at least three ways an asset can become obsolete: functionally, economically, and physically. Each of these are important, but for the purposes of this article, we’ll explore how a data-driven approach throughout the building’s lifecycle can defer physical obsolescence.
Every asset, no matter how well-leased and well-funded it may be, will face resource constraints. How are operators and asset managers supposed to prioritize investments? Often, the best source of information is a property condition assessment (PCA).
These are big, multi-disciplinary studies meant to enable the owner to make an informed decision regarding risks and stewardship of the property. Ironically, the size and scope of a PCA can cost as much or more than some of the equipment it’s informing about, ranging from 10 cents to $1 per square foot.
One of the reasons it costs so much is because how manual the process is.
However, the PCA of a building that has been infused with data since it’s operational inception would be much faster, less expensive and more accurate. For example, many of the aspects of a PCA, such as a trend analyses, load tests, and vibration and thermographic readings, can be done instantly by software.
At the end of the day, the marginal operating expense of the software required to store, trend and analyze data is minuscule compared to the millions of dollars of asset value that each owner of a property stand to gain from implementing and maintaining a data-driven approach to building operations.
Whether your in ground-up development or have an old building facing physical obsolescence, schedule a demo today to see how Enertiv can help bring a data-driven approach.
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