Free Up Cash Flow with Building Commissioning
Have you benchmarked systems performance for buildings in your portfolio? If so, do you have a system in place to continuously monitor their energy performance?
Commissioning helps optimize building systems so that they operate efficiently and effectively. This process is vital for new construction buildings and new systems in existing buildings- eliminating the need for costly capital improvements and repairs.
For existing buildings without new systems, the commissioning process is sometimes referred to as retrocommissioning, which is an investigation of all existing building systems to optimize O&M procedures.
Commissioning alone can reduce building energy costs by as much as 20%, and create permanent operating expense reductions. Portfolio owners also report reduced capital expenditures.
Commissioning typically costs 3% to 5% of the annual operating expense budget, with an average payback period of 1 to 3 years, though several portfolio owners have reported payback periods as short as 6 months.
Commissioning/Retrocommissioning should be a cornerstone of your asset management and efficiency strategy
Portfolio owners need to squeeze every cent of profit out of their existing assets, and at the same time, keep their tenants happy. Commissioning lowers operating costs and enhances value. However, the recent upswing in LEED-EB interest has sparked some debate among portfolio managers about commissioning’s value-add.
The portfolio managers who are still on the fence about having their buildings commissioned usually state that they are confident that their existing asset management procedures already reveal any remaining efficiency opportunities out there. So, they frame the cost and process of commissioning as an unnecessary expense.
What we see, however, even in the portfolios of best in class investors, are the following patterns (which only get worse in an economic downturn):
- A great disparity in the training and education of property personnel. Also, higher turnover in property level personnel.
- Lack of standardized operational audit systems across a portfolio. When the firm does have the system formally in place, it is not always true that they consistently invest all amounts needed to achieve O&M excellence. It’s very typical to see less money being spent on a property marked for disposition than on another that will be held in the portfolio.
- Capital expenditure programs driven by short-term gains and penalizing longer term investments.
- O&M systems that are highly specific to a particular firm (or particular individuals).
Commissioning and retrocommissioning are not cure alls. Using them, however, does help to mitigate many of the above issues. Owners not only benefit from cash operational savings, but also a documented path to those savings that is comparable across firms, which help preserve a stronger sales price when assets are put up later for disposition.
There is also a positive risk management connection, too. Some insurance companies, such as Fireman’s Fund, structured their green insurance policies with premium reductions for green buildings based upon their opinion that commissioning and retrocommissioning reduce the common types of property loss.
Key Strategies for successful commissioning:
- Create a knowledgeable team: Whether you utilize internal talent to manage commissioning, or outsource the entire process to a real estate service firm, make sure whoever leads the team is experienced. This well help maximize the monetary returns from commissioning.
- Engage your tenants in the process: They will have a lot of insight into what is working, and not working, about your building. Human behavior plays a huge role in whether buildings are operated efficiently- the most advanced energy efficiency systems are worthless if your tenants aren’t happy and find a way to override them.
- Examine your leases: Depending on your lease structures, you may be able to recover the costs of the commissioning process from your tenants. If you have net leases, the operating cost savings from commissioning will positively impact your tenant’s overall occupancy costs, making it easier for you to pass-through costs.
- Commissioning should be continuous: To keep your assets running efficiently, you should engage some level of continuous commissioning. This will ensure that systems are always operating effectively, and should continue to minimize and reduce O&M expenditures.
To learn more about the commissioning and how to start the process, reference the Whole Building Design Guide. The guide provides links to other great resources on commissioning.
Additionally, explore the California Commission Collaborative website. This site provides a directory of commissioning service providors, case studies, and a variety of online tools and commissioning resources.
