Who could have imagined it? Your building, your space is empty or nearly so. Your staff is working from home. Your downtown with fewer cars, buses, subways, even fewer pedestrians and shoppers. This is what the COVID-19 pandemic has done.
If you are the property owner or manager, these are difficult times. You are worried about your own and your staff’s health. Many of your tenants have told their staff to stay home, yet you need to continue to spend energy to cool/de-humidify the spaces at least somewhat to prevent mold or other impacts. And maybe some of these tenants are not even paying you the rent. No one knows the long-term impacts of returning to “normal”. How will your city bounce back in the short- and long-terms?
So why upgrade now? Why pay attention to energy at all? Because there is a strong belief by many that commercial real estate will go through major changes, especially in the long-term and we finally put COVID-19 behind us. Will tenants return even when the pandemic is over? Will some return, but as a smaller version of themselves because more people are working form home?
Whatever the exact answers to these questions will be in your area, it is likely that there will be a glut of commercial real estate. Renters will enjoy a surplus of choices when their current leases terminate. What can a property manager/owner do? Now is the time to invest. Make your spaces more user friendly so you become more competitive in this market. Prepare your spaces for the next health concern with more space between stations and health stations available, too.
And also upgrade to reduce energy waste. However things turn out, it is likely that revenue for a building owner will not reach pre-pandemic levels – at least not for awhile. Therefore, it will be imperative to cut costs, and energy is a good one to cut, as there is much waste in energy usage and many strategies to reduce such waste pays back the initial cost in a reasonable amount of time. Then you have long-term cost savings to pass on to your potential tenants and can demonstrate that yours is a superior building. Both of these will put you in a competitive position.
Reducing energy waste is quite achievable. There have been great improvements in technology to save energy. However, many effective upgrades may involve making capital and/or structural changes to a building, such as your boilers or HVAC systems and the piping that comes from them, replacing or upgrading windows, and replacing failed steam traps, some deep in the walls. But keep in mind, if there is ever a good time to do such projects, it is NOW for two reasons.
First, capital is now easy to access. Yes, upfront capital costs of such upgrades and technologies may be daunting, but interest rates are at historic lows. Energy upgrades have the deserved reputation of highly profitable investments. Therefore, firms that specialize in loaning money for energy projects will charge lower interest rates than for other loans because the returns are high and risk of failure low. A well-designed upgrade can have ROIs of 20, 30, 40% or more return per year. So, borrowing at, say, 7% interest to move forward on a project that will return 25% per year is a “no-brainer”. And with PACE financing, the process is even simpler.
Another factor why now is the time to do even complex upgrades is that there are fewer tenants in the building. Property managers by nature are afraid of any effort that might disrupt the lives of a tenant. But in these days with many tenant spaces currently empty or under-utilized, this is the time to implement a major upgrade, such as equipment replacements, new windows or inserts, or breaking walls to get inside them to replace steam traps, while only minimally inconveniencing your tenants. And they’ll appreciate the cost savings and greenhouse gas emission reductions. Better to do these project “now” than after the tenants return to business “as normal” and then you need to scramble to cut costs.
Energy conservation and waste reduction are items you the property manager can get not only great financial benefit from but it will also put you in a more competitive position to attract good, reliable tenants. With many offices empty or under-utilized and money plentiful, NOW is the time to do smart, capital-intensive projects to save significant long-term costs, while cheap money is available, and inconveniencing few.
CCES has the experts to help you develop a plan and project manage your energy upgrade using cost-effective strategies to get the greatest energy cost reductions in the smoothest way. Contact us today at 914-584-6720 or at karell@CCESworld.com.