Spiraling Energy Costs Can Be Contained

Whether you're buying land to expand your business, developing a building, or expanding into an existing property through a lease, managing energy costs should be a top concern. Containing these costs can help you establish and/or maintain your competitive edge. As a real estate investment trust with a geographically and asset-diverse portfolio, operating cost-effectively is our responsibility to investors. Our energy spend is $60 million to $70 million per year, representing 24 percent of our operating budget. How can we manage ever increasing costs across properties spread through 39 states and 338 markets nationwide? You may face a similar question when trying to contain energy costs in buildings and plants. View these expenses as low hanging fruit - and find ways to cut them.

• Know your buildings. Get your finger on the pulse of your properties, and selectively target a group of similar ones. Your holdings may range from 30-year-old small suburban office buildings to new city high rises, some with windows that actually open. Since larger buildings may already have energy management systems in place, focus on those that do not. We developed an energy management program targeting mid-rise, 30- to 40-year-old office properties below 50,000 square feet that were not triple net and lacked usage tracking and control technology.

• Know your mechanical systems and energy uses and how they compare to other buildings of the same type. For comparable properties, contrast the operation and resulting kilowatt-hour-per-square-foot usage from building to building. For example, landlords are required to maintain a certain range of temperatures during business hours. Are you paying to have buildings set at a perfect 72 degrees 24/7, when they are largely unoccupied at night and over the weekend? By pinpointing overages, you will be able to quickly identify star performing properties.

• Assess the information you have. How much do you need to save from a kilowatt-per-hour or dollar-per-hour standpoint? How much can be saved? Do you want to achieve the EPA Energy Star rating? Determine your objectives. Focus on what you can save overall rather than individual savings. Aggregate cost savings among smaller properties can be significant. By monitoring the usage every month in targeted groups of buildings, we identified 106,000 water leaks in 600 properties.

• Quantify and validate what you have been able to achieve. Without that validation, the numbers are meaningless. Focus not on the dollars, but rather the percentages - which are more significant than dollars saved. For example, year to date, we have saved 4.3 percent of our operating budget. Our ultimate goal is 10 percent.

• Select the right energy management system. Remote monitoring can be performed in a variety of ways, from a vendor who provides monitoring services to a customizable web-based program. Keep tax incentives in mind. Assign a point of contact within your organization that is dedicated to energy and will take charge of and be held accountable for it. In our pilot program, we planned on wiring 115 of our sites for a web-based system using intelligent Internet software operated from our Pennsylvania headquarters. Within 18 months, we hope to have recovered our investment and reduced our energy consumption by 20 to 30 percent - a cost savings we can then pass on to tenants.

Energy is one of the highest-cost items facing businesses today. Taking these steps can help you achieve both significant savings and an energy efficient, environmentally conscious reputation.

Gregory Frazier is the vice president of property management for American Financial Realty Trust, a Jenkintown, Pa.-based real estate investment trust specializing in acquiring properties from and leasing properties to regulated financial institutions. He can be contacted at (215) 887-2280, or you may visit the company website at www.afrt.com.