Unlocking Hidden Cost Savings

Real estate management is more than new carpet and paint; each property is a business unto itself requiring proper investment and management to sustain its longevity and earnings potential.  For example, we recently took one of our 30+years-old medical office buildings and upgraded several of its energy systems to operate as efficiently as possible.  Taking advantage of potential energy-efficiency tax credits offered by the IRS, we upgraded the lighting systems throughout the property to offer the most direct cost savings, which in turn creates for more cash flow and higher property value.

The idea behind this is simple: upgrade the lighting fixtures throughout the building, and save money on the power bill. In turn, report to the IRS in the year expended, and receive a tax credit of up to $1.80 per SF.  For our building, which was outfitted with obsolete, T12 lighting fixtures, we partnered with The Institute of Sustainability (www.tios.org) to survey our property and improve it accordingly. In the process, we found a potential 45% energy savings within the lighting system. At just under $50 per fixture, we realized that we could recoup our initial cost in just over a year and a half.  “A penny saved is a penny earned” couldn’t be a truer statement in this instance. The added value to our property through the increased NOI sure didn’t hurt, either. The switch to more energy efficient fixtures not only helped reduce our energy consumption, but also reduced our carbon footprint, allowing us to take another step towards operating a certified “green” facility.

In addition to the energy savings, there are prominent tax incentives to help persuade business owners to operate an efficient business.  One of the more pronounced programs is the 2005 Energy Policy Act (EPACT), where building owners and businesses alike are encouraged to implement the use of energy efficient resources in their building envelope services, their lighting systems, and throughout their air/water heating and cooling systems.  Upgrading to energy efficient components can generate tax deductions upwards of $1.80 per SF. You can find more information on these deductions, as well as the related reporting provisions and requirements at www.energy.gov.

A final note – Building Efficiency does not have to be an algorithm of large upfront costs and eventual tax credits and savings, but can also be done through a simple installation of automatic light sensors or programmable thermostats that cut off in the evenings. Simple moves such as this can save energy.  Knowing that additional programs and incentives are available is a first step toward operating and managing a certified property.

Our goal at Shannon Waltchack is to help our clients maximize their investment through effective and efficient property management.

For more information about this or if you have any other real estate questions, please contact us at [email protected]