What to Consider When Budgeting for Your Condo Association’s Energy Efficiency Upgrades

Posted on Thursday June 01, 2017

Energy benchmarking requirements like those implemented in Chicago and Evanston have begun to have an effect on building owners – including condominium associations. Many of them are starting to implement measures to reduce their energy consumption.
 
Improving the efficiency of building systems like your heating and cooling units can give you a lot of bang for your buck, especially if your property is more than 20 years old. Still, it’s important to budget carefully for these upgrades since many projects require a significant initial investment.
 
A number of factors can affect the type of investment you will need to make. “In older buildings, you want to look at the overall condition of your building’s systems,” says Robert Meyer, director of engineering services at FirstService Residential. “Are they at or past their useful life expectancy? Has the equipment been properly maintained and documented? How much maintenance has already been done on the equipment? What does the reserve study say?”
 
Here we examine these and other related questions your condominium association should consider before you upgrade your building’s systems.
 
  1. What is the system’s useful life expectancy (ULE), and how well has it been maintained?
    A system’s ULE refers to its anticipated lifespan. This is the starting point for determining what kind of upgrade makes sense. However, the ULE only tells half the story. The system’s maintenance history tells the other half. For example, even if a system is not yet close to its ULE, lack of maintenance may mean it is already reaching the end of its useful life. In contrast, a system that has reached or exceeded its ULE may have some good years left if it has been well maintained.
     
  2. What kind of work do you intend to perform – maintenance or a capital improvement?
    It’s important to understand the difference between maintenance and capital improvements. This will enable you to categorize your project accurately and fund it from the appropriate part of your budget.

    Strictly speaking, “maintenance” projects involve the ongoing upkeep that is performed to retain a system’s original condition. Simple measures, such as insulating boilers or pipes to reduce heat loss, would be considered maintenance projects. Funding for these types of projects should come from the “Repairs and Maintenance” line item in your operating budget.

    “Capital improvements,” on the other hand, are upgrades that actually increase a system’s value, service capacity or useful life. Larger projects like recommissioning a cooler or retrofitting or replacing a boiler would be considered capital improvements. Because capital improvements are often costly, they are usually funded with your reserves.

    If you are planning several upgrades, be sure to look at each one individually. Remember that how you categorize your energy efficiency expenditures will impact your budget, so you want to make sure that you account for each project accurately.
     
  3. How well prepared are you in case your maintenance project evolves into a capital improvement?
    In some cases, you may be planning a simple project and discover that you have a bigger issue on your hands. Perhaps your old boiler has outlived its ULE, and while tweaking it, your maintenance manager notices that it is making a strange noise. An inspection by your service company verifies that it’s finally time to replace the system. Hopefully, your condo association has been preparing for this inevitable day by setting aside money in your reserve fund.
     
  4. Do you have an up-to-date reserve study that accounts for capital improvements meant to improve energy efficiency?
    If you haven’t had a reserve study done within the last three to five years, ask your property management company to recommend someone with the appropriate background. Your reserve study should be conducted by a reserve study professional who has engineering expertise.

    An article by the Illinois chapter of the Community Associations Institute (CAI) points out that energy-efficiency projects are usually not included in reserve studies. Request that a funding analysis for your planned efficiency upgrades be incorporated into your study. Be sure that the analysis includes not only the upfront costs, but also any rebates, energy savings and payback periods.
     
  5. What kind of support should you expect from your property management company?
    A good property management company should be able to offer energy-efficiency services. Ideally, these services should be provided by a team of dedicated experts who can work with your board to identify cost-effective energy solutions and develop a plan for implementing them.

    Additionally, the company should offer information designed to help your board members understand energy efficiency opportunities and related legislative changes. Board members should also receive training in developing an effective budget that properly accounts for maintenance and capital improvement expenditures.
 
FirstService Residential is committed to helping associations in the Chicagoland area meet their budgeting and energy efficiency goals. For more information on how we can help you budget effectively for your system upgrades so you can lower your energy costs, contact FirstService Residential, the leading property management company in Illinois.
 

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