Message from President Dan Wurtzel - 2015 Budget Considerations
Operating Expenses: Energy, Extreme Weather, and Unforeseen CircumstancesEnergy costs, which can comprise up to one third of a building’s budget, can be difficult to predict because they are dependent on weather as well as fluctuating market factors that can impact commodity prices. To aid in this process, the energy portion of your building’s budget is guided by FS Energy’s industry-leading database, which captures historical cost and consumption data for the more than 500 properties within our portfolio to more accurately forecast future costs based on two-year average usage.
Aside from increased utility costs, buildings must also be prepared for ensuing residual effects on day-to-day operations. For instance, the severity of last winter’s storms saw some clients incurring unanticipated expenses from snow removal, heating plant issues, exterior building envelope repairs, equipment malfunction and staff overtime. Additionally, an unusual shortage of sodium chloride (ice melt) in the northeast also caused prices to nearly quadruple.
Boards should consider allocating a five percent contingency in the operating budget for unforeseen circumstances. Preparing for unanticipated expenses during a year can be the difference between coming in on or close to budget versus an operating loss.
Capital Expenses: Local Laws 87 and 11Local Law 87 requires buildings over 50,000 square feet to file an Energy Efficiency Report (EER) with the Department of Buildings. The EER consists of an ASHRAE Level II energy audit and retro-commissioning study of base building systems. EER’s are due once every ten years based on the last digit of a building's tax block number. [i.e. If the BBL is 4-05268-0085, your building is due to comply in 2015.]
Even if your building isn’t due to comply for several years, we recommend boards start the process as soon as possible for several reasons:
- First, it can take a consultant up to18 months to prepare the retro-commissioning study since it must cover at least a 12 month cycle to account for seasonal changes in energy use and performance.
- Second, the report will define the specific deficiencies a building is required to correct. Understanding the scope of the efficiency measures that may be required well in advance of your filing deadline puts the board in a better position to formulate a plan of action – especially if big ticket items are revealed.
- Third, correcting deficiencies sooner than required often benefits the operating budget through decreased utility costs.
Local Law 11 requires buildings taller than six stories to conduct a façade inspection every five years. The law was updated last year to include inspection of railings on balconies and terraces for structural integrity.
While it's difficult to estimate the added costs of compliance, the more intricate a building’s architecture – such as number exposures, balconies, and roof decks – the more likely the inspection will reveal additional capital work to comply with the law.
Engineers and architects charge about $200 per hour to conduct these inspections. The additional time to inspect the railings on balconies and terraces could increase the cost of the inspection by up to 15 to 20 percent.
Even if a Critical Examination Report for Cycle 7 has already been filed for your building, a supplemental report must be filed by February 1, 2015 unless that filed report specifically addressed railings and guards.
Your Property Manager Can HelpPlease consult with your property manager to see if any of these items warrant further consideration as you finalize your building’s 2015 budget.
FirstService Residential New York