10 Lesser-Known Nuances of Commercial Building Management

Building management offers strategic value, especially for industrial and manufacturing professionals. However, taking care of a building means more than paying rent on time.

Company building management can come with a few nuances that a new business owner needs to understand to achieve operational excellence and profitability. Here are 10 things that management may overlook.

1.     Infrastructure Repair and Replacement

There’s a discipline of tracking the Estimated Useful Life of every major system, such as roofing, plumbing and HVAC. For example, the difference in energy consumption between a maintained heat pump and an unattended one can range from 10% to 25%.

Even a loose shingle or a cracked pipe can spiral into a dangerous and costly disaster. Therefore, place the focus on proactive planning for replacement while maintaining the current systems.

This due diligence will also help business owners avoid operational disruptions caused by emergency repairs.

2.     Strategic Smart Upgrades

When a replacement is near, business owners should consider upgrades that maximize convenience for tenants while increasing their return on investment (ROI).

Adding new technology like a smart garage door opener will benefit tenants and landlords who need to quickly get in and out of manufacturing buildings. A garage door torsion spring lasts about 10,000 cycles, so consider replacing it before hitting that number.

Smart upgrades lead to better ROI through lower maintenance costs, energy savings and increased asset value. Property owners should assess potential upgrades regularly to save time and money when scheduling installations.

3.     Leveraging Technology for Data

Modern software like computerized maintenance management systems can centralize maintenance data, automate work orders and inventory tracking and perform preventive maintenance scheduling.

These systems allow for increased equipment lifespan, reduced costs and improved productivity. Products like ServiceChannel and Rent Manager are great for multisite operators who require optimal data centralization.

The nuance lies in understanding these systems and using the data effectively. Training on these systems means business owners will have an accurate overview of their manufacturing centers and commercial buildings. This aids in risk management and reporting.

4.     Prepare for Evolving Insurance Needs

Insurance needs evolve as a building ages, its use changes or new climate and cyber risks emerge. Some insurance companies may leave the state if premiums are too high.

“Set it and forget it” insurance doesn’t bode well for any business investment. Conducting an annual insurance review can ensure there are no coverage gaps and that assets aren’t exposed.

This can also allow business owners to shop for deals and save money before purchasing a lot. For example, those who choose concrete construction over wood can lead to up to 63% lower commercial property insurance premiums.

5.     Proactive Fire System Maintenance

All buildings must have a reliable fire suppression system. Proper fire maintenance requires active, meticulous documentation, regular testing of all components and compliance with local codes. Pay special attention to alarms and extinguishers. Boilers and water heaters should also be fire-tested regularly.

Most of these inspections should take place monthly, and all findings should be recorded. Landlords must be physically present for these inspections.

System issues, such as low fuel levels or drained batteries, must be addressed immediately. One fire can destroy a person’s investment, so be diligent in this area.

6.     Pro forma vs. Actuals

Pro forma financial statements are projections of future performance based on assumptions, whereas Actuals are verified from historical data. These projections will serve as the basis for everything a business owner does regarding payments.

Business owners must regularly compare pro forma expenses to the actual costs.

The nuance is using this variance analysis to renegotiate service contracts, identify budget leaks and create more accurate forecasts. Hiring an accountant for projections is important to avoid budgeting pitfalls and potential audits.

7.     Triple Net Lease Management

The Triple Net Lease (NNN) management structure requires tenants to pay all property operating expenses, as well as rent.

The three “N”s in the NNN stand for real estate taxes, building insurance and Common Area Maintenance (CAM). CAM is an estimated cost that is refunded should the amount paid exceed the estimate.

The landlord must accurately create these estimates to maintain transparency and build trust with tenants. This can be tricky if the landlord doesn’t keep accurate records or past estimates.

8.     Possible Tenant Audits

Most leases grant tenants the right to audit the landlord’s books for CAM and other charges. This is the flip side to estimates, as tenants increasingly hire third parties to check for square footage allocations and possible buried expenses.

When an audit can happen is stipulated by the lease, usually with a notice period and typically once per year.

While a tenant can audit a landlord, they can mitigate this process through good estimates. A landlord should also audit a tenant who pays rent based on sales volume. Landlords have the right to verify those sales records and potentially recover more money.

9.     Proactive Communication

A consistent reporting schedule is vital for keeping up with tenants and other stakeholders. Creating clear, concise reports that provide stakeholders with key budget performance indicators, maintenance schedules and project status is essential for transparency.

This transparency also applies to the lease agreement. In the United States, a commercial lease agreement must specify ways a landlord can interact with the tenant and under what circumstances.

The nuance is for landlords to actively review any changes listed in the lease and to speak with the tenant about any upcoming changes to the lease and the laws.

10.  Integrating Environmental Metrics

There is a growing importance of Environmental, Social and Governance (ESG) criteria. These are a set of non-financial standards used to measure a company’s ethical impact, sustainability and risk management.

Of S&P 500 companies, 99% reported sustainability-related information in 2023, making it an important metric for commercial properties to assess performance.

Along with transparency, following ESG criteria will help business owners evaluate reputational and operational risks that aren’t found in traditional financial reporting. If the landlord chooses to sell, the ESG criteria will inform investors about the property’s sustainability.

Commercial Building Management Comes With Nuances

Commercial building management comes with multiple nuances across the financial, maintenance and tenant spectrum. Knowing these nuances will prepare managers for potential surprises. Whether landlords need to inspect their insurance or integrate environmental metrics, their due diligence will save them time and money throughout the year.