Finding the hidden cash flow in your building

Real Estate Weekly, Sept 22, 1993 by Alan Rothschild

Ancientalchemists searched relentlessly for a way to turn common elements into gold. How would you like to accomplish something seemingly just as absurd - turning wasted water into dollars.

It may sound like magic, but it is possible to do just that. Not through magic - but by the use of data analysis and specific management techniques.

Here is a partial listing of some recent results: *135-unit unmetered co-op building: $20,000 to $25,000 annual savings *200-unit metered building $9,000 to $15,000 annual savings *50,000-square-foot commercial building $ 10.000 annual savings *1,700-unit rental building $50.000 annual savings (soon to increase to $100,000)

The magical key to finding these cost savings - Water Use Analysis.

The most important thing in turning wasted water into money is not to know how much water your property is using, but how much it should be using.

By developing a physical and demographic property profile, and using statistical data adjusted by experience factors, it is possible to accurately predict how much water a building should use and how much it should spend annually on water and sewer costs. Comparing this estimate to current water and sewer usage and charges gives quick indication of potential areas for savings - both in metered and even in unmetered properties.

Once a Water Use Analysis indicates your building's "normal and acceptable" water consumption, there are several methods for creating savings. In the case of metered buildings, these methods begin to pay you back instantly by reducing your water/sewer costs.

If water use analysis indicates you should be using XXX gallons per year, and you are using XXX-plus, you have just discovered a source of additional cash flow dollars. A property's historical water use pattern provides no guarantee that it has not been pouring water (and dollars) down the drain during its entire existence. But a consumption analysis quickly determines usage efficiency and provides targets and areas of potential savings.

You don't need a mainframe computer to tell you that installation of conservation devices will reduce your water/-sewer costs. But low-flow retrofit is much more complicated than you would expect. Without knowing what results you can reasonably expect, and without proper installation experience, a conservation retrofit can easily backfire and actually increase water consumption. The cheapest device can often cost you much more money in the long run. Water Use Analysis can provide important guidance in selecting the most appropriate and effective devices, helping to make the retrofit transparent to the tenancy and often result in, in an upgrade in services. In commercial or hybrid buildings, a Water Consumption Analysis can tell you if charges are being allocated equitably. Many properties apportion water and sewer charges based on square footage. This is often totally inadequate.

A tenant in one commercial building (occupying only about 10 percent of the property's square footage) volunteered to submeter his premises and generously agreed to pay $2,000 per year to cover his share of the $10,000 annual water/-sewer bill. You have probably already guessed that he was costing more than this in actual use, but would you believe his fair share was over $7,000 per year - 70 percent of budget.

In another combination property, a commercial cleaner was consuming over 50 percent of the building's total water use. And they were being charged arbitrarily for only 10 percent. Correction of this error increased cash flow by over $10,000 per year-another case of magically turning wasted water into dollars.

If your building is not yet metered, it is probably in New York City, and may have even more potential for magical savings. New York City's Universal Metering Program is designed to switch all remaining unmetered buildings (mostly multi-family dwellings) from flat rate "frontage" charges to billing determined by actual measured consumption. The goal is to encourage conservation to reduce costly supply and sewage demands and thereby defer expensive additional infrastructure investment. The city's contractors are now working in various "high flow" sections in most boroughs, and the target completion date for metering all buildings is 1998. Under the "Window of Opportunity Program", you can also install a water meter early and voluntarily (and receive cost reimbursement), if you think it might be advantageous.

As specialists in analyzing and managing water costs, we have calculated premetering expenses for over 200 properties of all types.

One larger property (1,700 units), started saving about $ 50,000 per year just by installing a meter and switching to metered rates. After instituting a Water Cost Management Plan, their savings will approach $ 100,000. That's $100,000 every year.

And the majority of recent analyses of co-op properties have shown good potential for savings - sometimes more than 30 percent of the annual "frontage" cost - just by installing a meter and switching to metered rates.