How CRE Managers Can Create Cost-Saving Strategies

David Cohn
Mar 16, 2023
Commercial Real Estate Lending

With inflation, supply chain disruptions, reduced occupancy rates, and skyrocketing energy costs, commercial property managers face difficulties.

Now more than ever, seeking ways to reduce expenses in their operations has become increasingly critical. Cost-lowering measures can make a huge difference in the success or failure of a property management operation.

Are you looking for cost-saving strategies for the CRE (commercial real estate) assets under your management?

Here are some ideas from industry experts.

Look for opportunities to drive down energy costs.

Now is the ideal time to reduce energy expenditures while occupancy levels have yet to return to pre-pandemic rates. Sustainable and renewable solutions are a surefire way to reduce expenses for any commercial property, as non-renewable sources continue to rise in price.

Strategically plan and include energy-saving equipment retrofits in your short, medium, and long-term capital plans. These investments may require higher upfront costs but will pay off with significant cost savings on energy bills.

Many CRE property managers are already making minor adjustments to reduce their environmental footprint while keeping an observant eye on the bottom line.

The HVAC (heating, ventilation, and air conditioning) system should be your primary target as it is relatively easier to control compared to other energy factors.

Investing in energy-efficient HVAC systems and ensuring that building controls are closely monitored can significantly reduce a building's expenses.

Some of the most prominent CRE managers now make it a point to monitor energy usage at the properties they oversee—a valuable exercise when energy bills are rising while occupancy rates are declining.

For example, MacKenzie Management Co. analyzes energy expenditures in buildings with better control of HVAC usage and then compares those numbers across other CRE buildings under their management to reveal opportunities for prudent and effective cost-cutting.

Because of this, they could dial HVAC usage back when appropriate while ensuring that tenants and visitors stay comfortable. This resulted in significant cost reductions for properties where HVAC usage was under their control.

MacKenzie has also adopted a practice of keeping spare parts on hand to repair or replace HVAC equipment, considering the current state of supply chains. This allows them to avoid unnecessary, wasteful energy consumption from replacing entire units.

Measure everything

If you can't measure and quantify something, then it's impossible to manage it. Evaluating operational expenses consistently is an essential practice for any CRE property manager.

What items generate more significant spending than necessary? Drilling down your spending data is the key to uncovering these costly items.

Ensure that you create an operational budget and financial statements regularly each month. Doing this will enable you to monitor your expenses in real time and make any necessary adjustments quickly. Look at your day-to-day operations to see where tweaks can be made.

For instance, when was the last time you sat down with your janitorial services provider and discussed if they should come in two days a week instead of five?In addition, a building that currently has less occupancy would require fewer cleaning staff.

Another top CRE property management company, Foundry Commercial, focuses on building services as a significant target. Their strategy is to bid out service contracts to find the best possible services at the best possible prices.

This property manager handles insurance and taxes similarly. They stay in close touch with their tax consultants and ensure that assessments are aggressively appealed. Adding properties to the firm's consolidated insurance pool lowers costs, too.

Now is also an excellent time to make repairs and upgrades to save money. With vacancy rates lower than usual, property managers can make essential fixes, such as elevator upgrades, if necessary.

Embrace technology

Tenants expect a lot from commercial development projects—from common luxury areas to eco-friendly practices and modern building technologies, you name it, and they want it. But how can you incorporate all these features while keeping operational costs down? The answer is technology.

Investing in modern CRE technology gives tenants the comfort, safety, and convenience they expect. Harness its efficiency to achieve unprecedented competitive advantages that were previously impossible. Here are some ideas:

  • Use security systems and intelligent lockers - Investing in digital surveillance, access control, and elevator security systems can result in significant cost savings in the long term. Thanks to these efficient technologies, you will only need many security guards to monitor a building. Furthermore, tenants will feel secure knowing that their premises are safe with added safeguards provided by such modern solutions.
  • Intelligent lockers also revolutionize the delivery and receiving process, allowing secure deliveries without wasting valuable staff time. Couriers can quickly drop off packages in these innovative devices and be on their way without going to the reception desk.
  • Automate what can be automated - Recently, Deloitte issued an industry outlook proposing that commercial property companies invest in updated core technology systems that are more adaptable, automated, and easy to combine with revolutionary solutions.
  • Investing in automation can bring tremendous savings, with buildings spending more than $1 million on annual energy costs, potentially saving up to 10%. Tenants want automation, too.

According to Dell and Intel's recent research, most employees (44%) are unsatisfied with how 'smart' their current office building is and want to make improvements within the next few years.

  • You don't have to automate your building fully straight away. Instead, start small by adding intelligent devices you can eventually connect to one integrated network.

It's possible to incorporate bright designs into virtually any system or process, from security and HVAC to lighting. This gives property managers the power to oversee, manage, and enhance building systems for maximum efficiency.

These devices also accumulate data you can use to create detailed future budgeting strategies. There are savings opportunities in utilizing software and applications, too.

For example, the right platforms can allow your employees to save time on mundane management tasks like managing expenses, scheduling maintenance work, and organizing mailroom chaos.

  • Power up for less - Believe it or not, lighting consumes approximately 39% of the electricity used in an office building. If you still need to prepare to implement intelligent windows and solar panels, small steps can still be taken as interim solutions.
  • One of the simplest ways to cut costs is by incorporating occupancy sensors that immediately switch off room lights when people leave. And if bulbs are due for replacement, go for LED lighting products that last up to five times longer and use 70% less energy than traditional bulbs. Another significant portion of a building's electricity bill comes from leaving devices and equipment plugged in even when not used.

According to Energy Star, this can account for up to 75% of energy consumption. To prevent this costly mistake, use smart plugs or power strips to detect when a device is idle and automatically turn it off after a certain period.

  • Use intelligent temperature solutions - A significant portion (up to 86%) of natural gas consumption in commercial buildings is attributed to heating, with operating costs skyrocketing during the winter months. Likewise, air conditioning costs during the summer can be astronomical.

One of the simplest ways to combat high energy costs is to use programmable thermostats. Even the most minor temperature adjustments can be a great way to save money.

For example, lowering the thermostat by one degree in the winter and increasing it by one during summer has kept up to a 3% per degree change. You can also install window films, awnings, or reflective roof coatings to block summer heat.

  • Proactively prevent repairs with predictive maintenance - A building's essential components, such as heating and cooling, plumbing, lighting systems, fire safety measures, and elevators, should be given regular attention to prevent extensive repair costs and occupant disturbances.

Low-cost equipment is often unreliable; replace them with high-quality products professionally installed to reduce the maintenance cost over time.

Consider moving from your usual preventive maintenance routine to predictive maintenance! Use automated systems to determine when servicing is needed based on collected data. This reduces the number of costly emergency repairs and extends the life of your equipment. Plus, it minimizes labor costs.

A balancing act

Reducing costs is an art that requires a balance; the goal is to cut back on services where it's appropriate while also ensuring tenant satisfaction.

During challenging economic cycles, it can be tempting to reduce costs across all areas at once. However, this approach could damage both financial performance and tenant satisfaction outcomes.

Much like you would plan for an emergency, it's essential to start planning when it comes to reducing operating costs.

Always strive to reduce expenses, but make sure your tenants are not negatively impacted. You don't need to implement everything all at once; however, you should always be prepared in case of the unexpected. If you are seeking financing for your CRE project, work with a reliable CRE loan placement company like Capital Investors Direct.

Whatever your loan needs—Bridge, Hard Money, Construction, Jumbo, Stated Income, or Permanent—we can help you get the funding you need.