Cutting Costs in 2011 Part 1: Saving on your electric bill

Max Marine, a current undergraduate student at Temple University, will be sharing information over the next few weeks as a guest blogger, about how commercial real estate landlords can cut operating costs in a myriad of ways.  Max is the president of Rho Epsilon (RE), Temple University's undergraduate real estate club. Rho Epsilon was formed to encourage strong professional interface among all of the disciplines which relate to real estate. A major goal is to foster scholarship and professional excellence through communication between the academic and business professional community in the fields of real estate, finance and development, architecture, urban planning, law, and land economics. Today, Max will focus on cutting electric costs.
While the recession may have transformed into a recovery as Q1 of 2011 comes to a close, savvy owners of gross-leased real estate are still looking for innovative ways to boost their NOI by cutting costs. In terms of opportunity cost, R&M, Utilities, and Taxes are the most logical expenses to focus on. Let's use the infographic below as an example.

Imagine you pay $120,000/year in operating expenses (10,000SF at $10.00/SF/month). If you shave off 10% of your utility bill ($1.96/SF to $1.764/SF), you'll save about $2,400/year. If you can negotiate a 10% discount on security services, ($.10/SF to $.9/SF) you'll save about $120/year. Pretty intuitive logic, but still a nice workout to understand where your cost cutting objectives should be focused.

Of course, the real question is: How do you shave 10% off your utility bill each month? The answer? Check out the Pennsylvania Public Utilities Commission's website:

“Depending on where you live, you may be able to save money by switching electric suppliers. In the areas where rate caps have already expired, the number of electric suppliers offering services to residential customers has increased. In some areas, the electric supplier's rate is as much as 10 percent less expensive than the default service price offered by the utility. Also, an electric supplier may be willing to negotiate on price or other services to entice you into switching suppliers.”

Check out this link to find alternative energy providers. Deregulation of the utility market means that those who act quickly and shave 2% off their total operating expenses ($1,200/$240,000) can use those savings to either lease up space through offering additional tenant improvements, make distributions to investors, or improve the net operating income of the property. With summer only a few months away, seasonal electricity bill spikes are unavoidable. For owners of Pennsylvania real estate who are still struggling to make ends meet post-recession, the time is now.

Of course, most REITs and companies managing large portfolios of real estate assets won't care too much about deregulation in Pennsylvania.  Not to fear: deregulation has occurred in dozens of other states, with at least thirteen states on the cusp of energy deregulation.  For a quick reference, see the map below.

Thanks for tuning in… next week, I'll explore the concept of energy audits to further cut costs.