Power supply will have broad impact on commercial real estate industry.

Power supply will have an increasingly significant impact on commercial property values and many real estate portfolios, according to Vince Berlen, executive vice president of SourceOne, Inc, who discussed how real estate owners can mitigate power risk at a recent Real Estate Technology Forum meeting.

According to Berlen, whose company provides utility management and consulting services to businesses, "Secure and reliable energy availability has become one of the most critical issues facing real estate owners. It can have a serious impact on the value of a property and its viability in terms of use options and what type of tenants it can attract.

"While it is standard to perform routine due diligence to expose liabilities that may compromise property value, such as structural inspections, title and lien searches or environmental studies, when purchasing a property, few individuals ever investigate power capacity and reliability," he continued.

Speaking to a group of leading real estate and technology executives at the New York offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, Berlen provided an overview of how property owners can assess and mitigate power risk. Among the risk categories he discussed were:

* Infrastructure Risk -- Before purchasing a property, it is critical for owners to ensure that the infrastructure will be able to support its current and future power requirements. Owners should interview the local utility to understand its capabilities, assess its plans to upgrade and gauge how its tariffs will impact the property.

* Regulatory Risk -- Utility rates change constantly and utilities are under no obligation to give customers the best rate. It is key for owners or their agents to regularly monitor tariff changes and provisions to ensure that the best possible rates are being received. In addition, new tariff filings may include minimum usage requirements for new data centers and other high power users.

* Commodity Risk -- Utility rates can be controlled by purchasing caps or collars (financial instruments which limit the range of price variations or the maximum increase in price) or fixed price contracts.

* Administrative Risk -- Metering and billing errors can account for overcharges of nearly 2% of the entire energy bill and a good bill processing service can reduce internal costs by as much as 50%. Owners should audit these items regularly as part of a total energy management program.

* Lease Language -- Today's leases must clearly define the responsibilities and obligations of both tenant and landlord with regard to power supply.

"Many areas of the power grid are less capable of de-livening high quality power or sufficient power for future development and this can have a significant impact on property value," said Jeffrey Moerdler, New York Office Section Head of the Communications and Real Estate practices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo and co-chair of The Real Estate Technology Forum. "If a building is located in an underserved portion of the grid it may take many years and millions of dollars before the utility can adequately reinforce the system in that area - making it critical for potential buyers to carefully assess the situation before acquiring a property of leasing space at a property."

"We can no longer assume that power will always be there," said Jonathan Rudes, president of Delphi Real Estate Advisors LLC and co-chair of The Real Estate Technology Forum. "Today, it is essential for anyone in the real estate business to fully understand the issues involved to help mitigate risk and protect their investment."