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Move to utility management a measured success.

Most apartment management professionals have heard of submetering and RUBS billing, the services that the industry now calls utility management. Many community owners and management companies have experienced the benefits of increased cash flow brought by transferring water/sewer, gas and electric expenses to the end users--the residents.

Though once only a few forward-moving management companies participated in this expense recovery program, today's list of participants is more extensive. AIMCO, American Management Services, Archstone-Smith, Camden, Equity Residential, Greystar, Capstone and Lincoln have dramatically improved cash flow by implementing utility management programs.

"Capstone Real Estate Services has made utility management a priority in its organization," said Jim Berkey, President of Capstone, Austin, Texas. "Our savings range from $300 to $6,000 in utility costs per month. And Capstone has made online access to final bills mandatory. Our collection rate has improved by nearly 5 percent by accessing these bills online before the deposit is refunded."

Of the estimated 16.2 million apartments, perhaps 20 percent to 30 percent have some form of utility management program for water/sewer, gas, electric or some combination thereof. While most of the nation's Top 50 owners and management companies, according to National Multi Housing Council, have at least some of their products under utility management programs, even those with 500 units or fewer have found it beneficial or necessary to implement such a program.

Doug Hause, Managing Director of Property Management for KennedyWilson Management, San Antonio, said, "After the first year of submetering, we reduced our budget in water and sewer expenses by 15 percent at one property and 18 percent at the other when comparing gallons purchased from the city, year over year."

According to one utility management company executive, unlike four or five years ago when submetered communities were mainly "the big industry players, today, nearly 70 percent of our clients have portfolios of 5,000 units or less."

Utility Management Trends

The implementation of utility management remains one of the final frontiers for owners to explore.

Allowing utility consumption by residents to continue unchecked could be the difference between positive and negative cash flow each month and at year's end.

Recent trends in utility management continue to develop on several fronts:

* The types of utilities and other expenses being managed by service firms;

* Improved equipment options;

* Comprehensive reviews and audits of the expenses including rates and tariffs; and

* Interactive use of Web-based applications.

About 20 years ago, water became the first utility expense in the United States to move from being paid by the owner to being paid by the resident. By using manual meter-reading technology and ratio billing (RUBS), the transition made steady headway. It seemed that the more that communities took advantage of that opportunity, the more communities inquired about and embraced the process.

Today, natural and propane gas, electricity, cable, high-speed Internet, technology packages, garages, trash removal and security systems are just some of the additional expenses being billed by service providers. During utility management's infancy, equipment reliability issues were more prevalent. As equipment became more user-friendly and dependable, participation increased. Today, it is relatively straightforward for a service provider to implement either a submetering or RUBS billing program.

The Move to Internet

Web-based reporting and access is a recent trend in utility management. Previously, communication between service providers and communities was conducted primarily through phone calls and faxes. Today it's more likely that e-mail and an interactive Web site are the media of choice. Employing those channels can be more efficient in terms of real-time processing, and even communities with fewer units can use them.

Moving in that direction allows onsite management and the service provider to communicate without having to rely on a phone or to speak with a live person. However, moving to e-mail and an interactive Web application exclusively can bring risk. For example, the removal of face-to-face and voice-to-voice communication can hinder progress. A fine line exists between exclusive e-mail and Web-based communication and site visits, phone calls and portfolio-wide communications that can help make all participants work together effectively.

Community Liaison Communications

Service firm community liaisons have been taking a more visible and important role. The more proactive a service provider is in establishing and carrying out a defined community visit schedule, the more successful the utility management program will be.

The community liaison provides a forum for community and regional management and ownership to learn of new systems, procedures and features. As efficiency and effectiveness increase, management may appreciate the fact that it can invest less time in the daily upkeep of its utility management program.

Conversely, that provides an opportunity for the service provider to view the implementation and use of corporate devised operations. It is common for both the client and service provider to benefit from this interaction beyond maximizing the rate of return.

Quick Returns

Ultimately, expense reduction is the goal of any water, gas or electric submetering or RUBS program. Continued downward pressure on cap rates to the mid-single digits, the stabilization of equipment investments (along with reliability) and skyrocketing utility expenses have shortened the typical return on investment to 12 to 18 months, or even less.

With the drastic increases in utility expenses, a properly defined and executed and professionally maintained utility management program can be the difference between positive and negative cash flow and can add hundreds of thousands of dollars in value.

Jerry Baker, CBA, President of National Exemption Service; and Cary Frieden, President, Sierra Utility Billing Services, contributed to this article.
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Copyright 2006, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Frieden, Cary
Date:Jul 1, 2006
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