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Power of electric rent inclusion.

The late July hike in crude oil prices once again reinforced how essential it is for building owners and managers to keep a sharp eye on energy use. But one of the most critical areas that often gets second priority is the management of your Electric Rent Inclusion (ERI) tenants. And, it is an area that represent thousands of dollars in revenue if handled properly.

Most leases allow for the landlord to adjust the tenant's electric charge if the electric rates change for the buildings. Within the Con Edison service area, that happens with almost every invoice as adjustments--both positive and negative--are applied to every invoice charged to the building.

When managed properly, tenants are typically notified on a quarterly basis of any adjustments or rate increases that will be applied to their rent bill. If they are not notified in a timely manner--which happens more frequently than expected--the owner or management agent must prepare retroactive adjustments to bring the tenants' billing level up to "market." While it would seem logical to address these adjustments immediately, many owners and managers lack the manpower to do so. As a result, tenants find themselves owing tens of thousands of dollars for rate adjustments, and the building's cash flow suffers. Furthermore, tenants surprised With retroactive bills often have a hard time submitting timely payments since they have little time to budget fox actual, costs.

Another component of effectively managing ERI is to perform tenant surveys. Most leases allow for tenants to be Surveyed in order to identify any increase in the electric demand. Once a survey is performed, a new rate can be determined for that tenant,

Two recent cases Studies illustrate both these points well. Genergy, which manages millions of square feet of ERI tenants for some of Manhattan's leading property owners, was called in to administer the ERI for two properties: Building A was a 1 million sq. ft. + office tower with 29 ERI tenants occupying 385,000 sq. ft., and Building B was a 500,000-sq.-ft+ building with 70 tenants occupying 467,000 sq. ft.

After analyzing both properties and determining that either rate increases or monthly adjustments were in order, hundreds of thousands of dollars were recovered for the owner:



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Article Details
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Author:Hornig, Jason
Publication:Real Estate Weekly
Geographic Code:1USA
Date:Aug 11, 2004
Previous Article:A national role model for energy efficiency.
Next Article:Economy, technology combine to make cogeneration a viable option for owners.

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