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Reining in security costs.

The recession might have put a damper on real estate activity, but it has not diminished crime. Nor has it curtailed the demand for tighter security, despite concerns over escalating expenses making the commercial property manager anxious.

In boom times, the solution would seem simple. Employ as many security officers as necessary to eliminate the problem. However, under today's tight budgets, no building can afford to go that route. And ironically, the only way to contain costs using a traditional manpower approach to security is to sacrifice protection.

Undermanning the building is one savings option. "Saying 'We'll only use two people on this shift instead of three', is the same as saying, 'We won't be as good as we used to be,'" says Lauchie MacLeod, president of BOMA Toronto and senior vice president of Cheval Development Property Management Ltd.

The other alternative is to pay less per officer and subscribe to a "more for your money" theory. Of course, this choice presents its own set of problems. Quality is the expendable commodity here.

"What you've got are people dressed up in security uniforms who haven't got the ability to do anything," MacLeod continues. "They're not trained to operate a fire alarm system, they're not trained to know what to do in the case of a break-in or a medical emergency, so your liability as a |building~ owner is enormous."

Combining man and machine

A more viable option for cost reduction may be integrating electronic systems and services with security personnel. "In effect, the electronic security components are blended with the manpower," explains Dennis Ferguson, general manager of Intercon Security Limited's U.S. office in Chicago.

"By automating a building with an access control system, which has the property's critical functions tied into it," the number of man hours required on the premises can be reduced significantly when two additional steps are taken. First, these systems need to be monitored either on-site at the building security desk or remotely at an off-site, professionally run 24-hour central station. Second, the central station must have a highly trained, mobile patrol which can be dispatched to the building within a guaranteed response time.

"Not only will combining these elements result in considerable savings from an operational standpoint, but the building's level of security will be heightened," says Ferguson.

A potential for saving

A case in point is the North American Life Centre, a 1.2-million-square-foot, twin-tower retail/office complex in North York, Ontario. The Centre, which is the headquarters for Xerox Canada, the North American Life Assurance Company, and H.J. Heinz Inc., contains a computerized access control system with card readers installed on perimeter and stairwell doors, at the lobby security desk for electronic after-hours sign-ins, inside elevators, and within the complex garage.

Numerous tenants have also hooked into the system, which is administered and monitored (both visually and audibly) at security desks situated in each of the tower lobbies.

Closed-circuit television cameras with motion detectors are installed in the Centre's stairwells and at other sensitive points, such as the entrance of a connecting subway line. At predesignated times, for example, when the subway station closes between 1:00 a.m. and 5:30 a.m., camera alarm sensors are switched on.

If a sensor detects motion, an alarm is audibly signaled to the Centre's security desks where a visual image of the alarm location appears on one of the desk's six CCTV monitor screens. The triggered camera's recording device is also activated and can be used for playback at a later time.

Distress stations are also located throughout the newly expanded underground garage. As an extra precaution, the complex is remotely monitored at a local station which provides mobile response back-up.

By integrating electronic systems into the building's security plan at the time of its opening in 1986, the Centre's security staffing requirements have been kept to a minimum. Personnel, which includes a security manager and a card-system administrator, consists of only six individuals during the day and four at night.

"If I just got rid of the elevator |access control~ system, I'd need to compensate for the loss by adding 108 manhours per week, per tower," says David Snelgrove, director of operations for the property. "That means I would be spending an additional $250,000 per year in salaries."

The finances, according to Snelgrove, are the most impressive feature of the building's security. "Even with the very sophisticated systems that we have, once you put them in and pay for the capital cost, the systems' operating cost is peanuts," he says. The initial cost of the building's systems was approximately $500,000 as compared to its $29,000 annual maintenance expense.

Furthermore, when the Centre opened its second tower last year, an additional $300,000 was spent to upgrade the systems in existing sections of the complex. Snelgrove anticipates recouping all of these costs through a five-year amortization program charging back $60,000 annually to the building's tenants.

Fees collected from tenant hook-ups to the central monitoring system help defray administrative expenses. "When a tenant piggy backs onto our card system, we charge a $25 monthly administration fee per card reader," Snelgrove says. "This year, in one tower alone, we will recover $30,400 from tenants for monitoring their card readers."

The Centre's security budget breakdown is revealing. "We're spending nearly 90 percent of our $800,000 budget on manpower and 10 percent on maintaining the systems," says Snelgrove. "If we suddenly took the systems away, we would have to double the manpower to do anywhere near the same job, and we wouldn't have the same level of control."

"Theoretically, the only way you could provide the same service with personnel is to stand 24-hour security officers by the doors. That's ludicrous, of course," he adds. "What you'd do is use the old system--just lock the doors, and hand out keys. But keys can be duplicated, and the instant you hand them out, the level of security goes down."

Snelgrove also notes that even with the Centre's second tower opening last September, his security operating costs dropped 20 percent from the previous year. "Although we have virtually doubled the size of the complex with an additional tower, we are benefitting from economies of scale. We now have fewer people per square foot, and thus they can be more cost effective," he says.

Translating integration to smaller properties

Yet it is the smaller property which often sees the most dramatic results from an integrated approach. "In a small building, you may have one person on days, one on nights, and one on evenings, seven days a week," explains Darrell Herschler, a property manager for Bennett & Kahnweiler Companies in Chicago. "If you cut back one of those, say your midnight shift, 40 hours is gone. That's one third of your cost right there."

One property that did just that is a 16-story, 155,000-square-foot office building located in Toronto's financial district. Built in the late 1920s, the building recently underwent a major renovation which included the installation of an access control system. Wired throughout the building, the system operates vertically in the elevators and is tied into the property's life-safety functions.

The reason for the security outlay during a recession? "Saving money," says Steven Ichelson, regional manager of Code Properties, who selected the security system. "It may not look like it in the beginning, but it saves money. Upfront, you can reduce your hourly security labor costs."

To illustrate his point, Ichelson supplies the following figures. Prior to installing the system, the property spent approximately $11,675 monthly for security. "We had a guard for three eight-hour shifts per day," Ichelson explains.

However, when the new access control system went live, the manpower requirements were reduced, removing the guards from 6 p.m. to 8 a.m. daily and from most of the weekend shifts. "That's 118 hours a week, which is about $1,500 a week in labor savings," says Ichelson. He projects that the building's security costs will drop to $8,335 a month during the first year the new plan is in operation.

Off-site monitoring, nightly and weekend patrol checks, and mobile emergency response are three additional elements contributing to the economic feasibility of the building's integrated security plan.

"Being a single building, the cost effectiveness of buying a computer terminal that did all our own programming just didn't make sense. We couldn't make that pay for itself for a very long time," notes Ichelson. "But having the computer and the programming portion outsourced made it easy. We don't have to maintain the staff to monitor it."

A five-year amortization schedule provided further rationale for purchasing the system. According to Ichelson, although the system cost $55,000, scheduled payments were only $2,000 a month, saving the building $24,000 annually while the system is being paid off.

"Because the system will be paid for in small amounts over a five-year period, it can be charged back to the tenants," says Ichelson, who contends this pre-planned budgetary control will allow for even greater savings as labor costs in the security industry continue to rise.

Justifying the cost of technology

The expense of retrofitting security systems has been justified by other property managers as well. Back in 1967 when the Toronto-Dominion Centre, the city's largest office complex, opened the first of its five towers, card access system technology was not available. But by 1985, when the Centre opened its fourth tower, the management realized they had to keep abreast of the competition. The decision was made--the three older towers were retrofitted with new security systems.

"It's common practice here in Toronto with the downtown buildings," says Stuart Swain, vice president and general manager of the Toronto-Dominion Centre. "I'm not aware of any that do not have quite elaborate card-control systems. When a prospective tenant differentiates the favorable qualities of one building versus another, a card-controlled security environment is one of those plus points on their checklists. If you didn't have it, your building would drop into a lesser category and maybe out of the running."

Furthermore, Swain notes that if he didn't have the systems in place, "We would be need 20 percent more personnel on site."

A security system retrofit can also be a way to set a building apart from the competition. The Rookery Building, a landmark office property built in 1888, is one of the first buildings in Chicago to offer tenants a means of hooking into its base building system.

"We've installed the riser that enables our tenants to tap into the system at a much lower cost than if they had to design their own stand-alone systems," says Joe Gordon, portfolio manager for Rubloff Inc., who manages the building.

But the amenity does much more than distinguish The Rookery from the competition--it communicates another critical marketing message. "The appeal of the property's historic background only goes so far," says Gordon. "There's the perception that an older building has dated services and systems. It's a hurdle you have to overcome."

Crime has also persuaded some property managers that the expense of an integrated security plan is worth every cent. Such was the case for the PBK Building, a 20-year-old, 85,000-square-foot medical office building in Vancouver. Although the crime rate in the surrounding area was relatively low, the building, which relied solely on a mobile patrol guard service for protection, was the site of substantial petty thievery. The situation exploded last August when one of the doctor's offices was trashed.

"They sliced the leather furniture, broke up his instrumentation, stole drugs and cash, and threw toner from the photocopier all around. They put the doctor out of business, basically," says Wayne Smithies, CPM|R~, president of CB Commercial Property Management Canada, the managing agent of the building. According to Smithies, damages were estimated at $60,000.

The building was paying $8,400 a year for the patrol service, but "we weren't getting bang for the buck out of these guys," says Smithies.

As a result, the PBK building's owners decided to invest in the property's security with an integrated plan. The building was equipped with an access control system which tied into the elevator and an after-hours telephone entry system. This way patients could be granted convenient access to specified doctors' suites without escort.

Total cost of the systems was $41,867. The off-site monitoring, patrol checks, and emergency mobile response cost an additional $6,460 annually. But with a three-year amortization plan, the building will charge the system back to its tenants at $17,580 a year.

"Once we purchase the system," explains Smithies, "the total operating cost will drop to $6,460 annually, almost $2,000 less per year than the roving patrols, which proved to be useless."

The dollar value of a system can be recouped in other ways. After losing more than $100,000 in equipment thefts during a single year, Richard Penner, manager of building and office services of Inland Steel Industries, decided to install access control throughout the entire 12 floors of his company's leased space in Chicago.

"We had major losses of computers, fax machines, wallets, and clothing. People were just in and out having a field day here," says Penner, noting that the building's full-time lobby security staff was unable to thwart the activity.

But the system worked. Not one theft occurred during the first full year of its operation and as Penner acknowledges, "The card access system paid for itself."

Audit trails are another beneficial by-product when systems are integrated in a building. "We often catch people who try to use cards that have been deprogrammed after they've been terminated," says Kenneth Morgan, buildings manager of College Park, a 1.5-million-square-foot development in downtown Toronto. "They try to get back up to their floor, possibly to do some damage. We get an alarm identifying which card reader has been used, and our security |officers~ can respond."

Similarly, tenants often ask Morgan to identify who, other than the building's cleaners, has been on their floors on a particular night. "We can do that by running an audit trail for the previous day, week, or whenever," he adds. "And we can zero in on who was on that floor and at what time."

People are still preferred

Not everyone has embraced the integrated approach, however. Caution is the overriding factor. "I would rather have the live bodies here," says Bill Taylor, CMP, property manager of One South Wacker, a 1.2-million-square-foot high-rise office tower in Chicago.

Taylor chalks some of his reluctance up to previous experience. He recalls one weekend when the company monitoring the building's life-safety systems contacted his security officer to discuss a potential problem.

"|Someone from~ the monitoring service called and said, 'I'm monitoring five buildings, and there seems to be a report coming from one of them, but I don't know which one is which. Are you having any problems in your building?' Since they're only a backup for us, it's not much of a problem," says Taylor.

Psychological comfort is another major factor. "Property managers and owners panic when they think it's Saturday or Sunday and there won't be anybody |a security officer~ in the building," says Herschler. "That's not something commonly done in downtown Chicago, and nobody wants to deal with that right now."

Susan Hammer, who manages 150 N. Wacker, a 20-year-old, 231,000-square-foot office building, relies strictly on manpower for security. In the last year alone, the building's security operating expense has jumped 7 percent due to wage increases and mandatory state charges such as workers' compensation. Hammer, nonetheless, intends to continue using guards as her primary security option.

"I have looked into doing a system, but the ownership felt that getting rid of a shift or two shifts might hurt the building if something happened. A security guard might not necessarily circumvent a problem, but at least he could deal with it immediately," she explains.

The human factor can fall short

However, the allure of security officers has fallen flat for a fair share of property managers. "Security officers are not always reliable," says Ichelson. "With a computerized, monitored system, eyes are everywhere, all the time, as long as the power doesn't get shut off. And a battery back-up will take care of that."

Using experience as his teacher, Ichelson recounts a Saturday morning move-out at his Toronto property when a tenant accidentally knocked a sprinkler head off the ceiling with a boardroom table.

"It was in the middle of winter, the worst time to have a flood," he says. "The security guard was across the street getting himself some lunch. The security company monitoring the building was there in three minutes, even before the security guard was back in the building."

Ichelson also recalls that the mobile patrol had contacted the building's maintenance supervisor and the fire department prior to the guard's return. "Their patrol car even beat the fire department over there. As soon as they knew what the problem was, they canceled the call to the fire department and shut off the sprinkler. We lost a few ceiling and floor tiles, but that was it."

Attention to detail

For those who decide to take an integrated approach, care must still be exercised in the selection and implementation process. Just because the ingredients on the market may all look the same does not mean they are.

"Pay attention to what you're paying for," cautions Snelgrove, recalling one access control system that cost a building far more than it was worth. The small, Toronto professional building purchased a system that worked, but it was so user unfriendly that "every time there was a holiday, we had to hire someone to come in and do an hour's worth of detailed programming. In one year, we spent over $2,400 just changing known holidays," he recounts.

Choosing a supplier wisely is just as vital. "Too many equipment suppliers sell systems and then ride off into the sunset," says MacLeod. "What they do is sell you a system, set you up with an independent monitoring station on some kind of contract, and then they're gone." Make sure the supplier is someone who can support the system with service after the purchase is made.

Quality is another area that should not be overlooked. "If you're going to integrate, you want quality," says MacLeod. "If the system doesn't work, you don't want to go back, rip it out, and start all over again."

The best insurance, according to MacLeod, is "to talk to people. Get on the phone with as many clients of a company as you can and find out how satisfied they are."

Integrating the security components can be tricky, too. A few years ago when MacLeod was managing Greenwin Square, a 400,000-square-foot office/retail complex in Toronto, he had one firm supplying the building's manpower and another supplying the systems.

"There was a tremendous amount of jealousy between the two. We would get a report from the manpower company that there had been a problem with the system. So we'd call the systems company, who would come in and say, 'The guys are idiots. They don't know what they're doing. They don't know how to operate it.' There was a lot of nonsense going on which really just wasted our time," says MacLeod.

One means of avoiding the fragmentation is to find a supplier who provides all of the security components. "An integrated approach can best be supplied by a company that is integrated itself," says Intercon Security's Dennis Ferguson. "Such a company isn't wedded to systems or manpower; rather it can objectively evaluate the proper mix of components to create a cost-efficient security plan."

The way to start, says Ferguson, is to conduct a full security audit of the property to look for its weaknesses. "This means observing how the building operates during normal working hours, after-hours, and on weekends. What is the traffic flow? What is the tenant mix during regular working hours? Do some tenants work 24 hours a day? How much visitor traffic takes place? Who are the visitors? You can learn a lot just by reviewing the building's sign-in and sign-out log," he explains.

Other areas Ferguson highlights from a lengthy list of audit criteria include evaluating the quality and effectiveness of the security staff and its reporting procedures, assessing current access control systems or locking devices, and examining special security concerns of the building.

For example, what are the expectations of the tenants? Are there any high-risk situations such as a consulate on site? Are there security issues relating to the surrounding neighborhood that should be taken into account?

The audit results will indicate where a building's security blind spots are and suggest solutions to alleviate potential problems.

"In the most literal sense, a security audit will point out places a security officer can't see," says Ferguson. "It will tell a building manager where to supplement with electronics, so his staff's view can be expanded. It will also locate other areas of vulnerability, including access points requiring tighter controls to keep unauthorized personnel out."

Likewise, an audit will identify areas that need greater efficiency. For instance, an audit can tell if too many security officers are assigned to a particular shift or if various manual tasks, such as walking throughout the building, can be curtailed.

Says Ferguson, "By recognizing these flaws in a security set-up, a building manager can strengthen his or her plan and at the same time contain costs."

Marcy Mason is a Chicago-based freelance writer who frequently writes on real estate topics.
COPYRIGHT 1993 National Association of Realtors
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Author:Mason, Marcy
Publication:Journal of Property Management
Date:Mar 1, 1993
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