The Business Case for Submeters
Few features are as compelling.
It improves cash flow. It increases property value. It simplifies your relationship with residents. Installing submeters eliminates one of the highest expenses on a property with a pay-off term between 14 to 18 months. They increase net operating income (NOI) and make a property’s rents more competitive. Social bonus: They demonstrate action for the environment through conservation.
How, exactly, does it pencil? Using rough figures on a 200-unit property with an average water bill of $40 per unit, per month, submeters might increase the property’s NOI by up to $96,000 a year. The higher the utility costs, the greater the savings. The cost of retrofitting submeters is also tax-deductible as a capital improvement, and the increase in NOI could add as much as $1 million in value at a multiple of 10 times earnings.
California and a number of other states require submeters on new construction, and twenty-two states, three counties and Washington, D.C., have statutes, regulations or rulings regarding utility billing, with more on the way.
So why isn’t there a mad dash to submeter every property on the face of the earth? The answer is usually found somewhere in perception, real and imagined: high administrative hurdle, upfront implementation costs and resident opposition are a few.
Every property comes with its own history and—in what is known as a thin-margin business—even cash flow could be argued as another reason to make the leap to submeters. In fact, a property absent submetering is viewed as risk that may inadvertently materialize in the cost of asset valuation and financing.
As conservation permeates the social narrative and legislation, its perceived absence on a property only becomes more obvious. Still, the risk to public reputation is more challenging to quantify than carrying the risk of fluctuating utility prices on a property or in a portfolio. Utility expenses are intrinsically volatile. Reassigning these costs to the user (resident) naturally delivers transparency and the incentive to conserve on the part of the consumer. Yet, pockets of resistance remain.
Some property owners and operators have even gone so far as to mothball old or unmaintained submeters instead, using RUBS or other calculated billing programs in a need for ease, convenience and cost-cutting.
A little knowledge goes a long way
The business case for submeters is compelling, as is the business case for maintenance on a property where submeters are already in place.
Submeters are technology. As such, they require periodic updates, service and monitoring. Like any asset, without scheduled monitoring, problems can accumulate resulting in deferred maintenance and adverse exposure to residents.
Simple best practices easily tip the low cost of a submeter maintenance plan toward overall savings for both owner and resident. Focusing on the operational profitability of any asset not only increases asset value, but also, when maintained under a unified strategy, yields an optimal fiscal low-to-no risk result.
As with any asset, the equipment, software and overall technology of submeters are evolving. Many companies find that submeters alone are merely step one toward the level of operational profitability they hope to achieve. Yet, it’s impossible to decouple the equipment from variables that impact submeters’ optimal performance. From a seamless billing and resident communications program, to a maintenance plan for the equipment, a narrow view reduces the operational profitability of the submeter investment.
Submeters are a mission critical component in a property’s supply chain of revenue. It is best managed and controlled under a unified strategy. Such a submeter maintenance program is a partnership that extends the value of the equipment, but assures that a property owner is optimizing data, protecting the property’s revenue stream and connecting with residents. It’s also assurance that a property owner receives valuable information on the asset in time to make actionable and profitable decisions.
The traditional separation between business and operations has been to the detriment of profitability. The industrial Internet of Things (IoT) dissolves the distinction between information technology and operating technology, allowing people and technology in these spheres to become increasingly connected. Within this interconnection, apartment operators have the opportunity to expand their view beyond real-time control of processes to real-time control of business performance.
The next big thing in profitability: asset control and LoRa
Asset control goes beyond process. An asset-centric approach aligns the control and measurement of profitability with all the assets of an apartment operation—from equipment all the way through to the physical unit and resident behavior. As owners and operators gain greater control over data and what it means to their bottom line, connectivity will continue to impact how it is accomplished. The game changer for this connectivity may be LoRa (Long Range Wide Area Network). If you haven’t heard of a LoRa, you will.
LoRa is important because connectivity is core to an apartment owner’s ability to access the data needed to control assets and measure profitability, such as with submeter maintenance. LoRa makes this connectivity possible. Until recently, wide area networks that were limited to cellular are now being expanded through sensor networks developed specially for the IoT. LoRa is long-range, low- battery usage technology that is becoming the worldwide standard for IoT communication.
LoRa protocol communicates up to 30 miles and a 9-volt battery can power it up to 10 years. It is already changing how submeters transmit data and the ease with which such equipment can be installed. LoRa continues to lower the barrier to submetering, and places the focus squarely on asset control: how will owners best manage the profitability of their asset? The answer rests with a good submeter maintenance program and its related touch points.
Inefficiencies result as equipment degrades often wasting energy. Submeters are no exception. “A well-designed maintenance program on submeters easily pays for itself in a number of ways,” said Howard Behr, RealPage. “Everyone knows it mitigates legal entanglement by keeping the equipment in top working order, but few realize the effect it has in ingratiating residents. They are receiving regular attention through the service, which creates a natural loyalty with the community.”
Submeter maintenance programs fall under an operating expense rather than a capital expenditure, which are easier to budget, and related fees are typically recoverable by billing the resident. There are ancillary benefits as well. Behr oversees product management for RealPage’s Utility Management division, which offers a leak detection product. The company can identify leaks through irregularities in usage and alert the property manager and maintenance staff.
Those properties that are on a regular maintenance program for their submeters may also be advised of issues that the technicians notice in the field, such as a leaky or aging water heater. “Field techs are perfectly positioned to spot root causes of leaks that will not show up on monitoring data,” said Behr. “It’s a value-add that protects an owner’s profitability and makes residents feel appreciated and connected to the property. Techs get to know the submeter system, the property staff and the residents. They become a knowledge base and asset as well.”
Revenue is the heart of any apartment operation. Maintaining submeters and controlling this asset is the most effective way to optimize profitability, control utility costs and garner resident satisfaction. In the world of property management, that’s a profit trifecta.
Howard Behr is a Vice President, Product Management, Submeters at RealPage, Inc. He joined RealPage in early 2016 through the acquisition of NWP. Over the past 14 years, Howard has held a number of leadership roles including the management of business development, sales operations, implementations, submetering, and product management. In particular, he successfully oversaw the acquisition and incorporation of three direct competitors and the creation of a nationwide submetering division that quadrupled in size over its first four years.