Monday, January 28, 2013

Five Things to Accomplish in the 1st Quarter of 2013

I provide Location Advice to owners and occupants of industrial buildings in southern California. I recently wrote about five things I learned in 2012. If you missed the post, you can read it by clicking here. Well we are now one month into the new year of 2013...only two months left in the first quarter. What location issues should you accomplish in the first quarter of 2013? I believe the following five items are essential: Locate a copy of your lease (even if you own the building) and review the key dates, audit your operating expenses, update your insurance coverages, renew your maintenance contracts, and accomplish a five year sprinkler certification.

Your Lease: Have you looked at your lease since you signed it? Do you know where it is? If I provided the advice for your location's lease, I have a copy and will be happy to provide you with one. If not, the owner (or property manager) of your building should have one. Make sure that the lease contains signatures by both parties and that all amendments, addenda, renewals, etc. are located and included. Once you have located the lease, place it in a file and file the lease in a safe place for easy access. I would suggest compiling an abstract of the key dates...commencement, expiration, rent increases, options to renew, options to purchase, rights of first refusal, etc. Once again, I can help you with this. "Time is of the essence" with options (you must exercise them within the time frames outlined). If you own the building that you occupy, there should still be a lease in place. If you own the building you occupy, don't currently have a lease and desire one, give me a call and I can assist you. I would suggest calendaring the key dates...especially your lease expiration and rent increases. If your lease expires in 2013 or 2014, we should be talking about a renewal or relocation strategy for your company.

Audit your operating expenses: If you own your location, review your current property taxes and compare the assessed value vs the current market values. If you need assistance determining the fair market value of your location, I am happy to assist you. If your assessed value exceeds the current market value, you may be able to appeal the property taxes and secure a reduction. Insurance coverage of your location is an essential piece of your operating expenses. One of the three very capable insurance brokers below can assist you in auditing this expense. Other expenses to review are the maintenance contracts (discussed below), and common area utilities. If you lease your location, request a budget for the 2013 operating expenses from your owner or property management. Ask if any increases are anticipated and if so, request copies of the underlying bills which comprise the operating expenses.

Update your insurance coverages: As insurance is not my expertise, I contacted three commercial insurance brokers with whom I have become acquainted and who have either hired me (to provide location advice) or referred me to one of their clients. These three are easily accessible and I would encourage you to contact them directly if you need insurance assistance. I have included their contact information and a link to their websites. Simply click on the name of the broker or their company to be re-directed.

George McLaughlin, Tutton Insurance Services, Inc.: George recommended the following be reviewed in the early part of the year:
  • "Post your OSHA 300 A Notice from the prior year (summary of injuries) by February 1 and keep the notice posted until April 30. If OSHA inspects your location and doesn't see the notice, a fine of $5000 fine may be assessed. The form can be retrieved from the Cal OSHA website that you can access by clicking here.
  • If you own your location and/or have tenants, make sure that your tenants provide you with a copy of their annually updated certificate of insurance. If you are a tenant, you should provide your landlord with an updated insurance certificate for the coverages outlined in your lease. The certificates should be from an A rated, admitted insurance company.
  • Evaluate your contents insurance to make sure there are proper limits to replace the machinery and equipment, furniture and fixtures, inventory, tenant improvements, property of others in the event of a fire or other loss. Seasonality of contents (shipping to a retailer for Christmas) should be considered.
  • Update your Business interruption benefits…which should include loss of rents (if you own your location).
  • Liability and worker comp insurance are based upon estimates at the beginning of a policy and adjust to actual sales or payroll at the end of a policy.  Prevent surprise insurance billing by keeping track of these figures and adjusting as your business changes.
  • If your core business expands into multiple revenue streams make sure you review you liability and errors and omissions policies to incorporate these changes.
Cliff Davis, Orion Risk Management Insurance Services, mentioned that in addition to George's recommendations above that most location owners underestimate the down time in the event of a loss...or the “extended period of indemnity”. Cliff cited the example of the location owner (with multiple tenants) who loses the building in a fire. If the downtime doesn't contemplate the insurance settlement time frame, the re building AND re tenanting time frames, the down time may be under estimated.

Jane Hood, Fullerton Insurance gave some great advice to occupants who lease and that recently made improvements to their space:

"Do you rent space to conduct your business?  Have you built out the interior of your space such as adding walls, fixtures, additional electrical, lighting or made other significant improvements to accommodate your business needs? If so, you probably made a considerable investment in the improvements. Property insurance policies don’t always include the value of the improvements made by a tenant to the existing structure.  If you’ve invested in improvements, it’s worth taking a look at securing coverage to protect it." 

Thanks to George, Cliff, and Jane for your contributions!
 
Renew your maintenance contracts: As an owner/occupant of a location, you (or the operating company that you own that occupies the location) should make sure that a maintenance program for the key components in the location is accomplished. As an occupant (but not an owner) of a location, typically the burden falls upon you as the occupant to put in place maintenance programs for the HVAC, plumbing (most leases), roof (if it is a NNN lease), etc. Typically, maintenance and repairs (up to 50% of replacement) are your responsibility as an occupant.

I consulted Mike Gallagher of Western Allied for some helpful suggestions for maintaining your HVAC units. Thanks to Will Clark and Bret Ninomiya of DMG Corporation for the kind referral to Mike. If you have any questions about your HVAC or initiating a maintenance program, click on Mike's name or company and you will be re-directed.

According to Mike,

"Late winter/early spring is the time when a building owner or occupant should consider the major energy efficiency-related maintenance work for the building’s air conditioning equipment. In addition to the routine quarterly air filter replacement, operational check and condensate drain check, there are several tasks that should be done annually. To optimize the benefit from these annual tasks, they should be done before warm weather hits (typically that happens in April). Most important is pulling a water hose to the roof or other area where the outdoor portion of the equipment is located, and thoroughly washing the coils and then flushing the drain pans and drain lines. When I was in charge of commercial equipment for Carrier in Southern California we estimated that a spring annual cleaning improved heat transfer enough to result in a 5 – 8% power reduction…and that was if the coils had been washed the year before. If the coils have not been washed in several years, the difference in performance after the cleaning is greater. Other tasks that should be considered for the spring annual are fan belt replacement, electrical terminal tightening, refrigerant charge check, and a review of the thermostat’s operating schedule (to make sure that the hours that it is programmed to run match your actual needs). 

In addition, Southern California Edison now has a commercial rebate program for those who wish to fully implement the maintenance program recommended by ASHRAE (the American Society of Heating, Refrigerating and Air Conditioning Engineers). The intent of the rebate is to partially offset the added maintenance cost needed to fully optimize the energy efficiency of the equipment. At present, the program covers only rooftop packaged AC units. Western Allied helped in developing the program, and more information is available on our website. Just click the SCE HVAC Optimization button in the upper left (red) section of our home page.


Check your location's fire sprinkler certification: As an owner/occupant of a location check and see when the last five year certification was performed. Check the riser coming in to your location and you should find a sticker or set of stickers that looks like the below:



As you can see the five year certification was performed in 2009...thus due to be renewed in 2014.

According to Jack Thacker and Ron Stephens of Allan Sprinkler Corporation, "The National Fire Protection Agency (NFPA) 25 sets the standard basis for a five year test. The State of California has modified the NFPA 25 to the NFPA 25 California version dated 2006. This is a less stringent version than the national standard (I hear a collective...what?...less stringent in California?). Currently NFPA 25 California version is being rewritten for 2014. The NFPA California version requires four annual inspections and a five year inspection…also quarterly inspections are required. Underground, sprinkler, foam, tanks, pump all have different inspection protocol. The cost of a certification varies based upon the size and complexity of the building's sprinkler system."

Please consult Ron Stephens at Allan Fire Protection with any questions or to perform a five year, annual or quarterly certification.

So there you go, five pieces of location advice that will insure your 2013 gets off to a smooth start!