Monthly Archives: October 2013


Free Submeters?

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In many locales, when a multifamily project’s submetering expense is addressed properly, the developer can reduce and sometimes even purge the hardware costs from its budget.

Many states and municipalities allow the third-party billing company to include a small line-item in the utility bills that will be sent to residents in order to compensate for the hardware costs over time. It makes sense – as local utilities and governments need to encourage conservation, this policy encourages developers to submeter properties and be green.

If you’d like your submeters at a reduced cost or possibly at no cost, tell us about your project. We’ll tell you what is and isn’t allowed in your project’s locale. In areas where hardware cost can be passed off, we’ve got excellent financing options suited for your needs – it’s our job to save you money.  Click here to find out how submeters can be free.

Steve Hirsch

Submetering Regulations

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When evaluating whether a landlord can bill tenants for water, electric or gas, the first question regards regulations. Yes, almost every state has a set of regulations governing submeters and Ratio Utility Billing. But no, that isn’t all. Within some states, a few counties and even cities have rules. Some cities regulate what types of meters are acceptable and others have a maximum late fee that a third-party biller can charge residents.

Some states and counties allow submeters but disallow RUBS. As crazy as it may sound, a few locales have even banned submetering altogether. One example is the city of Opa Locka in Miami-Dade, FL. I’m sure anti-conservationism isn’t their intention but it is a policy that encourages waste. 

Perhaps the most complicated set of regulations is in California. The state has specific requirements governing what types of submeters are permitted. Before submeters are installed, the meters must be inspected. But different locales within Califonia that perform the inspections have different interpretations of the state’s rules. Pretty crazy, huh?

Ohio stands alone as the only state that doesn’t forbid third-party billers and landlords from marking up utility rates to residents. All other states allow only the utilities to establish rates. As a consequence, it looks like Ohio landlords and tenants are confused about submetering.

FAQ on Submetering and RUBS

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When looking into how to recover water, sewer and other utility costs, the single most common questions center around cost and Return On Investment. And that’s the way it should be – Landlords and Property Managers are bottom-line businesspeople.

Here’s some tidy answers to Frequently Asked Questions about submetering and Ratio Utility Billing. Note the ROI comment about RUBS. The definition of ROI is Annual Profit divided by Investment Cost. But since RUBS has zero investment cost, you’d have to divide by zero…and as you’ll recall from math class, any number divided by zero yields “undefined” as the answer.

Billing residents for water and sewer is a conservation measure that helps profitability of apartment communities as well as condo associations, shopping centers and various mixed use properties. No matter how most people want to conserve simply because it’s the right thing to do, the harsh reality is that green money trumps green conservation.

When people get all the water or gas or electricity they want for no cost, they don’t report leaks and they waste. But when one’s usage is tied to one’s wallet, people conserve.

Repair Money Leaking Apartments with Submeters

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Charlie McHill had just bought a new apartment community and we were discussing submetering. The expression on his face seemed odd. A previous blog post explains why submetering made sense for his property – want us to evaluate your multifamily for submeters or RUBS?

Below is how he played me – pure evil…

Charlie McHill: My issue is one of priorities. I just bought the property and there is so much to do. We’re still putting together a long list of repairs and improvements that can’t wait. And we need to train onsite staff about new policies in order to get things running the way we want. I wonder – how soon should I around to submeters?

Me: In a perfect world, businesspeople would prioritize conservation and other green technologies like submeters at the top of their to-do lists. But let’s face it – multifamily operators are always putting out fires. Fixing leaky roofs, evicting bad tenants and repairing HVAC systems can’t wait.

Charlie McHill: So you agree. I should wait a few months before deciding on a course of action with respect to submeters?

Me: With all due respect, you are seeing your water and sewer costs in the wrong light. Although full implementation of submeters and utility billing will save you $18,000 per month, that’s the wrong way to look at it. It’s more urgent than just savings.

Charlie McHill: I like saving $18,000 per month. In what way is it more urgent than that?

Me: You need to repair leaky roofs and bad HVACs immediately because if you don’t, tenants will move out and that will cost you money. You need to evict bad tenants because you need to rent their units to good paying residents. In other words, if you don’t put out those fires, you will immediately feel it in your wallet. Losing tenants is not some abstract concept – the loss of a tenant means immediate loss of rent.

Charlie McHill: So you agree, making repairs is more urgent than submeters?

Me: I agree that making repairs is urgent. But submetering is an urgently needed repair, not a means to save.

Charlie: I’ve got to hear this. (The strange smile on his face had disappeared as he leaned forward to hear what I was saying.)

Me: When JC Penny has a 40% Off Sale on casual shirts, that is an opportunity to save. But since I can continue to wear the shirts that I already own, I don’t lose money if I wait until the next sale. Your situation is different. You can’t stop buying water and sewer until the point at which you are prepared to submeter. You will be losing the $18,000 that I can save you each and every month until you have fully implemented submetering.

Charlie: So you’re saying that my water and sewer system is broken?

Me: Exactly. Your system is broken. You’re leaking $18,000 per month. You need to fix it now.

Charlie: I have to admit something to you (Charlie’s funny smirk broke open into open laughter.) I’ve been playing with you. I already know everything that there is to know about submeters. I probably know more than you about the mechanics.

Me: Really, how so? (I was thinking that this Charlie guy was pretty arrogant.)

Charlie: I was one of the first people in the US to start a submetering company back in the 1990’s. But within a few years, it occurred to me that I could make more money buying submeters than selling them. That’s when I sold the submetering company and focused on the big bucks – buying submeters.

Me: Wait a second. Are you telling me that the better way to make money was to…?

Charlie McHill: That’s right. Selling submeters and billing services was tiring. I’d lay out the merits of submetering:

  • It’s green because submetered residents conserve when they pay for their own consumption.
  • You make green because your water bill goes down and because residents reimburse you for water and sewer costs.

Managers and owners would agree. But that’s when things would get frustrating. Multifamily operators were always putting out fires – fixing roofs, HVA CS, potholes in the parking lots, evictions, curing code violations, leasing new units, hiring and firing staff. Those things were priorities – submetering was something they wanted to do but they would leave it on the backburner. They didn’t recognize the money that they were losing on water and sewer as a priority.

Me: So you decided to buy properties and submeter them. Wow.

Check our blog in a few days for the conclusion…or request a submeter or RUBS proposal.

Is the Priority Being Green or Making Green?

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The following by yours truly recently appeared in Multifamily Florida magazine.

 

Charlie McHill invited me to drive four hours to meet him at 8 AM on Friday. Why? He wanted to have fun at my expense – pure evil.

It started three days before when Amy, a property manager friend, called. Over the last few years, I had been to the multifamily that she managed three times to discuss submetering with the owner. His residents were using 40% more water per unit than a comparable property nearby – I knew that for a fact because the other property was a submetering client of mine.

Although the owner was spending $23,000 per month on water and sewer, he couldn’t bring himself to invest $75,000 for a submeter retrofit. Even when I offered financing under very favorable terms, he hadn’t agreed. Instead of doing something about his water and sewer problem, he listed the property for sale.

Good news – after being listed for almost 2 ½ years, the property had finally sold to a fellow named Charlie McHill. Upon closing on the 315 unit property, Charlie met with the property’s onsite manager, Amy. She told him that they should have submeters installed and begin billing residents for water and sewer.  When she told him about me, Charlie told her to set up a meeting that Friday at 8 AM to discuss the possibility of retrofitting submeters. Charlie McHill told Amy that he believed both in being green and saving money.

I knew what a difference it would make for the property’s profitability.  Once residents were paying for their consumption, they would conserve, thus reducing the property’s overall water and sewer bill and of course, the owner would recover costs from the residents. I had studied their water and sewer bills. Being conservative, NOI would improve by about $215,000 per year. 

It sounded like a great lead. As the property is a four hour drive from my house, I left at 4 AM. When I arrived at the manager’s office, Charlie asked me to explain how submetering would benefit him and the residents. Using my nifty PowerPoint presentation, I explained the broad strokes first:

  • When people pay for what they use, they waste less. National studies sponsored by EPA, MultiHousing Council and various utilities demonstrate 15% to 40% less consumption.
  • In Charlie’s case, since I was familiar with an almost identical property nearby, I had good reason to believe that his consumption would go down about 30%.
  • About half of his water and sewer bill was related to consumption while the other half was base rates unrelated to consumption. The estimated 30% reduction in consumption would translate to an approximate 15% reduction in his water and sewer bill – from $23,000 per month to about $19,500 per month.
  • Once we were billing all residents for approximately $19,500 water and sewer costs, a realistic goal would be to recover about 80% of that number – $15,600 per month (more on that later.)
  • As utilities’ water and sewer rates are expensive and will continue to escalate in order to fund needed infrastructure improvements, giving away free unlimited water is going to become even more expensive.
  • The most important factors that impact people’s choice of where to rent are location, rental rate and amenities offered. Whether utilities are included is not an important factor.

Charlie told me that submetering sounded like a great idea. He offered me some coffee and donuts. Gee, what a nice guy…but the expression on his face seemed odd. As we spoke, it seemed like he was trying to restrain laughter.

To find out what Charlie knew that I didn’t, check into our blog next week or contact us, no strings attached…but I will want to learn a little about your property in order to evaluate whether submeters or RUBS would work for you.

Steve Hirsch

Oldest at FAA Conference

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When National Apartment Association published an excerpt of Leopold Hawthorne’s historic interview a few days ago, many industry insiders were surprised. How could it be that some multifamily experts didn’t even know there was a 300 year old property manager? Would they ever have opportunity to make acquantance with Leopold Hawthorne?

Although Mr. Hawthorne treasures his privacy, CWE has convinced him to launch a national tour. It all starts at Florida Apartment Associaion Annual Conference today through Friday. Meet Leopold Hawthorne at CWE’s booth – #320.

Forgive him if he seems a little cranky at the ripe old age of 300. Don’t be shocked if he complains about troublesome tenants and terrible vendors of yesteryear. You might want  to pay attention when he sings the virtues of submetering and RUBS – or at least humor him!

Click below to see where he is interviewed by Mitch Drimmer. To let us know what you think, make a comment below…or if you want to know more about submetering or RUBS, click here.