Today the concept of facilities management is quite common in the operation and management of many of the larger investment properties including shopping centres, industrial sites, and multilevel office properties. Facilities management really does have a place when you are considering property performance and control for a client. Facilities management can be easily separated from lease or tenant management with separate groups or people controlling each.
The general focus of facilities management is to remove the complexity of property operations from a property owner or property manager and then move that responsibility to another specialised facilities management group. They then provide the necessary expertise and financial controls required for the efficient daily physical function of the building. They then manage the ‘facility’.
So why do this? The property owner and/or the property manager does not then need to worry about the day to day physical factors and frustrations of property operations. They can then get on with improving the tenancy related aspects of the building, and improving the lease cash flow. In a large property, the strategy works very well.
Essential Factors to Facilities Management
The key factors to any successful facilities management contract are centred on important facts and systems including the following:
- clear communications channels and protocols with the parties concerned
- appropriate contract documentation outlining the expectations and responsibilities of the parties
- good budgetary controls allowing for the existing operations and the complexity of the building
- clear expectations of the parties given the requirements of the property, the configuration of the plant and equipment, the compliance with building and safety codes, and the activities of the tenancy mix
- monthly, quarterly, and annual budget reports incorporating all factors of property operations and projected estimates on running costs and capital items
- risk management strategies and controls allowing for the design of the building and the demands placed upon it through both customers and tenants
With some facilities management contracts, the cost savings achieved above a base cost or financial result in running the building are split between the property owner and the facilities controller; in other contracts you will see the facilities controller take all of the benefits of the cost savings. A lot depends on the contract terms and conditions, the established profit margins for the operator, and the term of the contract of services.
There will be a fee applied to the overall facilities contract and that fee will be applied to the operating costs for the building as a justifiable outgoing. On that basis the costs of undertaking such a contract should be compared to the alternative of self-management; understand where the savings will be achieved. Are the savings of sufficient volume for you to proceed?
Economies of scale in this facilities management strategy occur in larger buildings and across multisite property portfolios. Everything comes back to the responsibilities to be contracted out and the quality of the service provider, together with the existing tenancy mix, occupancy costs, risk management, property performance, and cash flow targets.