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Fixing the So-Called “Fixed” Costs at Co-ops and Condos

Bill Morris in Building Operations on June 3, 2019

Upper East Side, Manhattan

Fixing Fixed Costs

The co-op board at 401 East 74th Street is attacking "fixed" costs.

June 3, 2019

Dublin-born Stephen Doherty has degrees in physics and business administration, skills that have served him well since he and four like-minded shareholders took control of their co-op board at 401 East 74th Street. Since that 2012 coup, Doherty has had some eye-popping successes reducing the co-op’s so-called “fixed” costs. 

Most co-op and condo boards operate under the assumption that the majority of a building’s costs are fixed. But you don’t buy it. Why not? 

Well, when you drill down into the budget for a co-op or a condo, you see that there are a number of line items you have no control over, like real estate taxes and staff costs. As you drill deeper, you see that there are three line items – for gas, electricity, and water – which are normally paid automatically by your management company and which are just seen as always there. When I looked in detail at the numbers for our building a couple of years ago, we were paying about $180,000 for gas, about $80,000 for electricity in the common areas, and about $175,000 for water and sewerage. 

What was your reaction when you realized how big those numbers were? 

As a physicist, I wondered where all that electricity was going. I could look around and see the lights in the hallways, the elevators running, pumps pumping water up to the roof. But the question was, which one of those is using most of this money? And where else is it going? 

How did you figure that out? 

It’s almost impossible because the electricity comes in through gray boxes in the wall and then spreads out through tubes. And so it’s very, very difficult, even if you open up an electrical cabinet, to figure out where the wires go to do what they do. How do you find that out? Well, you could put a meter on each individual circuit, and you could sit there with a pencil for 24 hours and record every minute of a given day. Then you would know how much electricity was used over the course of 24 hours. 

But you didn’t volunteer for that job. 

No, I did not (laughs). I needed to find an automated way of doing this. Back in 2014, I looked at a number of companies that make monitors, and the only company I found that provided both equipment to monitor the current and voltage on each individual circuit, and also the software to analyze that data, was a company called Enertiv

So with these monitors, you’re able to tell where the electricity is going in the building? 

Yes. The Enertiv system allows me to see in real time how much power is being consumed by 201 pieces of equipment. I can tell if the equipment is on when it’s supposed to be on, if it’s off when it’s supposed to be on, or if it’s running when it shouldn’t be, in which case you’re wasting money. I could see what was most important for running the building and what used the most electricity. Then I was able to prioritize what areas or pieces of equipment I should look at to identify what cost savings were achievable. I could then use my finance training to work out a cost-benefit analysis to decide whether a particular project was in fact actually worth doing. 

Have you found projects worth attacking? 

Yes, we discovered we had a problem with our elevator motor room, which had a seven-and-a-half-ton AC unit, which was hugely over-specified. In the hottest part of the summer it was pulling too much current and switching the circuit breaker off, which was then shutting down the AC and shutting down the elevator. So not only did I fix that problem because I was able to spot that one system went down and then the next system went down, I was able to replace the air-conditioning unit with two smaller units. That saved me about $3,000 to $4,000 a year. 

$3,000 here and $3,000 there and pretty soon you’re talking about real money. 

Yes, exactly. This system has given us lots of other insights into how the building’s actually running, which aren’t obvious if you just walk around the building and look at the boilers or some of the other equipment. You cannot get this the level of insight simply by walking around.

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