Financing Solutions For Smarter Building Upgrades

Facility managers across sectors and building types are continuously working towards optimizing safety, efficiency, environmental footprint, and occupant experience.

By Chris Lewis

Seasoned property owners and facility managers across sectors and building types are continuously working towards the goal of optimizing their building’s safety, efficiency, environmental footprint, and occupant experience. In addition to routine maintenance, their strategies increasingly include upgrading and replacing building systems, fixtures, and other components with more high-tech, economical, and eco-friendly alternatives.

These types of building upgrades require well-thought-out plans that look at many factors, including which equipment to install and which vendors to use, scheduling, and communication with occupants and other stakeholders. And of course, budget.

Below, we outline why property owners and facility managers should consider going above-and-beyond to incorporate smart and efficient systems and upgraded amenities at their facilities — and explore how taking advantage of flexible and comprehensive financing and leasing options can streamline the upgrade process and drive bottom-line results.

building upgradesPlanning For Smart Building Upgrades

Owners and managers have many factors to consider when assessing where there might be room for improvement at their facilities. These include, but are not limited to:

  • Is the building energy efficiency and eco-friendly?
  • Are systems up to code and will they remain compliance with standards for the foreseeable future?
  • Is the building secure with all systems up to date?
  • Does it have the fixtures and amenities that appeal to today’s business tenants or other occupants?

For example, with survey results released in 2017 by DNV GL finding that more than half of commercial facilities managers and business leaders considered energy efficiency efforts to be a proven operations and investment strategy, there are clear benefits to taking initiative in this area — when done correctly. Common efficiency upgrades include replacing fluorescent lighting with LED or overhauling HVAC systems and temperature controls. (Editor’s Note: The 2018 Energy Efficiency Indicator survey by Johnson Controls reveals more about the attitudes of facility and energy management executives toward such improvements.)

It is also important that owners and managers remain on the pulse of green building standards and other regulations when upgrading.

For instance, the chemical component Freon, commonly used with older HVAC systems, is being phased out per a federal mandate. Forward-thinking facility managers might want to consider replacing these systems, if applicable, now. While Freon can still be used, the price will likely skyrocket soon due to diminishing supply. Additionally, alternate refrigerants, such as R-407c, are ultimately more efficient and less harmful to the environment.

Other equipment and software system options are more advanced than ever before, and depending on a building’s uses, location, and occupants, might consider upgrades as well. Current trends include ultra-high-definition security cameras, smart phone access, and remote control of temperature, which also drives energy efficiency.

The challenge is that while these upgrades will almost certainly lead to smoother operations, they come with a hefty cost, and facility managers and owners may not be sure when, or if, they should be implemented. This is where smart financing and leasing strategies come into play.

Flexible Structures Manage Upfront Costs

While new equipment can offer improved efficiencies, optimized appeal for potential tenants, and bottom-line results, there can be struggle in justifying the upfront capital expenditure required to purchase and install these components.

Based on this, many of today’s smart owners and managers are enacting upgrade strategies that include identifying new opportunities to spread costs over time.

The good news is that most of the relevant assets — security systems, fixtures, lighting, HVAC systems, modern furniture, and parking kiosks, to name a few — can be financed or leased on a range of structures. By financing over a period of years, these companies can ultimately save on costs and subsequently put more capital towards advanced technologies, now and in the future.

For some of these assets, such as up-to-date office furniture or lighting fixtures, a capital lease that has the benefit spreading out the purchase price over time can fit well within the overall operating budget for a facility.

More high-tech features and software systems, for which there could potentially be a significant update in the next 3-to-5 years or so, might be better-suited for an operating lease. This comes with the advantages of a ‘true’ lease: a lower monthly payment and the flexibility of the option to defer ownership decisions until end-of-term, giving the option to weigh if it makes more financial sense to upgrade rather than purchase the piece.

The key is keeping up in case of rapid significant advances leading to obsolescence – which is not unusual today. Through identifying a finance partner who is well-versed in their needs, owners and managers can find the right solutions for their facilities.

Comprehensive Options Simplify The Process

Due to the complexity of building upgrades, it can also benefit a property owner or facility management executive to look at their project holistically when approaching financing and leasing. They may understandably be drawn to a range of vendors or finance companies in search of the best deals and specialization. That said, there are finance companies that are experienced in smart building upgrades and can provide services for all types of assets or an entire project.

Equipment and other materials for upgrades or even large-scale buildouts can often be rolled into one payment to just one lender. This means that all of the components can be paid off together. Further, some finance companies have the capability to include costs outside of hard assets or software. For example, at Summit Funding Group, we can often provide total project financing, where 25% or more of the total payment is for soft costs such as installation, construction, retrofitting, and electrician work.

Owners and managers might also consider Life Cycle Asset Management (LCAM) options to further drive simplicity. With this service, a finance company will handle identifying equipment, installation, financing, asset tracking and maintenance, and disposal – leaving managers and owners with less stress and more time to focus on their day-to-day duties.

Smarter Facilities, Stronger Bottom Line

Despite the hefty upfront costs and implementing smart building features, property owners and facility managers know the importance of keeping their buildings safe and giving themselves a competitive edge if looking to acquire tenants.

Strategic financing and leasing structures have the added benefits of flexibility and simplicity and are a way to receive the best of both worlds – efficient, high-tech, and modern upgrades within a realistic budget.

building upgradesLewis is a Senior Regional Manager at Summit Funding Group, an Ohio-based company that provides equipment lease and finance solutions to businesses across the U.S. and Canada. Founded in 1993, Summit Funding Group has originated more than $3 billion in equipment lease and finance transactions to date.