Investors: Ignore M&E Costs At Your Peril!
We are warning prospective property investors to look more closely at the potential 'under bonnet' maintenance costs of a commercial property's mechanical and electrical systems, a part of the Technical Due Diligence (TDD) process.
While it is normal for prospective purchasers to undertake a full survey of the fabric of the building, TFT suggests that it is vital that more attention is paid to a building's mechanical and electrical (M&E) condition, as this can cost up to five times as much to maintain, potentially turning a sound investment into a costly mistake.
Many investors appear to shy away from examining M&E equipment. Everyone understands the roof, wall and floors of a building, but very few pay particular attention to the pipes, wires and ducts within a property.
You could compare this to looking under a car bonnet where modern engineering and electronics can baffle the everyday driver. Using Black Box technology, computers now have to be used to diagnose problems and when an old part gives up, it can be very costly to replace with the new version. It is vital that the 'under the bonnet' elements of a building are incorporated fully into a TDD survey and report, and that the findings are translated into plain English, clearly laying out all potential maintenance and replacement costs.
When looking at an example of three portfolios of 22 shopping centres, following a full survey, the suggested five year investment plan was on average 50% more for M&E building maintenance compared with the building fabric and structure maintenance. In some cases the expenditure was five times more. For example on a 200,000 sq ft (18,580 sq m) centre, the fabric maintenance costs were valued at less than £400,000 and the M&E costs at more than £2,000,000, a significant difference that could make or break and investment deal.
M&E surveys, when combined with TDD, delve deeper into the workings of the building. Like Black Box technology, minute detail can be uncovered: tell tale signs such as discolouration hidden inside water systems can identify the onset of corrosion meaning imminent failure of pipework; and contamination inside ductwork can pose health and fire risks.
Evaluating the repair or replacement of equipment alongside the condition of the building fabric helps identify economies which are normally overlooked. For example, recovering of a roof may be delayed to coincide with the replacement of rooftop units, capitalising on the economy of using the same scaffold and cranes. By integrating the M&E elements of a building with the fabric, the life cycle costing of a building can be enhanced.
Today, property values are being squeezed, so accurately costing M&E expenditure before a purhcase can really make a difference to the bottom line.