The cost behind the line item
Your P&L showed the bill. Nobody was watching what was paying it.
A NYC business owner asked me what I could find in his energy bill.
I ran the building against physics for two weeks.
We changed his monthly spend by nearly 40%. Sounds crazy, I know.
Payback under two years (NYC utility prices are really high)
He kept asking what changed.
The honest answer was: nothing structural. We didn’t replace the chiller. We didn’t reroof. We didn’t gut the controls. All we did was an Energy Audit. Few use em, those that do are always ahead.
We ran the equipment fewer hours.
We changed when systems came on and went off.
We matched the loads to the actual occupancy.
Forty percent of his bill was paying for hours nobody was in the building.
The Reality: the P&L tells you what you spent. It doesn’t tell you what you shouldn’t have.
Here’s the part nobody talks about. Operating cost invisibility is the quietest killer in multifamily right now. It doesn’t show up in the broker package. It doesn’t show up in the financial model. It compounds outside everything we’re trained to underwrite.
Sixty months of utility line items. Sixty months of expense ratios that looked normal. Sixty months without anyone asking what the building should be using vs. what it was using.
The next operating statement you read, ask one question. What does the physics say this building should consume?
That number is knowable to two decimal places. Square footage, envelope, climate, occupancy, equipment efficiency.
When actual is within 10 percent of physics, the building is healthy. Fifteen to twenty above is a dispatch problem. Thirty-plus above means nobody has looked at the building as a system in years.
Every dollar above physics is a dollar you’re paying not to know.
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Utility rates are up 28 percent in five years in the markets I lend in. If your operating cost line hasn’t moved as a percentage of revenue, somebody is absorbing that increase.
Usually that somebody is your NOI.
Quietly paying out of the back of the asset.
I’ve been quietly working on something for the last year that addresses exactly this gap.
Owners who want to see this stuff coming. Not after.
I’ll have more to share very soon.
Operating cost is the line item. Operating cost invisibility is the pattern. That’s the difference between paying for what you’re using and paying for what nobody is watching.
—Jon
P.S. Forward this to the operator in your life who hasn’t asked the physics question yet. The next sixty months of their utilities depend on whether they ask now or in year five.