Best Practices for Managing Industrial Property Maintenance

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1 0 Best Practices for Managing Industrial Property Maintenance

2 Industrial Property Maintenance 1 Property Inspections Interior / Exterior Environmental Awareness Self Performing Lease Requirements Roof Inspections and Maintenance Railroad Access and Maintenance

3 Property Inspections 2 Interior / Exterior Property Inspections are a critical component and best practice for managing industrial real estate. The inspection is an opportunity to gain first hand knowledge about the current physical condition, customer operations, identify future improvements and potential risks that may negatively impact the property. As part of your property inspections, the property manager should identify preventative, curative and deferred maintenance. Move in / Move Out Environmental Awareness Fire Protection and Life Safety Roof HVAC Common Area Parking Lot/ Concrete Railroad Structural and Foundation

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6 Preventative Maintenance 5 Preventative Maintenance requires a high degree of successful planning for both minor and major maintenance items. The practice of preventative maintenance will prevent small maintenance problems from growing into much larger and costly problems, which translates to lower expenses. HVAC Service and Maintenance Fire Life Safety Testing and Maintenance Parking Lot / Concrete Maintenance Roof Inspections and Maintenance Grounds Maintenance

7 Curative Maintenance 6 Curative Maintenance is maintenance which is performed to repair something after it has already broken down and / or for emergency repairs. While this type of maintenance is inevitable, every effort should be made to correct the situation as soon as possible to prevent further damage to other components and to prevent incurring additional costs. Identified repairs during property inspection Lighting maintenance Plumbing repairs Asphalt repairs / pot hole Emergency Repairs Fire line repairs Roof leaks Water line repairs

8 Deferred Maintenance 7 Deferred Maintenance of a property can diminish curb appeal and may take a toll on the leasing efforts for new prospects and existing customers who do not wish to renew their lease in what appears to be a rundown building. Deferred maintenance should be avoided whenever possible. Exterior paint Asphalt repairs and sealcoat Concrete repairs Grounds maintenance and replacement Signage

9 Environmental Awareness 8 Process of controlling a potentially negative environmental impact on the property. During property tours, site visits, or meetings with customers, property managers have a unique opportunity to identify potential environmental issues. Effective environmental management can prevent releases of hazardous materials to the environment. Environmental releases are costly and can diminish the attractiveness of a property to future customers, investors or buyers.

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11 Environmental Awareness PROPERTY MANAGER ROLES AND RESPONSIBILITIES 10 Traditionally, property managers are not expected to perform the role of an environmental inspector. Their role is to be the eyes and ears of the property owner and identify areas of concern. Understand the customer s business and any hazardous materials or waste generated as part of their operations. Example of uses that may propose environmental concerns: Chemically intensive manufacturing (metal plating, machining) Trucking companies requiring petroleum storage and fuel storage Dry cleaning Printing companies Third-party logistics customers distributing hazardous materials Customers with areas specifically designed for hazardous materials Manufacturing customers that generate waste oils and bi-products

12 Environmental Awareness PROPERTY MANAGER ROLES AND RESPONSIBILITIES 11 Look for improper storage and handling of hazardous materials during routine site walks; look for unmarked and open containers. Spills and poor housekeeping around drains. Take photographs of any concerns. Communicate concerns to your Sr. Management. Identify internal procedures for reporting and documenting minor and major environmental response incidents.

13 Basic Hazardous Materials Storage 12 Ineffective containment Correct pallet containment

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17 Self Performing Lease Requirements and Maintenance Obligations 16 What is a self performing Lease? The customer is contractually obligated to perform and maintain the interior and exterior of the premises. The customer is responsible for all capital building repairs and replacements. The lease contains specific language to address who is responsible for performing the maintenance and replacements of the building components.

18 Self Performing Building Maintenance and Capital Replacement 17 HVAC Maintenance Exterior Paint Interior Building Components Interior and Exterior Lighting Roof inspections and Maintenance Fire Life Safety inspections and Maintenance Landscape and Grounds Maintenance Common Area Maintenance

19 Self Performing Customer Property Maintenance 18 How can a Property Manager ensure that a self performing customer is maintaining the property appropriately? The Property Manager should review the lease with the customer to fully understand the maintenance obligations. Provide the customer with a list of regular preventative maintenance items. Invite the customer to a regularly planned and formal annual property inspection. Document the property inspection with a follow up letter identifying building areas that require maintenance and replacement.

20 Self Performing Customer Property Maintenance 19 Offer to provide the customer with assistance obtaining proposals and/or providing a list of preferred vendors for the repairs and replacements. Assist the customer in preparing bid specifications and scope of work. Offer to include the customers capital replacement projects during your annual bidding process, allowing them the benefit of achieving your companies economies of scale pricing. Provide annual replacement budgets for the customer to include in their annual budget. Take photographs of the identified repairs and/or replacements for the customers future reference.

21 Roof Inspections and 20 Maintenance Roof Management Program: Have a defined program in place Proactive or Reactive In House, Contractor or Consultant Based Inspections: Conditions (Annual or Semi-Annual) Short Term Goals (Maintenance and Expenditures) Long Term Goals (Maintenance and Expenditures)

22 Roof Inspections and 21 Maintenance Maintenance: Roof cleaning and maintenance is essential for preventing costly roof repairs and potential failure Clean debris from roof and gutters annually/biannually Check and verify that all roof drains and downspouts are draining properly and are undamaged Project / Data Management: Repairs/Maintenance Records Performance Condition Maintenance Cost Planning Warranty Capital Planning

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24 Tenant Related 23

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27 Railroad Access at Industrial Properties 26

28 Rail Spurs 27

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32 Industries That Utilize Rail 31 Agricultural and Food Products If it s on your table or in your pantry, railroads probably had a hand in getting it there. Chemicals Paper and Lumber Consumer Goods Intermodal (moving shipping containers and truck trailers on rail cars) has been the fastest growing rail traffic segment over the past 20 years.

33 U.S. Freight Activity 32

34 Benefits of Rail at Industrial Properties 33 Competitive advantage to the landlord as very few multi tenant properties offer rail access. Tenants who need rail service have very limited options. Rail service gives tenants more flexibility on space requirements as materials/product needed can be stored in the rail cars and not take up warehouse space. Rail has fairly significant construction costs. However, a rail spur has a very long useful life with typically low annual maintenance costs.

35 Maintenance Requirements 34 Owner/Landlord is responsible to keep the spur area free from debris, weeds, potholes, ice or snow, poles, temporary or permanent structures, other obstructions and/or excavations. Further roadbed requirements for railroad tracks can be found in section 213 (Track Safety Standards) subpart B of the Title 49 Code of Federal Regulations. Owner/Landlord agrees to maintain the following clearances. A lateral clearance of a minimum of 8 6 from either side of the centerline of the rail spur. A vertical clearance requirement of at least 22 above the top of the rail. Lateral and vertical clearances for power poles and lines must comply with the National Electric Safety Code.

36 Sidetrack Agreements 35 Master sidetrack agreements are executed between the Owner/Landlord and Railroad Company. This agreement establishes ownership and construction of the rail spurs, location, maintenance, right of way, and annual connection fee. Supplemental sidetrack agreements are executed between the Landlord, Tenant and Railroad Company. Agreement grants tenant the right to use the rail spur at the property.

37 Case Study Pasco Iron and Metal 36 Pasco Iron and Metal (PIM) is a metals scrap/recycling facility in the Tampa Bay area. Core business includes processing of scrap metals (steel, copper and aluminum) and shipping them to mills for future metal production. PIM was looking at installing a rail spur in effort to increase material shipping as well as lower shipping costs. Railroad Spur project timeline: January 2012 Start conversations with RR spur contractor and proceed with engineered drawings of sidetrack design.

38 Case Study of PIM Continued 37 June 2012 Engineered plans submitted to CSX October 2012 Plans approved by CSX September 2013 Executed sidetrack agreement with CSX February 2014 Commence construction of rail spur April 2014 Finished construction including switch on main rail line Costs for Construction of Rail Spur: CSX switch and signaling - $150,000 of which a $75,000 credit comes in the form of an $81 per car usage rebate. Construction of rail spur (543 feet) - $215,000 Benefits to PIM since spur installation has resulted in increased production due to another source to transfer materials. The use of rail gives PIM a cost competitive advantage as one rail car can hold 5 truck loads of material.

39 Photos of PIM rail spur 38

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42 Best Practices for Managing Industrial Property Maintenance 41 Questions?