The “real” cost of building ownership

Posted by TIm on November 1, 2009
Stored in Blog

If you have read any of my other blogs or White Papers you know that I am tim 155x199 The real cost of building ownership passionate about helping the Church (big “C”) understand the need to maintain the resources God has entrusted to us.

As many of you know, I come from a background of designing and building ministry facilities. Prior to launching Cool Solutions Group, I was blessed to invest 23 years of my life in serving churches to develop new and renovated ministry facilities. That phase of my life brought me great joy and fulfillment. But now I am very burdened by the millions of dollars that are spent each year on religious construction without a clear understanding of the “real” cost of ownership. I also think that that most ministry leaders do not understand that the ongoing costs eclipse the initial costs and do so in a shorter period than you would imagine.

Let’s look at the REAL cost of ownership of our ministry facility:

INITIAL COST:

For this exercise, lets assume that our new ministry facility is 20,000 SF and we can have it built for $150/SF.

We will also assume that the land has been paid for and is unencumbered of debt.

20,000 SF x $150/SF = $3,000,000

COST OF OPERATION:

We are going to use some of the facts that were listed in my White Paper: CHURCH FACILITIES MANAGEMENT:THE FACTS to establish a reasonable baseline for operational costs. The following are the criteria we will use:

1. Utilities at a rate of $1.25/SF = $25,000/ year in first year
2. Janitorial/paper products at a rate of $1.50/SF = $30,000/ year in first year
3. Maintenance and Repair based on a rate of 1.55% of the Current Replacement Value (CVR) = $46,500/ year in first year. (NOTE:This does not include the cost of management of these items)

The above 3 items total $101,500 for the first year of operation. That is 3.38% of the initial cost. But the above rate of cost will not stay constant. It will change in the following ways:

1. The CRV will increase as the cost of new construction increases. If the CRV increases by 3%, the new CRV would be $3,090,000… multiplied by 1.55% (which is a minimum) is now $47,895.
2. The cost of labor and products, in most cases, will increase which will increase your janitorial costs.
3. Utility companies rarely lower their rates, so your utility cost are subject to increase.
4. As your equipment and systems age, they tend to be less effective thus increasing energy consumption.

So in order to evaluate the real cost of ownership, we must add a percentage to our first year base line. For this evaluation, let’s assume a modest increase of only 2%. If we compound the 2% per year, by year 23 we will have already spent the Initial Cost of the building just on the above items. You may have just paid off your mortgage and already paid for the building twice and that does NOT even take into consideration the cost of interest on your loan. If you borrowed 80% of the construction cost at 7% for 15 years, you will have paid another $800,000 (+/-) in interest which means that if you took the entire 15 years to pay off your loan…plus the cost of operation…you will have paid $2.5M above the Initial Cost of the building at the end of 15 years.

So…what costs more….the initial cost…or the cost after you occupy? I think the numbers speak for themselves. So…do we invest the same amount of time and energy in planning your operational costs as we did when we developed our master plans and floor plans?

Think about it….then do something about it.