CUED

Preventive Maintenance Program for the Fulton-Carroll Complex

The major conclusion of this investigation is that a preventive maintenance program for the ICNC complex is premature. This finding is attributable to the following factors: building size: a 350,000 square foot complex does not require sufficient repetition of costly tasks to make preventive maintenance a workable concept, building nature: a multi-tenant rental building, in which all process and production equipment is operated by tenants, is not a particularly good candidate for a preventive maintenance program, which usually addresses powered items, building condition: current maintenance needs are such that day-to-day work accounts for all maintenance staff time. There is no leeway for more sophisticated operations, building operations: most existing equipment in the complex is old. Maintenance is conducted generally on an as-needed basis, which does include periodic inspection of elevators and pumps. Existing building accounts do not provide for in-depth breakdown of maintenance costs by item (e.g., pump maintenance) and it would not likely prove cost effective to maintain such records or provide "better" maintenance, both of which would likely increase building operating costs.

Although a preventive maintenance program for the Fulton-Carroll Complex is unnecessary, our assessment of present operations indicates that on-going maintenance needs to be better organized to keep expenses low and the recent improvements functioning properly for the long term.

Much of the sophisticated mechanical equipment in the complex is new. For these items, careful attention to maintenance as described in the manufacturer's manuals is recommended. For heating distribution, where much of the equipment is past its economic life, and for tenant improvements, in which some wiring distribution or metering may be required, and other maintenance items, it is recommended that a capital reserve be provided each year. This reserve will be used for major capital expenditures, whether or not anticipated, tenant improvements, and for purchases of power equipment and tools should the present building engineer, who provides his own equipment, retire. This capital reserve must be carefully monitored and provided as a separate capital account. In years in which the reserve is not depleted, the funds should be rolled over to be added to next year's reserve. It is hoped that a sufficient reserve can be established in this way to provide funds for emergency and unanticipated repairs. This account must be established from cash flow, since the Economic Development Administration will not permit the real estate to be mortgaged, which would be a usual way of financing emergency repairs. By establishing the reserve from up-front cash flow, there will be an incentive to hold down tenant improvement costs. An alternative way of financing emergency repairs, which we have not explored, would be to obtain a stand-by line of credit from one of the ICNC member banks, with collateral based on receivables. Another would be to explore providing insurance coverage (essentially business interruption insurance) for emergency repair items. We feel that some arrangement to finance emergency or unbudgeted repairs must be found. A breakdown in some vital service may cause tenants to withhold rent and delay in repairs may increase costs substantially as damage spreads. This would be a poor time to have to worry about financing repairs.

Our remaining recommendations have to do with organizing and implementing a maintenance function, with necessary reporting and monitoring. We provide a checklist of items under each building component to help structure the monitoring function.

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UIC-Center for Urban Economic Development