Here we are, our 100th blog post!  For those of you that have been on this journey with me from the beginning, thanks for sticking with me.  For those that are just joining, please go back and read from our archives.  I hope that this, and all of our posts, give you value and help you to better understand how you want to tell your asset management story.

Now back to our series based on things that I heard and learned at the APPA National Conference that was recently held in Nashville…..

Last week I introduced the difficulties that many asset managers face in deciding to keep or divest/demolish buildings within their portfolio, whether to downsize their footprint, or to replace older buildings with new ones.  This week we are going to start by focusing on some ideas that others have used in the past to support these decisions.  

We have seen some clients develop a Facility Condition Index (FCI) scale wherein if a building has an FCI over a certain number it is deemed to be “prohibitive to repair” and should be demolished/replaced.  This can work for the facilities wherein the DCRM is so high that it clearly makes no sense to throw good money after bad. 

However, in our experience these “no brainers” represent a very small portion of a portfolio.  There are far more buildings that are “on the bubble” where the FCI is bad, but not so terrible that almost nobody can argue with the decision (although in my experience no matter how high the FCI, there will always be those that want to save their beloved building), which leaves asset managers trying to justify the difficult decision.  

Additionally, even though FCI is the leading benchmark for asset managers, it is not the end-all-be-all.  There are a lot of important issues that are not included in an FCI, such as functional adequacy, code and environmental issues, sustainability issues.  All of these things help to tell a building’s story.

For example which building would you close?  1 – A building with a 5-Year FCI of 35%, but it is functionally inadequate for today’s modern program or 2 – A building with a 5-Year FCI of 40% but where the building meets your current program needs.  Of course the answer is…it depends.  However, the purpose is to show that you cannot rely on FCI alone to make these important decisions.

In our experience, the best way to justify the decision to divest/demolish a building it to take a more holistic, whole-asset view.  I will discuss what we mean by this approach in next week’s post, the third and final part of this series.