I was checking out a multi-family property in Brockton this afternoon on behalf of a buyer today and I came across this cluster of gas meters.
Believe it or not, a cluster of gas meters can tell an important but, too often, overlooked story especially during “deal heat”, a term coined by Jack Welch in his book “Winning”. There happen to be hook ups for fifteen gas meters attached to this property because this happens to be a fifteen unit building. Here’s the problem. Four of the fifteen gas meters have been removed and one of the gas meters has been locked.; that’s at least 33% of the units that aren’t paying their gas bills! Gah! You would image that this would be a huge problem because natural gas is generally used as a major source of cooking and heat in Massachusetts, especially in newer construction; this building was built in 2010 so I was immediately concerned. I was ready to dismiss this property but I decided to do a bit of extra digging.
It turns out that this fifteen unit building was built with only one central heating system. That’s something that we generally don’t see much anymore in new construction but it makes sense in this building because the owner apparently spent the extra money in spray foam insulation so the building is very tight. The heating bill for this building was apparently $7,200 last year but the owner is getting an almost $200 premium in rent per unit because the heat is included in the rent. The owner is apparently making $36,000 in “extra” rental income because heat is included in the rent but he’s only paying out $7,200 which nets him $28,800. Sure, there were higher fixed costs associated with the application of the spray foam but they’re already sunk costs so he’ll never have to worry about them again. Cool, hey?
I also learned that the cooking in this building is electric. The only appliance that uses natural gas in these units are the gas fireplaces. Now, gas fireplaces are truly an optional feature. It’s a bit odd to me that individual natural gas meters were hooked up to this building only for use with gas fireplaces but different stokes for different folks, right? I don’t blame the tenants if they don’t want to pay a gas bill solely for gas fireplaces.
This happened to be a case wherein the story of the gas meters makes sense but this story is also atypical. Gas meters are a huge indicator of the financial health of the tenants. I recently represented the seller of a property at 51-55 Heath Street, Jamaica Plain and one of the seven gas meters was missing because that tenant wasn’t paying his gas bill. The tenant, as a result, wasn’t using his gas cooking or gas heating; he was using electric space heaters. Yikes!
Most investors are seasoned enough to look at gas meters but many real estate agents aren’t. If you’re a real estate agent, make sure to check the gas meters! Don’t ignore them or you’ll lose the confidence and trust of your buyers. Instead, make it a point to get to the bottom of the issue. You may help your buyers negotiate a better deal and you’ll look like a hero.