East / Regional Reports

Hvac Contractor Gets Into Real Estate

April 10, 2001
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A contractor performing commercial hvac service needs a steady supply of buildings to work on. A real estate company developing and managing office buildings needs service professionals to maintain the heating and cooling equipment in its facilities. Thus, the urge to merge was a natural and mutually beneficial arrangement.

Martin G. Knott & Associates, LLC, is an hvac service company based in Owings Mills, MD, which covers the Baltimore-Washington, DC area. On August 31, 1999, the business merged with Corporate Office Properties Trust (COPT) in Columbia, MD, a real estate investment trust (REIT) with properties in Maryland, Pennsylvania, and New Jersey. Martin G. Knott coordinates with Corporate Realty Management, the company’s property management arm.

Martin Knott, president of Martin G. Knott, noted that an impetus on his end to merge was the hvac consolidation movement. As a small contractor, he was concerned about large consolidators moving into his region. By merging with COPT, Martin G. Knott became part of a major operation.

The timing was also right for COPT because of the pending REIT Modernization Act, which was passed in December 1999 and went into effect January 1, 2001. The law created taxable REIT subsidiaries, which made it more attractive for these organizations to own other businesses.

Michael Kaiser, president of Corporate Realty Management, stated, “Heating and air conditioning complaints from tenants tend to be, if not the single biggest reason why tenants don’t renew their leases, one of the top two or three.” COPT wanted to add an hvac company that could assist in evaluating hvac system design in new projects and renovations, as well as servicing its buildings.

“Conversely,” said Kaiser, “we’ve given Martin G. Knott a perspective of how to operate in the real estate industry,” providing the ownership outlook.



Selecting A Partner

“Part of our thought process was to have a company aligned with us that would be a provider to third parties as well as ourselves,” Kaiser related.

COPT had been using seven hvac companies besides Martin G. Knott. When the decision was made to link up with one of these firms, rather than do a formal evaluation, management watched and observed their performance over a six-month period. The key points looked at were service capabilities, response time, and overall attitude. Martin G. Knott was the firm that stood out.

After the merger was settled, Martin G. Knott took over service of two of the company’s buildings in November 1999. More buildings were added in February 2000 and again in May. It was a planned progression, enabling the firm to staff up to handle the increased business.

Martin G. Knott currently services a majority of the company’s Maryland properties, with the exception of a handful of secure government facilities, handling 46 buildings. Down the line it will expand to all of the COPT properties, which total 84 at present but which are expected to number more than 100 by year’s end.



Draw For Technicians

The service firm had 10 employees at the time of the merger. It now has 26. It hasn’t been difficult to add people, remarked Knott, but it isn’t easy “to get technicians to understand the way that we are set up and why we’re set up that way and the advantages.” Once they understand, “It’s pretty easy to get them on board.”

He began by looking for senior technicians, people with a minimum of five years of experience, although most have been in the industry much longer. He then looked to hire the top new people graduating from local trade schools, and teamed them up with the senior technicians.

Techs can advance through several levels within the service business and can also explore other opportunities. They can move up the ladder from service technician to senior service technician to field supervisor to service manager. They also have the option of transferring to the Controls Division or the Hvac Tenant Improvement Division.

The Controls operation was inaugurated in June 2000 while Hvac Tenant Improvement started in September. “The genesis of the Controls Division,” said Kaiser, “was that we needed to be focused on energy management and systems that would control it.”

Management reviewed various products and found a system from CSI Control Systems International, Carrollton, TX, that they considered the most advanced. The company then became a value-added reseller of the system through the Controls Division.

Hvac Tenant Improvement was set up to do retrofit work. When building space is altered, this division handles hvac changes and balancing work.



Getting Fully Automated

The CSI system is now being designed into all of the company’s new buildings. “Every building ultimately will have a building automation system,” said Knott. The CSI I/Net system handles access and lighting as well as hvac. I/Net uses a single pair of wires for all three functions “to simplify installation,” he stated.

COPT presently has five buildings using the I/Net system, is putting it into two new buildings, and plans to retrofit six more buildings this year.

The company has recently opened a call center at Martin G. Knott headquarters that links the five installed buildings, and that will eventually “link all buildings into a central control system, so we can monitor buildings remotely,” Kaiser said.

One of the reasons the company went with I/Net, explained Knott, is because of its interoperable capability; that is, the ability to combine multiple building applications onto one twisted pair of wires without the use of network interfaces or gateways. This makes the system easier to operate and cheaper to install and upgrade, he said. You don’t have to call in a specialist to make a programming change.

Since the merger, sales for Martin G. Knott have jumped dramatically. At $1.1 million in 1999, sales leaped to $2.6 million in 2000. They are projected to go over $5 million in 2001. The breakdown for the 2001 projection is:

  • Service — $3 million;
  • Controls — $1.5 million; and
  • Tenant Improvement— $500,000.
  • The entire organization, in fact, is doing very well. COPT is “the fastest-growing REIT in the country over the past two years,” Kaiser proclaimed. “And last year it had a 42% total shareholder return.”



    TRAINING FOR THE FUTURE

    In late 2000, Martin G. Knott opened a state-of-the-art training facility. This multimedia room seats 20 people; each desk has computer capability with a PC that can be concealed when not in use.

    The company cross-trains between service and controls so that all techs have familiarity with various controllers.

    The service operation prides itself on its average service call response time of under 2 hrs. Said Knott, “That’s one of the reasons we’ve been able to maintain a high contract renewal rate,” which since 1996 has been more than 95%.

    Rarely losing a customer, the firm also has been steadily adding clients. Its customer list now numbers more than 200, including satellite offices of Johns Hopkins Health System, Mac-Kenzie Commercial Real Estate, Manekin LLC, Colliers Pinkard, Sinclair Broadcasting, Constella-tion Energy, Platt Development Group, and James F. Knott Property Management.

    Regarding future expansion, Martin G. Knott may move into northern Virginia next. But management is focused on “maintaining controlled growth,” Knott remarked. “Ultimately, our focus is to be a dominant force in the Mid-Atlantic region.”

    This report provides information for contractors living in the North Mid-Atlantic region of the United States. This includes Kentucky, West Virginia, Virginia, Maryland, Pennsylvania, and New York. If you have information from this region, please contact Greg Mazurkiewicz at 810-296-9580; 810-296-9581 (fax); or mazurkiewiczg@ bnp.com (e-mail).

    Publication date: 04/16/2001

    Web date: 06/18/2001

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