Warm weather brings an expense break to Twin Cities landlords, for now

Mild weather is creating a break for the budgets of Twin Cities apartment owners, who are spending less on heating and snow removal as other expenses mount.

The savings, landlords say, will help them cope with double-digit increases in property assessments and a tight labor market that has driven up wages.

"The overall savings is still a guessing game," said Lisa Moe, president and CEO at StuartCo, which manages more than 5,000 rental units throughout the metro area.

Utility bills for buildings where heat is included in rent represent a major expense to landlords. Just a few months into the heating season, those bills are noticeably lower. The same is true for salting, sanding and snow removal, which can cost tens of thousands of dollars every year.

Moe said StuartCo's biggest savings are at its townhouses, which tend to have the highest snow removal expenses because each unit has its own driveway and sidewalk. At those properties, the company is saving about 30 percent of what it might otherwise be spending on such services.

"Mild temperatures have minimized our snowplowing expense across our portfolio and warmer temperatures have minimized the overall heating costs," she said. "But we are still buying equipment, servicing existing equipment and buying sand and salt for the property in anticipation of snow."

Renters shouldn't expect their landlord to pass along the savings. Despite 12,000 new apartments over the past five years, apartments are still tough to come by in some parts of the metro, especially for those looking for inexpensive rentals in downtown Minneapolis. The average vacancy rate throughout the Twin Cities metro has remained about 3 percent and rents rose about 6 percent across the metro, according to NAI Everest.

"We've saved about 20 percent on natural gas so far this year, but that doesn't mean rents are going down 20 percent," said Barbara Halverson, president of Twin Cities-based Steven Scott Management.

Halverson said that in addition to lower consumption, lower energy prices have cut expenses. And with fewer snow- and ice-covered sidewalks and parking lots, the company has also dealt with far fewer slip-and-fall accidents — none during the last month.

But property owners are bracing for serious increases in their 2016 property tax bills, driven in part by the valuations seen in a record number of apartment acquisitions this year in the metro area. Earlier this month, Minneapolis Mayor Betsy Hodges produced a final city budget showing that apartment values grew by 29 percent in 2015 compared with just 7 percent for residential properties.

"Whatever we save in natural gas and snow removal, we'll turn around and pay in taxes," Halverson said.

Tina Gassman, director of public relations for the Minnesota Multi Housing Association, said that while people like to think of housing providers as wealthy landlords with money to spare, "the truth is that many of our members are self-funded small business owners running very lean."

Still, if mild weather continues, she expects some landlords to tackle improvement projects that might not otherwise have been in the budget.

"Even small savings on facilities services can add up to the benefit of Minnesota renters," Gassman said.

El Niño, which warms the water in the Pacific Ocean and has an effect on the weather patterns, has been expected to bring a milder than normal winter to the Midwest and other regions. While the odds are in favor of a warmer and drier winter, there's no guarantee and it's only three months in into the heating season.

Jennifer Gordon, a senior vice president with the Excelsior Group, said any benefit of a mild winter isn't likely to emerge until early next year because utility costs are billed in arrears and the heating season just started. There are other factors that could limit or delay the savings for some building owners. For example, many building owners agree to a contract that's negotiated for the entire season, she said.

"I'm sure there will be some savings in snowplowing for those who execute on a per-time contract basis," she said. "Warm weather always helps."

Jim Buchta • 612-673-7376