Roof Replacement: New Ways to Pay

July 1, 2004
Roof Financing and Leasing Options Provide New Strategies For Capital Management

Your roof won’t listen to reason. It just keeps on leaking. No amount of repairs will restore it to like-new condition. A replacement is not in the budget – or is it? A handful of manufacturers are offering financing and leasing to help ease the burden of roof replacement expenses – costs that can sometimes escalate to more than $1 million. These offerings facilitate the purchase of roof materials, contractor services, installation, and sometimes, even maintenance – bringing new meaning to the phrase “one-stop shopping.”

Entire roof replacement can occur in one year.
In the past, owners who have found their hands tied due to lack of funding have approached the dilemma with a phased roof replacement solution. While, ultimately, this results in an entirely new roof, the solution is fraught with challenges and potential problems. Allocating dollars to segmented roof replacement over a number of years may seem ideal, but it could eventually end up costing more. “The traditional approach is to phase the roof construction. The issues with that are [that] you’re exposed to inflation of materials and labor, you’ve got remobilization costs every time the contractor has to come back out, you have less consistent quality control, and of course, you have to maintain and repair the pieces of the roof you’re waiting to replace,” explains Craig R. Maginness, director, Contractor Services Group, Johns Manville, Denver. Another disadvantage to phased roof replacement is the numerous guarantees that result. By taking advantage of alternative funding options, building owners can replace an entire roof (or multiple roofs) in one year.

Financing or leasing can help preserve capital for other building expenses.
When tenants complain about a leaky roof and dated aesthetics, it’s difficult to know where best to invest the capital. It doesn’t have to be an “either/or” proposition due to the availability of roof financing and leasing. “The owner looks at the cash flow from the property. They may have $250,000 a year that they would dedicate from that cash flow to maintenance and capital improvements,” says Maginness. “We’ve been able to structure deals where they can replace the whole roof and then make a payment over a period of years. They keep the cost of the roof matched to their annual cash flow targets and they still have money in that pot so they can repave the parking lot.”

Because the large sum of cash necessary for a roof purchase is not required upfront when a roof is financed, capital dollars are still available for other building needs. “A roof doesn’t increase the leaseable value per square foot of the property because your tenants expect a dry building. If [an owner] can take the capital they have and put it into new lighting, a new lobby finish – the sort of things that actually improve the value of the building – it’s a real win-win,” explains Maginness.

Payment schedules can be tailored to your business.
Manufacturers and the financial lenders they often partner with are offering flexible solutions that can be tailored to an owner’s needs. “What we like to do is find out the owner’s budget constraints and their cash flow requirements; then see if we can put together a program in terms of how long the financing is, whether or not there is a down payment in year one, etc.,” says Maginness. Financing and lease options are not “one size fits all” and it’s important for owners to find a partner with a solution that addresses their specific needs.

Usually, the schedule of payments or installments can be established depending on the availability of funds. Although monthly payments are most common, owners can also make payments on an annual, semi-annual, or quarterly basis.

Financing rates and terms are often competitive.
Johns Manville’s CapitalGuard offers attractive interest rates. “I’d say our average deal has been about five years and our average rate for that has been about six percent. Obviously, shorter-term financing is [available at] much lower rates, and longer-term financing is [at] a little higher rates,” Maginness says. The rates also depend largely on the credit rating of the owner.

These attractive rates and terms are not exclusive to just Johns Manville. The Garland Co.’s lease program offers competitive rates as well. Mary Jo Shea, director of marketing, The Garland Co., Cleveland, explains: “For Key Government Finance, schools and municipalities are tax-exempt. So they can offer them a lower finance rate, which enables the school to do more with today’s dollar. Right now, the finance rates are very attractive.”

Financing and leasing eliminate surprise expenses.
Repairs from a faulty roof will no longer cause troubling and unexpected expenses. Recommended maintenance guidelines are provided with each new roof. “With every roof we sell – whether it’s a leased roof or a bought-out roof – we give [the building owner] maintenance requirements. But for a leased roof, it is a requirement that they adhere to those,” explains Shea. Preventive maintenance is planned and can be budgeted for accordingly, making it easier to forecast future roofing costs. “By leasing equipment, you know the amount and number of lease payments over the life of the leasing period, so you can accurately forecast cash requirements for your equipment,” explains Amy J. Holmes, vice president, Communications, Equipment Leasing Association, Arlington, VA.

With financing available for roof replacements, there’s no excuse. Find out more about leasing and financing and stop the frustration, leaks, and endless repairs with a new roof. Why wait?

Jana J. Madsen ([email protected]) is managing editor at Buildings magazine.

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