With a massive wave of CRE transactions just over the horizon, buyers and sellers need every edge they can get when they arrive at the negotiating table.
That’s where Fortis comes in. The innovative roof performance company extends the life of a roof past its manufacturer warranty for a fraction of the cost of replacement, locking in value while keeping thousands of pounds of material out of landfills. Owners of individual properties and massive portfolios smooth out their year-over-year spending and save money by putting their roofs in Fortis’s Roof Performance Programs, while buyers and sellers can leverage Fortis warranties to gain an advantage while negotiating deals. TRD sat down with the Fortis team to learn how their company is revolutionizing the way the CRE industry looks at roofs.
80% of Roofs are Replaced Prematurely
The concept behind Fortis, and roof extensions in general, was planted in Fortis Founder and CEO Rick Lewis’s mind in the early 1990s. Lewis, then a young executive for The Mountain Company, was attending a board meeting when Chairman Harry Esbenshade Jr. mentioned offhandedly that “80% of reroofs are premature.”
“It’s the first nugget that accounts for the formation of the idea for Fortis,” explains Lewis. About a decade later, Lewis, who then owned a small roofing company in Denver, would return to this germ of an idea when a customer came to him with a common roofing situation.
“This roof is in pretty good shape,” recalls Lewis. “It has some isolated defects, but the building owner has been convinced by the manufacturer, the consultant, the contractor, the engineer and the architects that, because it’s 15 or 16 years old and out of warranty, it needs to be replaced.”
It was what Lewis calls his “aha moment.” He sent a sample of the roof membrane in question to a lab for testing and learned that the material was actually stronger after 15 years than it had been the day that it was installed.
Further research revealed that the true lifespan of modern roofing materials is about twice as long as the 15 year manufacturer warranty period. Industry inertia has kept the cycle of roof replacement at the 15 year mark going for decades, creating a reliable market for materials and labor from top to bottom, while in reality the vast majority of roofs that are torn off and replaced were functioning as well as, if not better than, the day they were installed.
“These roofs are performing well,” says Lewis. “It’s still a very well kept secret in the market. It’s not one that’s broadly shared among manufacturers, consultants and all those parties that benefit from a roof being replaced.”
The Fortis Solution
Lewis set about creating a way to help building owners like his initial client extend the life of their roofs past the original 15 year warranty. The result was the Roof Performance Program, essentially a warranty that guarantees the life of a roof for a set period of time at a specific cost.
“Our prices are generally between 30% and 40% of a new roof,” says Lewis. “It’s a fraction of the price, better warranty terms and a stronger financial guarantee than you’re going to find buying a new roof.”
The process is simple. Once a roof owner enlists Fortis, the company evaluates the roof’s health according to its proprietary roof risk assessment criteria and creates a score.
“That score becomes the basis of our underwriting process,” says Dave Schupmann, Enterprise Accounts Director at Fortis.
Once underwriting is complete, Fortis will give the customer a recommendation for the number of years that their roof’s life can be extended, and the customer can “right size” that guarantee based on their business needs (for example, even if a roof’s lifespan could be guaranteed by Fortis for 15 years, the customer might only need a 5 year extension if they plan to sell the property). The resulting warranty is backed by Lloyd’s of London.
When that figure is approved by the customer and the warranty is in place, Fortis will then perform an initial reconditioning of the roof, shoring up any minor deficiencies with the help of strategic partners.
“No one has a greater interest in seeing quality materials, quality detailing, and quality contracting during the initial reconditioning phase than Fortis,” says Schupmann. “Once we certify the roof, any type of issue with that roof comes directly to us.”
Because Fortis is now responsible for the condition of the roof, the company proactively maintains its condition for the duration of the warranty, performing any necessary reconditioning. “Our goal is to give the customer back a very good asset at the end of the warranty,” says Schupmann.
A New Way of Looking at Roofs
While Fortis was founded to extend the life of individual roofs, the roof warranty concept pays even greater dividends at scale. For example, REITs with dozens or more roofs under management can use Fortis to save money as well as lock in specific budgets for roof maintenance for years at a time, avoiding the peaks and valleys that can be detrimental to overall financial planning and performance.
Virginia-based Medalist Diversified REIT, which has over 850,000 square feet under management across its portfolio, chose the Fortis Roof Performance Program for CRE properties in five geographic regions.
“We’re always looking at ways to conserve capital and reduce our CapEx” explains Medalist CFO Brent Winn. “We were about ready to face the need to incur substantial costs to replace a number of our roof systems on our properties.”
Instead of reroofing, Medalist tapped Fortis to extend the life of its properties’ roofs for ten years, avoiding not only the major capital expenditure up front but also any potential further roof maintenance costs within that time frame.
Getting to the Phone First
While Fortis’s warranties are a great product for building owners looking to extend the life of their roofs, they’re also a major advantage when it comes time to buy or sell a property.
“The roof is typically one of the most expensive components of a building envelope,” explains Schupmann. “It’s also one of the most contested issues in a building transaction, because there’s a lot of dollars at stake in almost every situation.”
When a buyer is looking at a building with a roof that’s out of manufacturer warranty, they can ask for a credit from the seller to offset the potential cost of the reroof. By the same logic, it’s in the seller’s best interest to retain as much value in their building when bringing it to market.
Because a Fortis warranty transfers with the property, sellers who put their roof in a Fortis program can pass that value on to the buyer. The advantage for the buyer is even greater, as they can negotiate their price by leveraging the cost of a reroof and then, once the deal is done, extend the roof’s life with Fortis for a fraction of the cost.
“They’re going to make 50%, 60%, 70% on that pickup right away in the transaction, because they were savvy and used us,” says Schupmann, who points out that, with retail and office CRE under pressure, the people who can “find value in these transactions” will end up winning out in the end.
So if you’re a property owner, REIT manager, or are looking to buy or sell CRE in the near future, reach out to Fortis and learn more about how their Roof Protection Programs can bolster your bottom line.