Abstract: Recapitalization Management

Recapitalization is defined in funding terms as periodic recurring costs for replacement/renewal projects and one-time funding for improvements and programmatic projects. These are capital costs associated with the reinvestment of funds in a building or fixed asset. These projects are typically larger in size than annual maintenance work is, and they often involve replacing or renewing a building’s major subsystems or infrastructure areas.

Improvements

Improvement costs are associated with changes or additions to an asset or system that are not required from a facility or life cycle perspective but that increase the value of the asset. Examples of such modifications include the following:

• Code compliance: Installation of new equipment or a new system, such as the addition of a fire sprinkler system;
• Appearance: Installation of a carpet on an existing floor to provide a more acceptable appearance or improved acoustics; or
• Addition: Installation of a new building security system or electronic keying system.

Programmatic Upgrades

Programmatic upgrade costs are associated with measures that increase the value of the asset as a result of changes or modifications to the space or subsystems in a building, and are required because of changes in the function or use of the facility. Examples include the following:

• Installing laboratory equipment such as fume hoods;
• Upgrading classroom technology capability that requires additional infrastructure for information technology and media; or
• Reconfiguring internal space to accommodate new requirements.

Replacement and Renewal

Replacement and renewal costs are related to the known future cyclic repair and replacement requirements based on the recognized life cycle of building components. These efforts ensure that the overall facility reaches its planned useful life. This category also includes projects that, as a result of component or system renewal, require additional measures to comply with current codes or safety regulations or to address obsolescence. Examples of such measures include the following:

• Replacement tasks: This effort involves scheduled replacement of old or obsolete equipment and materials. For example, a building’s fire alarm system has a life cycle of 10 years and the building may have a design life of 50 years. Over the design life of the building, the fire alarm system is predicted to be replaced four times. When a replacement fire alarm system is installed, it must incorporate the technology that is available at the time of the installation, which may not be the same technology that was available when the former system was installed. Replacement tasks also include the replacement of obsolete equipment or systems.
• Renewal tasks: This effort includes periodic but substantial work on a component in an attempt to restore operating characteristics that make the component run like new—for instance, retubing a chiller halfway through its useful life to improve its performance.
• Retrofitting tasks: This work is similar to renewal efforts and has the primary effect of adding economic life or value to the asset. An example is a modifying a boiler from coal operation to natural gas operation.