Capex Prioritization

Capex Prioritization

The canonical skill for evaluating and ranking capital expenditure projects. Any command that needs to prioritize, score, or schedule capex MUST invoke this skill.

Trigger Conditions

Activated when any command needs:

• Capital project scoring and ranking
• Multi-year capex scheduling
• Reserve adequacy analysis
• ROI analysis for value-add capital projects

Business Context

Capital allocation is a zero-sum game: every dollar spent on one project is unavailable for another. This skill provides a consistent, defensible framework for ranking projects so that safety-critical items are never deferred, high-ROI projects are prioritized, and discretionary spending is right-sized relative to available capital.

Workflow

Scoring Methodology

Each project is scored on four dimensions (1-5 scale each):

Urgency (weight: 35%)

Score	Criteria
5	Safety hazard or code compliance violation -- immediate action required
4	Active building system failure affecting operations or tenant comfort
3	Deferred maintenance with accelerating deterioration
2	Preventive replacement approaching end of useful life
1	Cosmetic improvement or amenity enhancement

NOI Impact (weight: 30%)

Score	Criteria
5	Direct revenue enhancement >5% NOI uplift (e.g., unit renovation with rent premium)
4	Significant expense reduction with <3 year payback
3	Moderate revenue or expense impact with 3-5 year payback
2	Indirect benefit (tenant satisfaction, competitive positioning)
1	No measurable NOI impact

Tenant Retention Value (weight: 20%)

Score	Criteria
5	Directly tied to a lease renewal negotiation (tenant requirement)
4	Addresses known tenant complaint affecting retention
3	General amenity improvement supporting retention
2	Indirect tenant benefit
1	No tenant impact

Risk if Deferred (weight: 15%)

Score	Criteria
5	Deferral creates liability exposure or insurance risk
4	Deferral causes cascading damage (water intrusion, structural)
3	Deferral increases future cost by >25%
2	Deferral has modest cost escalation
1	Deferral has minimal consequence

Composite Score = (Urgency x 0.35) + (NOI Impact x 0.30) + (Retention x 0.20) + (Deferral Risk x 0.15)

Multi-Year Scheduling

1. Year 1: All projects scoring >= 4.0 composite, plus all safety/code items regardless of score
2. Year 2: Projects scoring 3.0-3.9
3. Year 3+: Projects scoring < 3.0 (discretionary, schedule as capital allows)
4. Within each year, sequence by: dependencies first, then highest composite score first
5. Validate that annual spend does not exceed available capital; if it does, defer lowest-priority items

Reserve Adequacy Check

1. Beginning reserve balance
2. • Annual reserve contributions (typically $0.15-$0.50/SF for commercial, $250-$500/unit for multifamily)
3. • Planned annual capex spend
4. = Ending reserve balance
5. Minimum reserve threshold: 3-6 months of planned annual capex
6. If ending balance falls below threshold, recommend: increase contributions, defer discretionary projects, or fund via capital call

ROI Analysis (Value-Add Projects)

For projects with NOI impact score >= 3:

1. Estimate incremental NOI (annual revenue increase or expense savings)
2. Simple payback = project cost / annual incremental NOI
3. ROI = incremental NOI / project cost
4. Capitalized value creation = incremental NOI / cap rate

Output Structure

• Scored project list (all projects with dimension scores and composite rank)
• Multi-year schedule (projects assigned to years with timing)
• Reserve projection (beginning balance through end of plan)
• ROI summary for value-add projects (payback, ROI, value creation)

QA Checks

• All projects scored on all four dimensions
• Weights sum to 100%
• Safety/code items never deferred to Year 2+ regardless of budget
• Reserve balance never goes negative without flagging
• ROI calculations use realistic rent premiums or expense savings
• Project costs include soft costs (design, permitting, management)
• Multi-year total ties to sum of individual project budgets

Edge Cases

• Emergency repairs: Score 5 on urgency, bypass normal scheduling -- execute immediately
• Tenant-funded improvements: Exclude from capital plan if 100% tenant-funded; include if landlord share exists
• Insurance-covered items: Net of expected insurance recovery; track gross and net cost
• ESG / sustainability projects: Score NOI impact based on measurable savings (energy, water); do not score based on ESG narrative alone