One of the competitive advantages to Barrera is the long-term approach we take to working with our clients. We know everyone is not the same and many need more than just a report; they need a solution, which involves rolling up our sleeves and helping them develop a plan they can execute.
For example, what happens when your homeowners’ association has more scheduled repairs than reserves? The answer is simple, but not always easy.
The band-aid approach of fixing chronic repairs with short-term solutions is not an effective use of reserve funds. The better solution first requires the property to assess current conditions, develop a prioritization schedule with an objective, use qualified third party professionals, and finally illustrate how to pay for that plan.
PHASE 1: PERFORM ASSESSMENT
Sample Property: A 200 Unit Condo complex comprised of 20 buildings. Built in 1990, they are currently experiencing the “growing pains” of an aging community. Financially they are not in great shape at 30% funded. They have approximately $650,000 in reserves and over $1.7mm in repairs over the next 5 years. More importantly they go cash flow negative in approximately 15 years, as seen in the chart below.
The big issues they are dealing with include structural/decking repairs, slippage in the pavement, and termite-damage with wood repairs. We coordinated to have several construction professionals do an evaluation of the property and provide detailed specifications based upon board requirements.
PHASE 2: DEVELOP PLAN
Given our knowledge of the financial condition, we know it’s not possible to fix everything without some additional source of funds – either a special assessment or loan. Therefore, it was our recommendation to work with the vendors to develop a prioritization schedule. The structural/decking repairs are obviously a big issue because of the potential life and safety risks. The asphalt slippage is also a big issue with annual increases estimated at over 15%! Below is a sample profile of the prioritization schedule:
Example of a Prioritization Table
|Termite Damage||Building 2||Equipment shed at east side of garages –siding is installed below the soil grade which is allowing extensive water and termite damage. Repairs include removal of soil from the bottom of the siding, re-grading to allow for proper run-off, replacement of approximately 100 square feet of siding from the south and east side of the structure, and paint to match.||$1,545||High|
|Structural Repairs||Building 4||Perform structural repairs in accordance to structural engineering report. Repairs include all aspects of the report: jacking up the existing post, replacement of damaged sil plate, removal and repair of 4”x10” beams. Plugging to repair damaged area of 4”x10” beams, repair of improperly “sistered” deck joists and installation of all described hardware and fasteners. Work also includes application of “Jasco Termin-8” as specified.||$5,735||High|
|Asphalt Repairs||Area 3 (see map)||Area is cracking and in the beginning phases of alligatoring. The pavement shows evidence of sliding. This area should be removed and the subsoil should be tested to achieve 95% compaction then install 4” of hot asphalt and rolled to a smooth finish.||$35,600||High|
Based upon the level of priority the board is now in the process of getting scopes of work for the all High Priority Items. It is here where we can analyze the different options on how and what to pay for, taking into consideration what we now know. So instead of just getting bids to complete one project, we can analyze projects by the level of priority, and the board can work with multiple vendors on doing larger projects over a longer period of time.
PHASE 3: SHOW BOARDS VIABLE FUNDING PLANS
Every plan and every community is different, therefore there is no cookie cutter analysis. Some boards want to look at getting a loan, some boards want to look at what their reserve study will look like after all repairs are completed, and some boards want to see the cost-benefit analysis of doing the work today vs. tabling the project for ‘tomorrow.’
This particular analysis below looks at the benefit of funding the repairs today through a capital improvement loan vs. doing nothing and “tabling” the project for future review.
Based upon our analysis, if the community was to finance a $300,000 project today they would save $117,902 in Year 5. This assumes a 5% annual increase in inflation costs. In addition, under advisement of the construction experts, it should be anticipated that deferring repairs on the failing assets would be an additional cost based on a conservative 25% per annum. The loan analysis is based upon a 5-year term loan calculated with a fixed rate of 6%.
The board now has a better picture of the benefits of doing the work and can better explain and communicate this information to members who may have questions or counter-points regarding repairs.
Repair Cost Matrix completing project in Years 1 – 5
Repair Cost Matrix completing repairs in the First Year with a loan
Cost Benefit Matrix