Transcript PowerPoint Presentation - Capital Needs Assessments

Capital Needs
Assessments
February 23, 2007
Tom Dillon
Dillon Consulting
Workshop Overview
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Introduction and background
Uses for a CNA
Getting a CNA
Working with the CNA provider
Expected useful lives and the methods of CNAs
Reading a report
Asset management with a CNA
Using a CNA to make an annual plan
Where do we go from here?
Tom Dillon Consulting
Affordable housing specialist
 20+ years working in building inspection
and affordable housing
 6 years providing CNAs in Vermont
 Written about 60 reports
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What is a CNA?
A 20 year report investigating the condition
a building’s components and predicting
when they will need replacement
 A spreadsheet calculating the cost of
replacement and timing of expenditures
that compares those costs with current
and anticipated reserve funds
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What a CNA is not
An order to replace an item in a given
year. It is a tool, not a directive
 A firm prediction for the future. You need
to keep it up to date.
 We are all idiots about the future
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Short history of CNAs
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Used in affordable housing, condo
associations, education and other institutions
Fannie Mae (1990) “Physical Needs
Assessment- Guidance to the Evaluator” by
On-Site Insight
Adopted by HUD for several programs for
housing preservation
Widely required for LIHTC projects
VHCB/VHFA Perspective
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Why are CNA's required?
-Underwriting new projects
-Preserving existing projects
-Capital planning
-Evolving Codes
-Energy efficiency improvements
-Improve maintenance and overall project quality
Uses for a CNA
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Establishment of reserve deposit amount
Planning annual improvements
Long term planning of refinancing and rehab
Analyzing whether reserve balance is adequate
Identify opportunities for savings and
improvements
Set priorities within the property and the portfolio
Analyze whether current staff is adequate to
complete capital projects
Getting a CNA done
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In house vs. consultant
 Cost
 Capacity
 Competence
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Selecting a consultant
 VHFA list
 Ask
around
 Read a report
 Get proposals
Working with your consultant
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Provide paperwork
 Prints and specs
 Operations manuals
 Old report
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Building information
 Recent projects, including costs
 Planned projects, including estimates
 Problem areas
 Status of replacements, how many are
 Reserve balance and deposit amount
done
You know more than we do
History
 Special circumstances
 Future plans
 Tenant comments and concerns
 Service history
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Site visit
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Interview
Inspection
Mechanical areas
Equipment
Foundation
Site
Exterior
Attic
“Representative sampling of units”
Expected useful life
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Where it comes from
How to use them
How reliable are they?
Case by case adjustments
Some warnings and thoughts
 Table
developed in 1990
 Variation in quality
 Areas where they are not helpful
Reading a report
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Draft version
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Final version
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Check for factual errors
Check for accuracy with your procedures
Check for estimating accuracy
Share it
Emphasize the Executive Summary, Spreadsheet, Financial
Analysis and Capital Plan
Use it, but be skeptical
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Pricing
Predictions
Areas that get short changed
Energy conservation
 Water conservation
 Electrical upgrades
 Environmental concerns
 Other green building practices
 Technology changes
 Marketability improvements
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Unpredictable capital needs
Lemon equipment
 New and untested items
 Code and code enforcement changes
 Tenant damage and unusual wear
 Environmental costs
 Poor workmanship in unseen locations
 Unseen design errors
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Avoiding the unpredictable
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Find things that work and stick to them
Give specific requests to development staff and
participate in sketch plan review
Run from the words “we want to try”
Identify and hire design and engineering firms
with good records
Agressively pursue settlements when work or
equipment is substandard
Asset management with a CNA
Take charge, have a strategy
 Planning, planning, planning
 Records, records, records
 Figure it out, year by year, building by
building
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Categorize the property
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Adequate funding, few improvements needed, shortly after const.
 monitor inflationary increases in deposits, watch for problems to develop
Inadequate funding shortly after construction,
 make immediate increases in funding to reserves, to get to adequate funding
level per CNA
Active capital improvements with adequate reserves at present
 monitor inflationary increases in deposits, watch for problems, don’t fall behind
in projects, watch for longer term shortfalls
Active capital improvements, reserves that can’t last long,
 look for ways to stretch reserves, significant increases in deposits annually until
adequately funded, keep up with projects, using the funds available, be sure
finance and development people understand the problems and projected date of
shortfall. How far away in year 15?
Serious current problems that can’t be repaired with the reserve funds available
 Identify whatever funds are available within the property to keep the building
safe and operating. Seek funding to restructure, pay for rehab and get project
back in the black. Consider selling the property.
Asset management tasks
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Set the reserve deposit amount using the report
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Minimums
Family new construction $40-50 per unit per month (pum)
Family rehab $45-55 pum
Elderly new construction $35-45 pum
Older buildings $45 and up
Plan and complete annual improvements
Track progress of improvements and needs
Identify operational savings
Update the report, create a living CNA
Capital Needs Records
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Every property has a file
 Summary of the project
 Current CNA
 1 page plan for the current
 1 page 5 year plan
year
 1 page financial summary of reserves and deposits
 Record of recent capital improvements and costs
 Notes on things to watch, building quirks, wish list
 Annual inspection results
 Strategic
plan for that property
Annual Plan
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List of projects for that year with pricing
Review the CNA, laugh out loud and figure out what you need to do
Timed with annual inspection
Review what has changed since last year, new problems
Review the current reserve balance
Determine reserve deposit amount for coming year, should reflect
construction inflation, about $2 per unit per month
Where the reserve deposit is too low, increase deposits $5-10 pum
to catch up
Plan projects for next year, in house vs. contract
What can be done with maintenance funds?
Update the 5 year plan
Update the spreadsheet
Add notes to the file reflecting the year’s events
Annual plan uses
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Use it to:
 Spread improvements over time
 Prioritize among buildings or needs
 Set staffing for project management
 Budgeting for projects
 Coordination and sequencing
 Justify reserve and maintenance budget
increases
 Review progress on projects to be completed
Capital needs exercise
Identify what needs to be done this year
for improvements
 Identify what can be postponed or is not
yet needed
 Set a reserve deposit amount and justify it
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Strategies for better asset
management
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Property file for capital needs
Annual plan
Regular increases to reserve deposits to reflect inflation
and changing conditions
Better systems for asset management
Establish priorities and write them down
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Develop a capital needs watch list
Have a strategy for getting a property off the watch list
Increase project management capacity
Increase construction/rehab capacity
Best practices for Vermont
What do you do that others should copy?
 What would you like to do better?
 What role can VHFA/VHCB play?
 How do you organize asset management/
maintenance and capital improvements?
 What would you like to see different?
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Question, issues, war stories
Your questions and comments
 Evaluation
 Closing
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Thanks for coming
Go home a changed person
 Make the world a better place
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