BonnieE (Illinois)
Posts: 338
Posts: 338
Posted:
A cautionary tale re reserve planning......
Background: IL HOA; 12 years old; 20 buildings; 110 units/HOs; reserve fund ~$150K; 2007 contribution to reserve fund ~$50K
Our 3rd Reserve Study was just completed (used a different Reserve Consultant from previous 2 studies). Study identified a need for complete removal/replacement of all caulking (previous Studies did not include caulking). As part of building maintenance, caulking has been added as needed along wood pieces when the wood on the buildings is painted (~4 year cycle; paid out of annual operating fund). We have not previously planned for complete removal/replacement of caulking in the Reserve Study, therefore had not planned for its replacement cost in reserve fund. The current Reserve Study, due to our financial situation (i.e., we can not afford the caulking; would empty the reserve fund) therefore only planned for 50% of the caulking work to be done with a projected cost of ~$69K and used this figure in the recommended funding plan for the next 20 years.
BTW, four bids for caulking received; total cost ranging from $94K - 204K. Bids received and projected estimate in Study are similar.
Hmmm, what to do about the caulking project - will be a financial issue for us to discuss at next BOD meeting in January. It looks like we will need to consider several options including: do only 50% of the buildings as per Study (not acceptable - the caulking needs to be done) - OR - do all caulking (likely on a 2 year cycle since we paint on a 2 year cycle, and painting is scheduled for 2007 and 2008) but either take out a loan (best option?) or do a special assessment (bad news for property values) to cover the difference between what we can afford out of Reserve Fund and total cost of project.
The cautionary tale - or - lessons learned? We have had our Reserve Studies done by highly reputable consultants, and have a BOD who takes a preventative approach to maintenance, not to mention an excellent MC. But, we assumed that we could accept what was provided in the Studies at face value. We were wrong to do this. A BOD must take the time to carefully analyze Reserve Reports and ensure that all appropriate components (exterior, mechanical, etc.) are included. The BOD should utilize various resources to learn about reserve studies - what should be included, how they are done, perhaps join the consultant when they inspect the building components, - and take the time to ask questions of the reserve consultant both on the inspection, and when the draft report is received. Finally, the BOD should revisit the Study annually (has anything changed? is a component deteriorating more quickly than expected and planned for in the Study? was there a capital expense, or a major catastrophe that could impact costs of building supplies and labor) - in addition to having them updated on a regular basis.
To other BODs out there - I hope you take our "lessons learned" to heart, and do not find yourselves in a similar situation!
Background: IL HOA; 12 years old; 20 buildings; 110 units/HOs; reserve fund ~$150K; 2007 contribution to reserve fund ~$50K
Our 3rd Reserve Study was just completed (used a different Reserve Consultant from previous 2 studies). Study identified a need for complete removal/replacement of all caulking (previous Studies did not include caulking). As part of building maintenance, caulking has been added as needed along wood pieces when the wood on the buildings is painted (~4 year cycle; paid out of annual operating fund). We have not previously planned for complete removal/replacement of caulking in the Reserve Study, therefore had not planned for its replacement cost in reserve fund. The current Reserve Study, due to our financial situation (i.e., we can not afford the caulking; would empty the reserve fund) therefore only planned for 50% of the caulking work to be done with a projected cost of ~$69K and used this figure in the recommended funding plan for the next 20 years.
BTW, four bids for caulking received; total cost ranging from $94K - 204K. Bids received and projected estimate in Study are similar.
Hmmm, what to do about the caulking project - will be a financial issue for us to discuss at next BOD meeting in January. It looks like we will need to consider several options including: do only 50% of the buildings as per Study (not acceptable - the caulking needs to be done) - OR - do all caulking (likely on a 2 year cycle since we paint on a 2 year cycle, and painting is scheduled for 2007 and 2008) but either take out a loan (best option?) or do a special assessment (bad news for property values) to cover the difference between what we can afford out of Reserve Fund and total cost of project.
The cautionary tale - or - lessons learned? We have had our Reserve Studies done by highly reputable consultants, and have a BOD who takes a preventative approach to maintenance, not to mention an excellent MC. But, we assumed that we could accept what was provided in the Studies at face value. We were wrong to do this. A BOD must take the time to carefully analyze Reserve Reports and ensure that all appropriate components (exterior, mechanical, etc.) are included. The BOD should utilize various resources to learn about reserve studies - what should be included, how they are done, perhaps join the consultant when they inspect the building components, - and take the time to ask questions of the reserve consultant both on the inspection, and when the draft report is received. Finally, the BOD should revisit the Study annually (has anything changed? is a component deteriorating more quickly than expected and planned for in the Study? was there a capital expense, or a major catastrophe that could impact costs of building supplies and labor) - in addition to having them updated on a regular basis.
To other BODs out there - I hope you take our "lessons learned" to heart, and do not find yourselves in a similar situation!