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Asset and Property Management: The Basics

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  • VICKI
  • Betty & Vicki
  • Transcript

    • 1. Asset and Property Management: The Basics December 1, 2005 Presenters: Leon Laptook, Director Community Development Law Center Charlie Harris, Senior Housing Program Manager, CASA of Oregon
    • 2. This workshop is sponsored by the Neighborhood Partnership Fund, through a grant provided by the U.S Department of Housing and Urban Development
    • 3. SESSION GOALS :
      • Provide overview of real estate asset management functions
      • Provide tools for developing a systematic approach to asset management activities
      • Provide ideas for improving your relationship and communication with your property management firm
      • Provide practice analyzing project financials
      • Have some fun, win some fabulous prizes
    • 4. Agenda
      • Introductions
      • Overview
      • Regulatory Issues
      • Property Management
      • Resident Services
      • Lunch
      • Financial Performance
      • Record-Keeping, Monitoring
      • Wrap-up, Evaluation, Adjourn
    • 5. With a project that looks like this how could anything go wrong?
    • 6. Section One-Overview
    • 7. Definitions
      • The active and strategic pursuit of an owner’s long term social, physical and financial goals from predevelopment through the administration and disposition of a property portfolio.
      • A systematic plan for, and ongoing oversight of, the management of one or more housing project(s) in furtherance of the project’s goals and the organization’s mission.
    • 8. Key Characteristics of Asset Management
      • Social, physical and financial goals
      • From predevelopment through disposition
      • Long term perspective
      • Environmentals can easily change over the life of a project
      • Affordable housing has a unique set of constraints
    • 9. ‘ Asset Management Happens’
      • Cannot decide ‘not to do’ asset management. It happens whether anyone is paying attention or not.
        • Failing to act has the same effect as actively deciding to shorten the life of the asset
    • 10. Asset Management Responsibilities
      • Oversight of property management activities
      • Regulatory compliance
      • Oversight of physical condition of the property- with a focus on longer term planning
      • Financial performance
      • Resident services
    • 11.  
    • 12. Skills Needed
      • Tact
      • Poise
      • Diplomacy
      • Savoir-Faire
      • Judgment
    • 13. Roles and Goals
      • Owner: wants mission fulfilled
        • affordable housing for target population while fostering organization’s financial health and community reputation
      • Property Manager:
        • wants good project with maximum fee and minimum hassle.
    • 14.
      • Target Population: wants affordable, safe, secure living environment while being treated fairly.
        • Tenants
        • Applicants and potential tenants
      • Funders: want return on investment, compliance with project requirements and reports
        • Investors (limited partners)
        • Lenders
        • Government Agencies
        • Foundations
    • 15.
      • Community:
        • city
        • neighbors
        • police
        • social service agencies
      • Want well designed, well maintained project that is an asset to the community.
    • 16. Section Two- Regulatory Compliance Matters
    • 17. Key Documents
      • Binder with details on funder requirements
        • Loan Agreements, Trust Deeds, Promissory Notes, Grant Agreements, etc.
      • Calendar indicating reporting dates, deadlines, etc.
    • 18. Financing Documents
      • Grant Agreements (e.g. HOME, Housing Trust Fund)
      • Loan Documents (Promissory Note, Loan Agreement , Trust Deed)
      • Partnership Agreement (LIHTC)
      • Declarations of Land Use Restrictive Covenants
    • 19. Federal and State Laws
      • Laws related to financing subsidies
      • Oregon Residential Landlord Tenant Act (ORS Chapter 90)
      • Fair housing laws- Make sure your staff and property manager get training
      • Americans With Disabilities Act
    • 20. Typical Requirements
      • Tenant Eligibility (income, rents, targeted population)
      • Occupancy Requirements
      • Financial (insurance, DCR, Deposits to Reserves)
      • Reporting, Monitoring (funders, IRS, etc.)
    • 21. Tenant Eligibility
      • Tenant incomes
      • Applicant pool- target population
      • Verification, certification and recertification
      • Waiting Lists
      • Length of affordability restrictions
    • 22. Occupancy Requirements
      • Good Cause Eviction (HOME, RD, LIHTC)
      • Grievance Procedure
      • Lease Provisions
    • 23. Financial Requirements
      • Limits on cash flow
      • Debt coverage ratio
      • Insurance requirements
      • Deposits to reserves and escrows
      • Right to transfer property
    • 24. Record Keeping Requirements
      • Income and expense reports for funders
      • Annual audit requirements
      • Retention of files time frames
    • 25. Section Three- Oversight of Property Management
    • 26. Property Management Oversight Key Documents
      • Management Plan and Policies
      • Management Contract
      • Lease
      • Occupancy Rules
    • 27. Physical Condition of Property Documents
      • Inspection Plan
      • Maintenance Plan
        • emergencies; turnover- vacancy repair and re-occupancy; routine; preventative; tenant-requested
      • Emergency Plans
      • Insurance Policies
      • Capital Needs Assessment and Plan
    • 28. Oversight of Physical Assets
      • Relation to Design
      • Relation Between Physical Problems and Financial Problems
    • 29. Section Four- Resident Services
    • 30. Resident Services Key Documents
      • Relevant Parts of Funding Applications
      • Resident Services Plan
      • Agreements with other entities for provision of resident services
    • 31. Section Five- Financial Performance
    • 32. Key Documents
      • Annual Budget
      • Monthly Financial Statements
        • Income Statement
        • Balance Sheet
        • Rent Roll
      • Annual Audit
    • 33. Baseline Financial Viability
      • Cover operating expenses
      • Keep project out of default
        • Make required debt payments to lenders, primary and subordinate
        • Make required reserve contributions
        • Meet minimum debt coverage requirements of lender
    • 34. Additional Project Financial Goals
      • Deposit additional funds in replacement reserves for long term capital needs
      • Fund asset management costs
      • Cover resident services costs
      • Fund or maintain operating reserves
      • Support for your organization
        • subsidize other projects
        • subsidize other lines of business
        • fund a portion of general operating costs
    • 35. Key Risks to Financial Viability
      • Revenue Risks
      • Operating Expense Risks
      • Initial Debt Structuring
    • 36.  
    • 37. Revenue Risks
      • Insufficient Rent Increases
      • Rent Collection Problems
      • Vacancies
      • “ Economic Vacancy”= Uncollected rents plus rent lost by vacancies
    • 38. Comparison of Cash Flows
    • 39. Operating Expense Risk
      • Utility Cost Increases- double whammy!
        • Increased operating expense
        • Increased utility allowance, less rent
      • Maintenance Costs Above Budget
        • High turnover
        • Under-rehabbed properties
        • High usage population
        • Poor management oversight
      • Unforeseen/Unbudgeted Costs
    • 40. Debt Structure Issues
      • Faulty underwriting assumptions, sometimes uncorrectable even with best management:
        • rents projected higher than market
        • operating expenses projected too low
        • insufficient reserve contributions or insufficient start-up reserves
        • debt payments too high/insufficient cash flow
    • 41. Review of Basic Documents
      • Budget
      • Income and Expense Report
      • Rent Roll
      • Balance Sheet
      • Annual Audit and Tax Return
      • Organization’s Financial Statements
    • 42. Budget
      • Prepare with property manager; Board should review and approve
      • Basis for determining whether actual expenses for upcoming year are reasonable
      • Sources of data for budget
      • Annually update
      • Rent increases- Allowable maximum rents; utility allowance updates; need; market
      • Replacement reserve & operating reserve needs
    • 43. Budget (cont’d)
      • Identify Trends:
      • Calculate CDN or other industry standards
      • Expenses that are consistently higher/lower than budget or other projects
      • Annual rent collection as percent of rents, how much past due, written off debt
      • Vacancies- specific units or unit types
      • Capital needs assessment- inspection findings
    • 44. Budget (cont’d)
      • Issues of concern/findings in audit?
      • Trends indicated policy or management changes?
      • Capital improvement plan- Longer term planning?
      • Financial concerns- corrected through management changes, capital spending, changes to debt structure?
      • Longer term financing requirements- LIHTC year 15, OAHTC year 20, interest rate savings?
    • 45. Income and Expense Report
      • Primary tool to determine project health
      • Must be detailed and include current period, year to date, comparison to budget
      • Review monthly
      • Usually prepared on cash basis; need statement of accrued but unpaid expenses
      • Don’t be afraid to ask questions
    • 46. Income and Expense Report (cont’d)
      • Income: Compare Gross rental income and Net rental income to see vacancy loss
      • Add “other income” to get Effective Gross Income
    • 47. Income and Expense Report (cont’d)
      • Operating Expenses
        • know what’s included in each line item
        • what’s reasonable (compare to budget)
        • reason for variances
      • Some common issues
        • for high turnover and vacancies: look at waiting list; reasons for applicant denials and tenant move-outs; make-ready time
    • 48. Income and Expense Report (cont’d)
        • repairs and maintenance
        • insurance
        • property taxes- exempt? If not exempt, valuation issues?
        • Include expenses manager may not pay-audit, resident services coordinator, tax credit monitoring
        • Reserves: operating, replacement, tax and insurance escrows
        • Know what’s included in loan payment-mortgage P &I, reserves, fees, escrows?
    • 49. Income and Expense Report (cont’d)
      • Net Operating Income= effective gross income minus operating expenses
      • Debt Service Coverage= Net Operating Income divided by Debt Service
        • 1.2 to 1.3 Excellent
        • 1.1 to 1.2 Good
        • less than 1.1 Poor
        • less than 1.0 Major Problem
    • 50. Rent Roll
      • Use the Rent Roll in conjunction with the Income and Expense Report to get detail on vacancies (which units are vacant and for how long), and rents collected.
      • Vacancy Rate= # of vacant units total # of units
      • Most underwriting pro formas assume a 5% vacancy rate
    • 51. Balance Sheet
      • The project balance sheet describes the relative financial position of the project at a given point in time.
      • It consists of assets, liabilities, and owner’s equity.
      • Profits or losses from the income and expense report cause changes in the owner’s equity on the balance sheet.
    • 52. Industry Standards
    • 53. Annual Audit and Tax Return
      • Prepared on an accrual basis
      • May re-categorize capital expenses and repairs
      • Owner’s Board should review and approve Annual Audit; have auditor present
    • 54. Organization’s Financial Statements
      • Need to ensure that organization’s statements accurately incorporate project statements
      • Issues:
        • cash v. accrual basis
        • allocation of costs between project and organization
        • when does project cash flow appear on organization’s statements
    • 55. Section Six- Record Keeping, Reporting, Monitoring
    • 56. Monitoring, Reporting, Record-keeping
      • Use of compliance charts
        • Rent Restriction- sources of restriction, levels, duration,referencing documents
        • reporting information- with contact persons, referencing documents
        • payment requirements- amounts, duration, starting dates, contingent payment calculations, contact persons
    • 57. Monitoring, Reporting, Record-keeping (cont’d)
      • Calendar with required reporting forms
      • Files and filing
        • what’s in tenant files
        • what’s in project files
        • how long to keep files
      • Don’t expect uniformity among funder reporting requirements
    • 58. PRESENTER CONTACT INFORMATION
      • Leon Laptook, Director
      • Community Development Law Center
      • 921 SW Washington, Suite 454, Portland, OR 97205
      • 503-471-1180; leon.laptook@lasoregon.org
      • Charlie Harris, Housing Development Manager
      • CASA of Oregon
      • 212 East 1st Street
      • Newberg, OR 97132
      • 503-537-0319; charris@casaoforegon.org