Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Asset and Property Management: The Basics


Published on

  • Be the first to comment

  • Be the first to like this

Asset and Property Management: The Basics

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