Asset and Property Management the Basics 3200

8/6/2019 Asset and Property Management the Basics 3200

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Asset and Property

Management:The Basics

December 1, 2005Presenters:Leon Laptook, Director Community Development Law Center

Charlie Harris, Senior HousingProgram Manager, CASA of Oregon


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This workshop is sponsoredby the Neighborhood

Partnership Fund, through agrant provided by the U.S

Department of Housing andUrban Development


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SESSION

GOALS :Provide overview of real estate assetmanagement functions

Provide tools for developing a systematicapproach to asset management activitiesProvide ideas for improving your relationship andcommunication with your property management

firmProvide practice analyzing project financialsHave some fun, win some fabulous prizes


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Agenda Introductions Overview Regulatory Issues Property Management Resident Services Lunch Financial Performance Record-Keeping, Monitoring Wrap-up, Evaluation, Adjourn


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With a project that looks like

this how could anything gowrong?


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Section One-Overview


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Definitions The active and strategic pursuit of an

owners long term social, physical andfinancial goals from predevelopment

through the administration anddisposition of a property portfolio.

A systematic plan for, and ongoingoversight of, the management of one or more housing project(s) in furtheranceof the projects goals and theorganizations mission.


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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


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Asset Management Happens Cannot decide not to do asset

management. It happens whether anyoneis paying attention or not. Failing to act has the same effect as

actively deciding to shorten the life of

the asset


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Asset Management Responsibilities

Oversight of property managementactivities

Regulatory compliance Oversight of physical condition of the

property- with a focus on longer term

planning Financial performance Resident services


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GENERAL ASSET MANAGER RESPONSIBILITIES

Fiscal Officer

Assure Policesare Complied

with

Select, EvaluateProperty Mgr;

OngoingCommunication

PMPlan &PoliciesPMAgreement

Lease, Occupancy Rules

Property Management

Reports toBoard andFunders

Recordkeeping

Funder RequirementsBinder

Regulatory Compliance

Inspections

Capital NeedsAssessmentInspection PlanEmergency Plan

Physical Property

Analyze Mo.Financials:

DCR, Occ RatesExpenses

Annual Rvwof Budgetand Audit

Annual Budget Annual Audit

Monthly Financialsand Rent Roll

Financial Performance

CoordinateRes. Services

Assure Res.Participationin Decision

Making

Res. Services PlanRes. Participation Plan

Resident Services

Asset Manager Maintenance Housing Developer

Executive Director

Boardof Directors


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Skills Needed Tact Poise Diplomacy Savoir-Faire Judgment


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Target Population: wants affordable, safe, secureliving environment while being treated fairly. Tenants Applicants and potential tenants

Funders: want return on investment, compliancewith project requirements and reports Investors (limited partners)

Lenders Government Agencies Foundations


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Community: city neighbors

police social service agencies

Want well designed, well maintainedproject that is an asset to thecommunity.


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Section Two- RegulatoryCompliance Matters


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Key Documents Binder with details on funder

requirements Loan Agreements, Trust Deeds,

Promissory Notes, Grant Agreements, etc.

Calendar indicating reporting dates,deadlines, etc.


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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


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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


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Typical Requirements

Tenant Eligibility (income, rents,targeted population)

Occupancy Requirements Financial (insurance, DCR, Deposits to

Reserves) Reporting, Monitoring (funders, IRS,

etc.)


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Tenant Eligibility

Tenant incomes Applicant pool- target population Verification, certification and

recertification

Waiting Lists Length of affordability restrictions


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Occupancy Requirements

Good Cause Eviction (HOME, RD,LIHTC)

Grievance Procedure Lease Provisions


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Financial Requirements Limits on cash flow Debt coverage ratio Insurance requirements Deposits to reserves and escrows Right to transfer property


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Section Three- Oversight of Property Management


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Property Management Oversight

Key Documents Management Plan and Policies Management Contract Lease Occupancy Rules


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Physical Condition of PropertyDocuments

Inspection Plan Maintenance Plan

emergencies; turnover- vacancy repair andre-occupancy; routine; preventative;tenant-requested

Emergency Plans Insurance Policies Capital Needs Assessment and Plan


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Oversight of Physical Assets

Relation to Design Relation Between Physical

Problems and Financial Problems


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Resident Services

Key Documents Relevant Parts of Funding Applications Resident Services Plan Agreements with other entities for

provision of resident services


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Section Five- FinancialPerformance


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Key Documents Annual Budget Monthly Financial Statements

Income Statement Balance Sheet

Rent Roll Annual Audit


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Baseline Financial Viability Cover operating expenses Keep project out of default

Make required debt payments tolenders, primary and subordinate

Make required reserve contributions Meet minimum debt coverage

requirements of lender


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Additional Project Financial

Goals Deposit additional funds in replacementreserves 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


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Key Risks to Financial Viability

Revenue Risks Operating Expense Risks Initial Debt Structuring


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F IN A N C IA L A N A LY S IS P R O C E S S F O R A S S E T M A N A G E R

Monthly : Rvw o f Perfor mance Std sDCR, Occupa ncy, Expen ses, Rsv Accts

Annual: Review of Perf Std s, Budget Audit, Inter nal Cont rol Policies

Rent Levels

Col lectio ns

Vacancies& Turnover

Increase Revenue

Prop Mgt Fee

On- site Mgr, AdminLegal, Acctg

Utilities

Maintenance

Prop Taxes, Ins.

Lower Expenses

RefinanceInt Rate, Amor t Per.

More Equit yGrant s, Investo rs

Restructure

Non- Performing

OK

Performing

Documents :Annual Budget , Audit

Mo. Inc/ Exp Stat ement , Rent Rol l,Bal. Sheet, Internal Contro ls

Financial Performance

Asset Manager


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Revenue Risks Insufficient Rent Increases Rent Collection Problems Vacancies Economic Vacancy= Uncollected rents

plus rent lost by vacancies


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Comparison of Cash FlowsComparison of Cashflow with 2%, 3% & Every Other Year Annual Increases

(Every other year at 5% Increase)

(35,000)

(30,000)

(25,000)

(20,000)

(15,000)

(10,000)

(5,000)

-

5,000

10,000

15,000

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Year 12

Year 13

Year 14

Year 15

Year 16

Year 17

Year 18

Year 19

Year 20

N e

t C a s h

l o w a

f t e r

S e c o n

d M o r t g a g e P a y

3% Annual Rent Increase 2% Annual Rent Increase 5% Increase Every Other Year


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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


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Debt Structure Issues Faulty underwriting assumptions,

sometimes uncorrectable even withbest management: rents projected higher than market operating expenses projected too low

insufficient reserve contributions or insufficient start-up reserves

debt payments too high/insufficient cashflow


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Review of Basic Documents

Budget Income and Expense Report Rent Roll Balance Sheet Annual Audit and Tax Return Organizations Financial Statements


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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


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Budget (contd) 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- LIHTCyear 15, OAHTC year 20, interest rate


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Income and Expense Report Primary tool to determine project health Must be detailed and include current

period, year to date, comparison tobudget

Review monthly Usually prepared on cash basis; need

statement of accrued but unpaidexpenses

Dont be afraid to ask questions


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Income and Expense Report

(contd) Income: Compare Gross rental income

and Net rental income to see vacancyloss

Add other income to get EffectiveGross Income


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(contd) Operati ng Expenses know whats included in each line item

whats reasonable (compare to budget) reason for variances

Some common issues for high turnover and vacancies: look at

waiting list; reasons for applicant denialsand tenant move-outs; make-ready time


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(contd) Net Operating Income= effective grossincome minus operating expenses

Debt Service Coverage= Net OperatingIncome 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


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Balance Sheet

The project balance sheet describes therelative financial position of the project

at a given point in time. It consists of assets, liabilities, andowners equity.

Profits or losses from the income andexpense report cause changes in theowners equity on the balance sheet.


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Industry StandardsCDN s Industry Goals for Property & Asset Management

CD N G oals related to Financial Perform ance

F O CU S A RE A S TA N D A RDOperating Expenses M onitoring &

Feedba ck loop in placeDebt Service Coverage R atio(NOI / DS)

1.2 to 1.3 is good

Op erating Reserves 3 M onths of expenses& debt serviceavailable

Depo sits to ReplacementReserves

Su fficient to fundpro jected repairs &replacements projectedover the n ext f ive years

Occupancy(# units occup ied / # of un its)

greater than or equ alto 96%

Rent Collection(NRI / GRI)

greater than or equ alto 96%

Maintenance expenses within 5% of annualbudget


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Annual Audit and Tax Return

Prepared on an accrual basis May re-categorize capital expensesand repairs Owners Board should review and

approve Annual Audit; have auditor present


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Organizations Financial

Statements Need to ensure that organizationsstatements accurately incorporate project

statements Issues: cash v. accrual basis

allocation of costs between project andorganization when does project cash flow appear on

organizations statements


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Section Six- Record Keeping,Reporting, Monitoring


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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 paymentcalculations, contact persons


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Monitoring, Reporting, Record-keeping

(contd) Calendar with required reporting forms Files and filing

whats in tenant files whats in project files how long to keep files

Dont expect uniformity among funder reporting requirements


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Asset and Property Management the Basics 3200

Documents

Transcript of Asset and Property Management the Basics 3200