Mahonia Townhomes STUDY 20 NTENANCE …...Overview of Capital Planning Tools 37 Reserve Study Methodology 42 Disclosures and Limitations 44 END OF DOCUMENT 47 TRUSTED SOLUTIONS 15

Mahonia Townhomes

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PREPARED FOR: Mahonia Townhomes

Homeowners Association C/o Aubrey Bellowes Community Association Partners, LLC 12190 SW 1st St. Beaverton, OR 97005

PROJECT NUMBER: 19-024

REPORT DATE: May 7, 2019

REVISION DATE: November 20, 2019

PREPARED BY:

WWW.FORENSICBUILDING.COM

15 82ND DRIVE, STE. 10 GLADSTONE, OR 97027

(P) 503.772.1114 (F) 503.772.4039

© 2019, FORENSIC BUILDING CONSULTANTS. ALL RIGHTS RESERVED.

This Page Left Intentionally Blank

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WWW.FORENSICBUILDING.COM 15 82ND DRIVE, STE. 10 GLADSTONE, OR 97027 (P) 503.772.1114 (F) 503.772.4039

OREGON – UTAH – WASHINGTON

OR CCB# 155496 WA FORENWC94308

UT: 8334529-5501 PAGE 2

TABLE OF CONTENTS

Table of Contents 2Executive Summary 3Reserve Study Scope 3Funding Model Calculations summaries 4Scope of Reserve Study 6Reserve Study Parameters 7Property Site 9Reserve Study Exclusions 9Component Inventory 11Component Inventory: Representative Photographs 13Reserve Study Findings: Annual Expenditure Detail 21Annual Expenditure Detail (YEARS 2020 – 2029) 22Annual Expenditure Detail (YEARS 2030 – 2039) 22Annual Expenditure Detail (YEARS 2040 – 2049) 22Current Assessment Funding Model Projection 23THRESHOLD Funding Model Projection 23Appendix A: Maintenance Schedule 25MAINTENANCE SCHEDULE 26Appendix B: Important Information 32Purpose of Report 33Standard Terms and Definitions 34Overview of Capital Planning Tools 37Reserve Study Methodology 42Disclosures and Limitations 44END OF DOCUMENT 47

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EXECUTIVE SUMMARY

Client Name: Mahonia Townhomes Homeowners Association

C/o Aubrey Bellowes

Community Association Partners, LLC

Property Name: Mahonia Townhomes (Property)

Client Address: 12190 SW 1st St.

Beaverton, OR 97005 Property Address: 17498 SW Christophers Pl.

Aloha, OR 97078

Report Type: Reserve Study & Maintenance Plan

Report Date: May 7, 2019

Rev. November 20, 2019

Dear Mahonia Townhomes Homeowners Association:

As requested, Forensic Building Consultants (Forensic) has prepared a 30-year Reserve Study and Maintenance Schedule for the Mahonia Townhomes (Property).

The following report consists of the following: 1) a physical analysis of the current condition of a limited representative sample of the Property’s commonly-owned building components, and 2) a financial analysis of the Association’s current reserve fund balance, contribution, and anticipated replacement schedule, and 3) a recommended maintenance schedule for the commonly-owned building components.

The intent of this Reserve Study is to evaluate the results of the physical and financial analyses in order to help the Association assess their current reserve funding and to arrive at an appropriate annual reserve fund contribution for the Property, based on the anticipated replacements and renewals of major commonly-owned building components over the next thirty (30) years.

RESERVE STUDY SCOPE

Forensics’ Reserve Study (RS) was limited to the observation, evaluation, and quantification of the “common” as-built construction assemblies and components, as they existed at the time of our presence on site at the Property. Note that Forensics’ RS was limited to the following:

l Level 1 Full Reserve Study with Site Inspection – The reserve provider conducts a component inventory, a condition assessment (based upon on-site visual observations), and life and valuation estimates to determine both a “fund status” and “funding plan.”

MAHONIA TOWNHOMES RESERVE STUDY AND MAINTENANCE SCHEDULE 05/07/2019 (REVISION: 11/20/2019)

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FUNDING MODEL CALCULATIONS SUMMARIES

GENERAL ASSESSMENT OF CURRENT RESERVE FUND STATUS

Based on the component inventory data and the schedule for renewal and replacement of the common element components over the next 30 years, the figure below illustrates the calculated threshold funding model distribution.

RECOMMENDED RESERVE FUND CONTRIBUTION RATE

In order for the Association to maintain the desired minimum threshold of 30% between the closing balance of one year and the scheduled expenditures for the subsequent year, the required principal reserve fund contribution for 2020 should be $35,001. This annual contribution has been modeled assuming a 3.0% increase each year to partially account for inflation, which is currently estimated over a 15-year period at 2.08%.1 This result is based on the component inventory data, the adjusted remaining useful life (RUL) of those components, and the input data provided by the Association. The annual projected ending balance for the reserve fund using each model is tabulated in the “Reserve Study Findings” section of this report. This model is largely driven by the scheduled replacement of roofing, siding, and windows, and maintenance including painting and resealing siding, and applying a topcoat to decks. However, this

1 Inflation Data 2019, Capital Professional Services, LLC <http://inflationdata.com/Inflation_Rate?CurrentInflation.asp>

($600,000)

($400,000)

($200,000)

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$200,000

$400,000

$600,000

20202021

20222023

20242025

20262027

20282029

20302031

20322033

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Reserve Fund vs. Time

Threshold M odel Current Model


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model does not take into account specific architectural components that may be affected during replacement of the listed component or changing local market influences or, which may include, but are not necessarily limited to the following: material costs, contractor availability, time of year of construction, changes to building code, applicable industry association standards, or product manufacturers’ installation instructions.

THRESHOLD FUNDING MODEL – SUMMARY OF CALCULATIONS

Existing 2019 Reserve Contribution: $15,750

Recommended 2020 Reserve Contribution: $35,001


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Scope of Reserve Study


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RESERVE STUDY PARAMETERS

EXPLANATORY NOTES

The following data (provided by the Association) forms the basis for the funding model inputs.

Level of Service: Level 1 (Full Reserve Study with Site Inspection)

Description: Reserve Study includes Component Inventory, Condition Assessment (based upon on-site visual observations), Life and Valuation Estimates, Fund Status & Funding Plan

Fiscal Year Start: January 1, 2020 Fiscal Year End: December 31, 2020

Model Interest Rate:

1.11 % Inflation Rate: 2.08 %

Reserve Fund 2020 Starting Balance:

$57,285 Annual Contribution Increase:

3.0 %

Threshold Minimum Balance:

30% Number of Units: 25

Property Occupancy Type:

Townhomes Date of Original Construction:

Phase 1: 2006 (14 units) Phase 2: 2014 (11 units)

General Description of Property:

• The Property consists of Five (5) three-story, wood-framed, fiber cement-clad buildings consisting of 25 units. The Property also includes common landscaping space between buildings and private asphalt alleyways connecting driveways to county streets.

• The structures are built atop concrete foundations

• In general, the Property appears to be in good physical condition.

• At the time of our site visit, 22 of the 25 units were under a rehabilitation construction project. Units 17484, 17472, and 17460 were not included. Repairs were targeted around the perimeter walls and roof-to-wall transitions of the units included.


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Description of Exterior Wall Assemblies: n Fiber-cement lap and board-and-batten siding

(James Hardie) n Wood and fiber cement trim members, exterior

sealant joints, and sheet metal flashing

n Entry roof gables supported with fiber cement trim-wrapped wood columns

Description of Roof Assemblies: n Composite asphalt shingles (manufacturer TBD) n Wood and fiber cement trim members, exterior

sealant joints, and sheet metal flashing n Metal Gutters and Downspouts

n Button vent, exhaust vent, and pipe jack through-roof assemblies

Description of Fenestration Assemblies: n Vinyl flange-mounted window and sliding glass

door (SGD) units (manufactured by a member of the American Architectural Manufacturers Association – AAMA) (glazing is unit owner responsibility, not weatherproofing or frames)

n Front entry swing door assemblies (door is unit owner responsibility, not weatherproofing or frames)

n Garage door assemblies at rear elevation of each unit (unit owner responsibility)

Description of Deck Assemblies: n Front entry concrete stoops with wood-framed

railings (21 units) n Front entry wood-framed, flow-through decks

with wood-framed railings (4 units) n Waterproof deck assemblies atop rear elevation

garages (Tremco-Vulkem 360NF/951NF) n Wood-framed railings n Fiber-cement and Azek trim members, exterior

sealant joints, and sheet metal flashing


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PROPERTY SITE

The aerial image below, obtained from Google Maps, illustrates the overall site conditions at the Property. Note that this image is oriented so that “North” corresponds with the top of the page.


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RESERVE STUDY EXCLUSIONS

EXPLANATORY NOTES

The following components and systems have been excluded from this Reserve Study. Any pricing and component information for these systems contained within this report was provided by the Association, was included only for budgeting purposes, and has not been independently assessed or verified by Forensic:

l Site Utilities l Foundation and Concealed Structural Components l Mechanical and HVAC Systems l Low-Voltage Electrical Systems l Emergency Power Systems l Plumbing Systems l Fire Detection and Alarm Systems l Fire Suppression Systems l Electrical Systems l Accessibility Items

These systems (where they exist) will likely require periodic renewal and replacement during the next 30 years. However, the condition assessment and verification of replacement costs of these systems are beyond the scope of this Reserve Study.

It is recommended that the Association and their Community Management firm have these systems evaluated by qualified professionals prior to inclusion in future Reserve Studies for the Property.


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COMPONENT INVENTORY

EXPLANATORY NOTES

In order to compile the 30-year funding forecast, this reserve study estimates the expected useful life (EUL) and remaining useful life (RUL) of the various building components and systems (components) included within the scope of the study, and provides estimated replacement or renewal costs for those components.

Each common element component is identified as being primarily in one of four categories, and an appropriate modification to the components’ remaining useful life (RUL) was made for each, based on the actual condition and nature of the component

Interior Component (Aesthetic):

Maximum 100% extension of expected useful life (EUL)

Exterior Component (Aesthetic):


Interior Component (Performance):


Exterior Component (Performance):


•

Note that the component inventory tables on the following pages incorporate the abbreviations and terminology listed below:

l Qty. – Quantity of a given component

l Current Replace. Cost – Current cost of replacement for a given component

l EUL – Expected useful life of given component

l RUL – Remaining useful life of given component l 1st Repl. Date – First anticipated replacement date for a given component, based upon RUL

l EUL Adj. – Adjustment to EUL based on visual observation of component condition


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COMPONENT NAME QTY. UNIT TYPE UNIT COST CURRENT REPL. COST

YEAR IN SERVICE

AGE EUL EUL ADJ. (+/-)

RUL 1sr REPL. DATE

Composition Roofing 28,739 SF 3.80$ 109,208.20$ 2006 13 20 4 11 2030Gutters & Downspouts (unfunded) 3,648 LF 9.75$ 35,568.00$ 2019 0 30 1 31 2050Deck Coatings - Replacement 5,950 SF 12.00$ 71,400.00$ 2019 0 28 0 28 2047Deck Coatings - Topcoat 5,950 SF 8.00$ 47,600.00$ 2019 0 7 0 7 2026Deck Railings - Replacement 400 LF 25.00$ 10,000.00$ 2019 0 20 0 20 2039Deck Railings - Stain/Paint 400 LF 10.06$ 4,024.00$ 2019 0 10 0 10 2029Front Entry Concrete Patios & Steps (unfunded) 21 Each 10.06$ 211.26$ 2006 13 50 0 37 2056Front Entry Doors 25 Each 800.00$ 20,000.00$ 2006 13 40 0 27 2046Front Entry Railings - Replacement (50%) 200 LF 25.00$ 5,000.00$ 2006 13 20 3 10 2029Front Entry Railings - Stain/Paint 200 LF 10.06$ 2,012.00$ 2019 0 10 0 10 2029Front Entry Wood Porches & Steps (50%) 4 Each 1,850.00$ 7,400.00$ 2006 13 20 0 7 2026Siding - Paint 40,697 SF 1.50$ 61,045.50$ 2019 0 10 0 10 2029Siding - Replacement (unfunded) 40,697 SF 12.00$ 488,364.00$ 2006 13 40 4 31 2050Sliding Glass Doors 25 Each 1,200.00$ 30,000.00$ 2006 13 30 0 17 2036Visual Building Enclosure Condition Assessment 1 Lsum 3,000.00$ 3,000.00$ 2019 0 5 0 5 2024Windows 255 Each 960.00$ 244,800.00$ 2006 13 30 0 17 2036Asphalt - Overlay 8,167 SF 1.82$ 14,863.94$ 2006 13 30 2 19 2038Asphalt - Sealcoat 8,167 SF 0.46$ 3,756.82$ 2006 13 6 8 1 2020Concrete - Sidewalks, Walkways, & Walls (10%) 750 SF 9.12$ 6,840.00$ 2006 13 10 14 11 2030Landscaping - Major Overhaul 1 Allowance 10,000.00$ 10,000.00$ 2006 13 15 13 15 2034Mailbox - Replacement 2 Each 1,378.00$ 2,756.00$ 2006 13 35 0 22 2041Retaining Wall - Allowance 1 Allowance 1,000.00$ 1,000.00$ 2019 0 15 0 15 2034

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COMPONENT INVENTORY: REPRESENTATIVE PHOTOGRAPHS

1.1. ROOFING COMPONENTS

1.1.1. Composition Roofing Location: Building roofs Explanatory Notes: Condition: Serviceable (some targeted repairs made) Targeted repairs are being completed in the 2019 building rehabilitation project, except on units 17484, 17472, and 17460 (3, 5, and 7 respectively). These areas include ridge caps, roof-to-wall flashings, roof eaves, scupper and gutter connections, and roof crickets. These repairs should allow the roofs to carry out their full expected useful lives (EUL); however, if anything changes, they can be adjusted accordingly. Per HOA Board request, different phases from original construction have been combined into one component.

1.1.2. Gutters & Downspouts (unfunded) Location: Building roof eaves Explanatory Notes: Condition: New All gutters, scuppers, collector boxes, and downspouts are being replaced in the 2019 building rehabilitation project.


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1.2. BUILDING COMPONENTS

1.2.1. Deck Coatings – Replacement Location: Rear elevations Explanatory Notes: Condition: New All private deck coatings are being replaced in the 2019 building rehabilitation project, except units 17484, 17472, and 17460 (3, 5, and 7 respectively).

1.2.2. Deck Coatings - Topcoat Location: Rear elevations Explanatory Notes: Condition: New All private deck coatings are being replaced in the 2019 building rehabilitation project, except units 17484, 17472, and 17460 (3, 5, and 7 respectively). The Tremco decks should be topcoated every 7 years, and can be topcoated a total of 3 times before needing to be replaced.

1.2.3. Deck Railings – Replacement Location: Rear elevations Explanatory Notes: Condition: New All private deck railings are being replaced in the 2019 building rehabilitation project, except units 17484, 17472, and 17460 (3, 5, and 7 respectively). Note: Deck railings were not installed at the time of the site visit as the deck coating were being applied.


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1.2.4. Deck Railings – Stain/Paint Location: Rear elevations Explanatory Notes: Condition: New Includes scaping, cleaning, and painting. All private deck railings are being painted or stained in the 2019 building rehabilitation project, except units 17484, 17472, and 17460 (3, 5, and 7 respectively). This photo is from the beginning of reconstruction representing the deck railings when in place. The new ones will be similar to this configuration.

1.2.5. Front Entry Concrete Patios & Steps Location: Front elevations (@ 21 units) Explanatory Notes: Condition: Good This component has a remaining useful life (RUL) of 37 or more years. This places the component outside of the 30-year cycle of this reserve study and has been included for informational purposes only. Repair as needed.

1.2.6. Front Entry Doors Location: Front elevations Explanatory Notes: Condition: Good (operability not checked) Waterproofing around the perimeter of the front entry doors are being completed in the 2019 building rehabilitation project, except units 17484, 17472, and 17460 (3, 5, and 7 respectively).


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1.2.7. Front Entry Railings – Replacement (50%) Location: Front elevations Explanatory Notes: Condition: ~50% - New, ~50% - Serviceable Railings at the front entries are being replaced as needed in the 2019 building rehabilitation project.

1.2.8. Front Entry Railings – Stain/Paint Location: Front elevations Explanatory Notes: Condition: New All front entry railings are being painted or stained in the 2019 building rehabilitation project, except units 17484, 17472, and 17460 (3, 5, and 7 respectively). Note: the photo respresents an in progress representation of the component.

1.2.9. Front Entry Wood Porches & Steps (50%) Location: Front elevations (@ 4 units on Bldgs. 3 & 4) Explanatory Notes: Condition: 2 – New framing and deck boards 2 – new deck boards only All front entry wood decks are having waterproofing tied in with in the 2019 building rehabilitation project. Note: the photo respresents an in progress representation of the component.


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1.2.10. Siding – Paint Location: All building elevations Explanatory Notes: Condition: New Includes cleaning and painting fiber-cement siding, soffits, wood trim members, metal flashings, and sealants. Sealant maintenance and repairs to occur prior to repainting cycles. Note: the photo respresents an in progress representation of the component.

1.2.11. Siding – Replacement Location: All building elevations Explanatory Notes: Condition: Good (targeted repairs, many areas completely new) Targetted repairs of siding, trim, and weather-proofing components are being completed during building rehabilitation project in 2019, except units 17484, 17472, and 17460 (3, 5, and 7 respectively). Component includes fiber-cement siding, soffits, wood trim members, metal flashings, flexible flashings, and water-resistive barrier. Non-rainscreen system, except @ bay windows within scope of work area of the 2019 building rehabilitation project. Per HOA Board request, different phases from original construction have been combined into one component. It is outside of the 30-year cycle of this reserve study and is included for informational purposes only. Note: the photo respresents an in progress representation of the component.


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PHOTO NOT AVAILABLE

1.2.12. Sliding Glass Doors Location: Rear elevation private decks Explanatory Notes: Condition: Serviceablity (operability not checked) All sliding glass doors are being removed and reinstalled to receive proper waterproofing in the 2019 building rehabilitation project, except units 17484, 17472, and 17460 (3, 5, and 7 respectively). Select sliding glass doors may be replaced as needed.

1.2.13. Windows Location: All building elevations Explanatory Notes: Condition: Serviceable (operability not checked) All windows are being removed and reinstalled to receive proper waterproofing in the 2019 building rehabilitation project, except units 17484, 17472, and 17460 (3, 5, and 7 respectively). Select windows may be replaced as needed.

PHOTO NOT APPLICABLE

1.2.14. Visual Building Enclosure Condition Assessment Location: Building exteriors Explanatory Notes: Regular professional visual condition assessment of building enclosure components and their performance every 5-7 years is highly recommended. This has many benefits, including being aware of how buildings are performing, catching problematic areas before they become extensive, and the ability to be prepared any unforeseen issues with the many components of the buildings.


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1.3. GROUNDS COMPONENTS

1.3.1. Asphalt – Overlay 1.3.2. Asphalt – Sealcoat

Location: Private allyways Explanatory Notes: Condition: Serviceable Sealcoating recommended as soon as possible if not done within last 6 years.

1.3.3. Concrete – Sidewalks, Walkways, & Walls (10%) Location: Common walkways and retaining walls Explanatory Notes: Condition: Good Component includes funding for maintenance repairs to common concrete surfaces and structures on an as-needed basis.

1.3.4. Landscaping – Major Overhaul Location: Common landscape Explanatory Notes: Condition: Serviceable HOA plans to do major landscaping work in 2019 following building rehabilitation project. Ensure soil finish grade slopes away from buildings as required. Some concerning areas such as low window wells are being addressed in 2019 building rehabilitation project.


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1.3.5. Mailbox - Replacement Location: South perimeter sidewalk Explanatory Notes: Condition: Serviceable (operability not checked)

1.3.6. Retaining Wall – Allowance Location: Common landscape Explanatory Notes: Condition: Serviceable Refer to a professional, licensed structural engineer for inspections if concerns arise with retaining walls.


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Reserve Study Findings: Annual

Expenditure Detail


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ANNUAL EXPENDITURE DETAIL (YEARS 2020 – 2029)



Description 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029Composition RoofingGutters & Downspouts (unfunded)Deck Coatings - ReplacementDeck Coatings - Topcoat 53,858Deck Railings - ReplacementDeck Railings - Stain/Paint 4,843Front Entry Concrete Patios & Steps (unfunded)Front Entry DoorsFront Entry Railings - Replacement (50%) 3,009Front Entry Railings - Stain/Paint 2,422Front Entry Wood Porches & Steps (50%) 4,186Siding - Paint 73,472Siding - Replacement (unfunded)Sliding Glass DoorsVisual Building Enclosure Condition Assessment 3,257 3,611WindowsAsphalt - OverlayAsphalt - Sealcoat 3,757 4,251Concrete - Sidewalks, Walkways, & Walls (10%)Landscaping - Major OverhaulMailbox - ReplacementRetaining Wall - AllowanceTOTAL $3,757 $0 $0 $0 $3,257 $0 $62,295 $0 $0 $87,357

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Description 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039Composition Roofing 134,172Gutters & Downspouts (unfunded)Deck Coatings - ReplacementDeck Coatings - Topcoat 62,206Deck Railings - Replacement 14,787Deck Railings - Stain/Paint 5,950Front Entry Concrete Patios & Steps (unfunded)Front Entry DoorsFront Entry Railings - Replacement (50%)Front Entry Railings - Stain/Paint 2,975Front Entry Wood Porches & Steps (50%)Siding - Paint 90,266Siding - Replacement (unfunded)Sliding Glass Doors 41,703Visual Building Enclosure Condition Assessment 4,002 4,436Windows 340,300Asphalt - Overlay 21,531Asphalt - Sealcoat 4,810Concrete - Sidewalks, Walkways, & Walls (10%) 840Landscaping - Major Overhaul 13,340Mailbox - ReplacementRetaining Wall - Allowance 1,334TOTAL $135,012 $0 $4,810 $62,206 $18,676 $0 $382,003 $0 $21,531 $118,414

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Description 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049Composition RoofingGutters & Downspouts (unfunded)Deck Coatings - Replacement 124,479Deck Coatings - Topcoat 71,849Deck Railings - ReplacementDeck Railings - Stain/Paint 7,310Front Entry Concrete Patios & Steps (unfunded)Front Entry Doors 34,158Front Entry Railings - Replacement (50%) 4,542Front Entry Railings - Stain/Paint 3,655Front Entry Wood Porches & Steps (50%) 6,319Siding - PaintSiding - Replacement (unfunded)Sliding Glass DoorsVisual Building Enclosure Condition Assessment 4,917 5,450WindowsAsphalt - OverlayAsphalt - Sealcoat 6,157Concrete - Sidewalks, Walkways, & Walls (10%) 1,032Landscaping - Major Overhaul 18,167Mailbox - Replacement 4,247Retaining Wall - Allowance 1,817TOTAL $72,881 $4,247 $0 $0 $11,074 $0 $40,477 $124,479 $0 $40,941

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REDUCE REUSE RECYCLE PAGE 23

CURRENT ASSESSMENT FUNDING MODEL PROJECTION

YearCurrent

Funding Model Assessment

Current Funding Model

Interest

Current Funding Model Expenditures

Current Funding Model

Ending Reserve Balance

2020 $15,750 $538 $3,757 $69,8162021 $16,222 $669 $0 $86,7072022 $16,709 $804 $0 $104,2202023 $17,210 $944 $0 $122,3742024 $17,727 $1,063 $3,257 $137,9072025 $18,259 $1,213 $0 $157,3792026 $18,806 $885 $62,295 $114,7752027 $19,371 $1,042 $0 $135,1872028 $19,952 $1,205 $0 $156,3452029 $20,550 $696 $87,356 $90,2352030 $21,167 $0 $135,012 ($23,611)2031 $21,802 $0 $0 ($1,809)2032 $22,456 $123 $4,810 $15,9602033 $23,129 $0 $62,206 ($23,117)2034 $23,823 $0 $18,677 ($17,971)2035 $24,538 $51 $0 $6,6182036 $25,274 $0 $382,003 ($350,111)2037 $26,032 $0 $0 ($324,078)2038 $26,813 $0 $21,531 ($318,796)2039 $27,618 $0 $118,414 ($409,593)2040 $28,446 $0 $72,881 ($454,028)2041 $29,300 $0 $4,247 ($428,975)2042 $30,179 $0 $0 ($398,796)2043 $31,084 $0 $0 ($367,712)2044 $32,017 $0 $11,074 ($346,770)2045 $32,977 $0 $0 ($313,793)2046 $33,966 $0 $40,477 ($320,304)2047 $34,985 $0 $124,479 ($409,797)2048 $36,035 $0 $0 ($373,762)2049 $37,116 $0 $40,941 ($377,587)


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THRESHOLD FUNDING MODEL PROJECTION

YearThreshold

Funding Model Assessment

Threshold Funding Model

Interest

Threshold Funding Model Expenditures

Threshold Funding Model

Ending Reserve Balance

2020 $35,001 $688 $3,757 $89,2172021 $36,051 $973 $0 $126,2412022 $37,132 $1,269 $0 $164,6422023 $38,246 $1,576 $0 $204,4652024 $39,394 $1,869 $3,257 $242,4702025 $40,575 $2,199 $0 $285,2452026 $41,793 $2,057 $62,295 $266,7992027 $43,046 $2,408 $0 $312,2532028 $44,338 $2,771 $0 $359,3622029 $45,668 $2,468 $87,356 $320,1422030 $47,038 $1,804 $135,012 $233,9722031 $48,449 $2,194 $0 $284,6152032 $49,903 $2,562 $4,810 $332,2702033 $51,400 $2,498 $62,206 $323,9612034 $52,942 $2,783 $18,677 $361,0102035 $54,530 $3,229 $0 $418,7682036 $56,166 $722 $382,003 $93,6532037 $49,838 $1,115 $0 $144,6062038 $51,334 $1,355 $21,531 $175,7642039 $52,874 $856 $118,414 $111,0792040 $54,460 $720 $72,881 $93,3772041 $56,094 $1,128 $4,247 $146,3532042 $57,776 $1,586 $0 $205,7152043 $59,510 $2,061 $0 $267,2862044 $61,295 $2,467 $11,074 $319,9732045 $63,134 $2,977 $0 $386,0842046 $65,028 $3,191 $40,477 $413,8262047 $66,979 $2,769 $124,479 $359,0942048 $68,988 $3,326 $0 $431,4082049 $71,058 $3,586 $40,941 $465,111


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Appendix A: Maintenance

Schedule


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MAINTENANCE SCHEDULE

EXPLANATORY NOTES

The following recommendations are based on industry standard best practices, and are intended to provide easy-to-follow guidelines for the Association to follow regarding the maintenance and preservation of the Association's common elements. Each component is unique, and is subject to unique conditions, which may require an accelerated maintenance, renewal, or replacement schedule. The Association should inspect and replace these components as needed.

The Association assumes 100% responsibility for the inspection and maintenance activities described herein, and should contact their community manager and/or maintenance manager if they discover or believe there to be water intrusion or premature degradation of a component or assembly.

1. COMPONENT MAINTENANCE ACTION(S) REQUIRED FREQUENCY

BUILDING APPURTENANCES

Decks and Railings Inspect for debris build-up and organic growth. Clean deck and railing surfaces as necessary.

Semi-annually (spring and fall)

Inspect for loose, missing, or cracked components, rot, and trip hazards.

Annually (spring)

Inspect wood components for rot or paint failure to determine if replacement is necessary. Clean loose material, sand, dust cloth, and vacuum. Prep and repaint with two coats of compatible waterproof paint or stain.

Annually (spring)

Inspect metal components for rust or paint failure. Clean rust and loose material from metal using wire brush, dust cloth, and vacuum. Prep and repaint with two coats of compatible rust-inhibiting primer. Following application of primer and finish, apply compatible clear coat waterproof sealer to areas of work to help prevent additional corrosion.

Annually (spring)

EXTERIOR SEALANTS AND FINISHES

Exterior Finish Paint Inspect for cracking, peeling, blistering, or other evidence of paint failure. Prep and clean loose material from wall surface using a dust cloth and vacuum. Apply compatible touch-up paint to entire wall surface in between architectural breaks (corner to corner or joint to joint). Spray and back-roll paint using a low-pressure sprayer (30-50 psi) with a 50° fan-shaped tip. Brush trims, edges, and protruding surfaces. Always test an inconspicuous surface first to confirm color matching of new finishes to existing finishes. Protect adjacent building components and landscaping that may be damaged by paint overspray.

Annually (fall)


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Exterior Sealant Joints Inspect for sealant failure (open voids) or degradation (“chalking” or cracking). Re-seal “pinhole” sealant failure areas with compatible sealant materials. At more extensive areas of sealant failure or degradation, remove existing sealant and clean debris and loose material from joint using a wire brush, dust cloth, and vacuum. Install new sealant that is compatible with adjacent materials (Sonolastic 750 VLM by Sonneborn is recommended). Sealant joints should be dimensioned, installed, and tooled per ASTM C1193 specifications. Dynamic sealant joints featuring a closed-cell backer rod should be installed between dissimilar materials per ASTM E2112 specifications. Regularly monitor sealant repair areas for recurrence of failure, degradation, or staining.


Remove and replace temporary sealant joint applications (installed during winter) as necessary.

Annually (spring)

Fluid-Applied Traffic Coatings Inspect for cracking, peeling, blistering, or other evidence of failure. Prep and re-coat areas of failure as necessary.

Annually (fall)

EXTERIOR WALLS

Electrical Outlets Inspect for damaged covers or electrical shorts. Test ground fault plugs.


Exhaust Vents Inspect for proper operation of dampers or louvers, blockage by debris, or evidence of birds/rodents. Clean exhaust vents and screens as necessary.

Monthly

Exterior Lighting Fixtures Inspect for operability and electrical shorts. Replace lamps as necessary.

Semi-annually (summer and winter)

Inspect weather-resistance of seals and gaskets at wall penetration.


Exterior Walls (General) Inspect exterior wall surfaces for organic growth or graffiti. Clean wall surfaces as necessary with a compatible granulated soap/mild detergent applied using a low-pressure sprayer (30-50 psi) with a 50° fan-shaped tip. Never use muratic acid or petroleum-based cleaners or solvents. Scrub problematic wall surfaces vigorously with a stiff bristle brush (do not use a wire brush) and rinse thoroughly using a garden hose or low-pressure sprayer (200-300 psi) with a 25° - 50° fan-shaped tip. Do not allow cleaning solution to dry on building components. Always test an inconspicuous surface first to confirm the effect that scrubbing and application of cleaning solution will have on various building components. Protect adjacent building components and landscaping that may be damaged by cleaning solution.



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Inspect exterior wall surfaces for damaged, loose, or missing components, rot, storm damage, or other weather-resistance deficiencies.


Inspect accessible interior surfaces for microbial growth, moisture staining, or evidence of water leakage to the interior. Regularly monitor locations that exhibit wetness/dampness, color differences, swelling/warping, blistering/cracking, abnormal odors, or failure of previous repairs.


Inspect exterior wall surfaces for presence of bird or insect nests.


Foundations Inspect for cracking, spalling, settlement, or damage caused by salt/de-icing chemicals. Patch or repair as necessary, following American Concrete Institute (ACI) concrete repair protocol. Regularly monitor concrete repair areas for recurrence of cracking or spalling.

Annually (spring)

Hose Bibs Disconnect hoses and drain hose bibs. Winterize hose bibs as necessary in advance of freezing temperatures.

Annually (fall)

Metal Flashing or Coping Inspect for continuity, secure fastening, sealed joints and fastener penetrations, fastener “pop-out,” and proper flashing integration with adjacent components, especially at intersections of horizontal and vertical surfaces.


FENESTRATION UNITS

Overhead Garage Doors Inspect weather stripping for continuity and air leakage. Annually (fall)

(unit-owner responsibility) Inspect for missing, cracked, or broken glazing components, or other damage to garage door, including evidence of forced entry.

Annually (spring)

Inspect controls for operability and electrical shorts. Test safety features.

Annually (spring)

Inspect interior surfaces for microbial growth, moisture staining, or evidence of water leakage to the interior.


Clean exterior surfaces with compatible cleaning solution. Semi-annually (spring and fall)

Windows and Doors (General) Inspect weather stripping for continuity and air leakage. Annually (fall)

(glazing: unit-owner responsibility)

Inspect for missing, cracked, or broken glazing components, or other damage to window or door unit, including evidence of forced entry.

Annually (spring)

Inspect window and door hardware for operability and closer adjustment. Lubricate operable window and door hinges.

Annually (spring)

Inspect interior surfaces for microbial growth, moisture staining, or evidence of water leakage to the interior.



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Clean exterior surfaces with compatible cleaning solution. Semi-annually (spring and fall)

Repair holes in window screens and wash screens with compatible cleaning solution.

Annually (spring)

ROOFS

Attic Cavities Inspect for microbial growth, moisture staining, or evidence of water leakage to the interior. Regularly monitor locations that exhibit wetness/dampness, color differences, swelling/warping, blistering/cracking, abnormal odors, or failure of previous repairs.


Inspect for presence of birds, rodents, or insects. Semi-annually (spring and fall)

Inspect for continuity and thickness of insulation, as well as blockage of passive ventilation provisions.


Exhaust Vents Inspect for proper operation of dampers or louvers, blockage by debris, or evidence of birds/rodents. Clean exhaust vents and screens as necessary.

Monthly

Gutters, Downspouts, and Collector Boxes

Inspect for debris build-up and organic growth. Clean gutters, downspouts, and collector boxes as necessary. Identify and regularly monitor locations affected by recurring debris-build up or standing water.


Inspect for damaged, loose, or missing components, as well as leaking joints.


Metal Flashing or Coping Inspect for continuity, secure fastening, sealed joints and fastener penetrations, fastener “pop-out,” and proper flashing integration with adjacent components, especially at intersections of horizontal and vertical surfaces.


Roof Surfaces (General) Inspect roof surfaces for organic growth or debris build-up. Clean roof surfaces as necessary with a compatible granulated soap/mild detergent applied using a low-pressure sprayer (30-50 psi) with a 50° fan-shaped tip. Never use muratic acid or petroleum-based cleaners or solvents. Scrub problematic roof surfaces vigorously with a stiff bristle brush (do not use a wire brush) and rinse thoroughly using a garden hose or low-pressure sprayer (200-300 psi) with a 25° - 50° fan-shaped tip. Do not allow cleaning solution to dry on building components. Always test an inconspicuous surface first to confirm the effect that scrubbing and application of cleaning solution will have on various building components. Protect adjacent building components and landscaping that may be damaged by cleaning solution.


Inspect roof surfaces for damaged, loose, or missing components, storm damage, or other weather-resistance deficiencies.



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Inspect roof surfaces for presence of bird or insect nests. Semi-annually (spring and fall)

SITEWORK

Asphalt Paving Patch all cracks in asphalt greater than 1/4” in width with hot-applied crack sealer.

Annually (spring)

Monitor oil leaks that will disintegrate asphalt. Clean as necessary.

Annually (spring)

Catch Basins and Trench Drains

Inspect for debris build-up and organic growth. Clean catch basins or trench drains as necessary.


Concrete Flatwork Inspect for debris build-up and organic growth. Clean concrete flatwork surfaces as necessary.


Inspect for cracking, spalling, settlement, trip hazards, or damage caused by salt/de-icing chemicals. Patch or repair as necessary.

Annually (spring)

Fencing Inspect metal components for rust or paint failure. Clean rust and loose material from metal using wire brush, dust cloth, and vacuum. Prep and repaint with two coats of compatible rust-inhibiting primer. Following application of primer and finish, apply compatible clear coat waterproof sealer to areas of work to help prevent additional corrosion.

Annually (spring)

Inspect wood components for rot or paint failure to determine if replacement is necessary. Clean loose material, sand, dust cloth, and vacuum. Prep and repaint with two coats of compatible waterproof paint or stain.

Annually (spring)

Inspect base of wood fence pickets for debris build-up and clearance to soil. Remove debris and modify soil as necessary to maintain adequate clearance.


Landscaping Inspect soil finish grade for proper drainage away from structure. Fill in low areas as necessary to allow for 5% minimum positive slope away from structure.


Inspect soil finish grade for blockage of masonry veneer weep provisions at base of wall locations.


Inspect for plants growing on or too close to structure. Trim or remove plants as necessary to maintain minimum 6” clearance to structure.


Mailboxes Inspect for loose, missing or cracked components, rot, sharp edges, and other damage. Repair or replace as necessary.

Annually (spring)

Inspect metal components for rust or paint failure. Clean rust and loose material from metal using wire brush, dust cloth, and vacuum. Prep and repaint with two coats of compatible rust-inhibiting primer. Following application of primer and finish, apply compatible clear coat waterproof sealer to areas of work to help prevent additional corrosion.

Annually (spring)


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Retaining Walls (Masonry) Inspect wall surfaces for loose or missing masonry units. Annually (spring)

Inspect masonry joints for failed mortar. Clean loose mortar material from joints using a wire brush, dust cloth, and vacuum. Tuckpoint smaller mortar failure areas with compatible materials. Remove and replace mortar at larger failure areas.

Annually (spring)

Inspect masonry surfaces for presence of efflorescent staining. Clean efflorescence from wall surfaces as necessary with solution consisting of 1 part white household vinegar to 5 parts water, applied using a low-pressure sprayer (30-50 psi) with a 50° fan-shaped tip. Never use muratic acid or petroleum-based cleaners or solvents. Scrub problematic wall surfaces vigorously with a stiff bristle brush (do not use a wire brush) and rinse thoroughly with clean water using a garden hose or low-pressure sprayer (200-300 psi) with a 25° - 50° fan-shaped tip. Do not allow cleaning solution to dry on building components. Always test an inconspicuous surface first to confirm the effect that scrubbing and application of cleaning solution will have on various building components. Protect adjacent building components and landscaping that may be damaged by cleaning solution.

Annually (spring)

Avoid use of de-icing chemicals on surfaces immediately adjacent to masonry veneer.

Throughout winter


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Appendix B: Important

Information


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PURPOSE OF REPORT

A MULTI-PURPOSE TOOL

This reserve study report is an important part of the Association’s budgetary process. Following the recommendations contained within this report should ensure the Association’s smooth budgetary transitions from one fiscal year to the next, and either decrease or eliminate the need for “special assessments”.

In addition, this reserve study serves a variety of useful purposes:

l Following the recommendations of a reserve study performed by a professional consultant can protect the Board of Directors in a community from personal liability concerning reserve components and reserve funding

l A reserve study is required by your accountant during the preparation of the Association’s annual audit.

l A reserve study is often requested by lending institutions during the process of loan applications, both for the community and, in many cases, the individual owners

l The reserve study report is also a detailed inventory of the Association’s major assets and serves as a management tool for scheduling, coordinating and planning future repairs and replacements

l The reserve study report is a tool that can assist the Board in fulfilling its legal and fiduciary obligations for maintaining the community in a state of good repair. If a community is operating on a special assessment basis, it cannot guarantee that an assessment, when needed, will be passed. Therefore, it cannot guarantee its ability to perform the required repairs or replacements to those major components for which the association is obligated.

l Since the reserve study includes measurements and cost estimates of the Association’s assets, the detail reports may be used to evaluate the accuracy and price of contractor bids when assets are due to be repaired or replaced.

l The reserve study is an annual disclosure to the membership concerning the financial condition of the Association, and may be used as a “consumers’ guide” by prospective purchasers

l The reserve study report provides a record of the time, cost, and quantities of past reserve replacements. At times, the Association’s management company and Boards of Directors are transitory, which may result in the loss of these important records.


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STANDARD TERMS AND DEFINITIONS

Adjustment to Useful Life – Once the Estimated Useful Life (EUL) is determined, it may be adjusted, up or down, by this separate figure for the current cycle of replacement. This will allow for a current period adjustment without affecting the estimated replacement cycles for future replacements.

Annual Assessment Increase – This represents the percentage rate at which the Association will increase its assessment to reserves at the end of each year. For example, in order to accumulate $10,000 in 10 years, you could set aside $1,000 per year. As an alternative, you could set aside $795 the first year and increase that amount by 5% each year until the year of replacement. In either case you arrive at the same amount. The idea is that you start setting aside a lower amount and increase that number each year in accordance with the planned percentage. Ideally this figure should be equal to the rate of inflation. It can, however, be used to aid those Associations that have not set aside appropriate reserves in the past, by making the initial year’s allocation less formidable.

Annual Fixed Reserves – An optional figure, which if used, will override the normal process of allocating reserves to each asset.

Budget Year Beginning/Ending – The budgetary year for which the report is prepared. For Associations with fiscal years ending June 30th, the monthly contribution figures indicated are for the 12-month period beginning 7/1/2013 and ending 6/30/2014.

Component: The individual line items in the reserve study, developed or updated in the Physical Analysis. These elements form the building blocks for the reserve study. Components typically are: 1) Association responsibility, 2) with limited useful life expectancies, 3) predictable Remaining Useful Life expectancies, 4) above a minimum threshold cost, and 5) as required by local codes.

Component Inventory – The task of selecting and qualifying reserve components. This task can be accomplished through on-site visual, review of Property design and organizational documents, a review of established Property precedents, and discussion with appropriate Association representative(s).

Condition Assessment: The task of evaluating the current condition of the component based on observed or reported characteristics.

Current Replacement Cost –The estimated Replacement Cost effective at the beginning of the fiscal year for which the report is being prepared.

Estimated Useful Life (EUL) – The estimated useful life of a component based upon industry standards, manufacturer specifications, visual inspection, location, usage, association standards and prior history. All of these factors are taken into consideration when tailoring the estimated useful life to the particular component. For example, the carpeting in a hallway or elevator (a heavy traffic area) will not have the same life as the identical carpeting in a seldom-used meeting room or office.

Financial Analysis: The portion of a Reserve Study where current status of the Reserves (measured as cash or Percent Funded) and a recommended Reserve contribution rate (Reserve Funding Plan) are derived, and the projected Reserve income and expense over time is presented. The Financial Analysis is one of the two parts of a Reserve Study.

Funding Plan: An Association’s plan to provide income to a Reserve Fund to offset anticipated expenditures from that fund.


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Funding Principles:

l Sufficient Funds When Required l Stable Contribution Rate over the Years l Evenly Distributed Contributions over the Years l Fiscally Responsible

Future Replacement Cost – The estimated cost to repair or replace the component at the end of its estimated useful life based upon the current replacement cost and inflation.

Inflation – This figure is used to approximate the future cost to repair or replace each component in the report. The current cost for each component is compounded on an annual basis by the number of remaining years to replacement, and the total is used in calculating the monthly reserve contribution that will be necessary to accumulate the required funds in time for replacement.

Interest Contribution (After Taxes) – The interest that should be earned on the reserves, net of taxes, based upon their beginning reserve balance and monthly contributions for one year. This figure is averaged for budgeting purposes.

Investment Yield Before Taxes – The average interest rate anticipated by the Association based upon its current investment practices.

Life and Valuation Estimates: The task of estimating Useful Life, Remaining Useful Life, and Repair or Replacement Costs for the Reserve components.

Number of Units and/or Phases – As applicable, the number of units and/or phases included in this version of the report.

Physical Analysis: The portion of the Reserve Study where the Component Inventory, Condition Assessment, and Life and Valuation Estimate tasks are performed. This represents one of the two parts of the Reserve Study.

Placed-In-Service Date – The month and year that the component was placed-in-service. This may be the construction date, the first escrow closure date in a given phase, or the date of the last servicing or replacement.

Projected Reserve Balance – The anticipated reserve balance on the first day of the fiscal year for which this report has been prepared. This is based upon information provided and not audited.

Remaining Useful Life (RUL) – The estimated time, in years, that a reserve component can be expected to continue to serve its intended function. Projects anticipated to occur in the initial year have “zero” Remaining Useful Life.

Replacement Cost: The cost of replacing, repairing, or restoring a Reserve Component to its original functional condition. The Current Replacement Cost would be the cost to replace, repair, or restore the component during that particular year.

Replacement Year – The year that the component is scheduled to be replaced. The appropriate funds will be available by the first day of the fiscal year for which replacement is anticipated.


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Reserve Balance: Actual or projected funds as of a particular point in time that the Association has identified for use to defray the future repair or replacement of those major components which the Association is obligated to maintain. Also known as Reserves, Reserve Accounts, Cash Reserves. Based upon information provided and not audited.

Reserve Provider: An individual who prepares Reserve Studies.

Reserve Study: A budget planning tool which identifies the current status of the Reserve Fund and a stable and equitable Funding Plan to offset the anticipated future major common area expenditures. The Reserve Study consists of two parts: the Physical Analysis and the Financial Analysis.


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OVERVIEW OF CAPITAL PLANNING TOOLS

INTRODUCTION

Preparing the annual budget and overseeing the Association’s finances are perhaps the most important responsibilities of board members. The annual operating and reserve budgets reflect the planning and goals of the association and set the level and quality of service for all of the Association’s activities.

FUNDING OPTIONS

When a major repair or replacement is required in a community, an Association has essentially four options available to address the expenditure:

l Option 1 – The first, and only logical means that the Board of Directors has to ensure its ability to maintain the components for which it is obligated, is by assessing an adequate level of reserves as part of the regular membership assessment, thereby distributing the cost of the replacements uniformly over the entire membership. The community is not only comprised of present members, but also future members. Any decision by the Board of Directors to adopt a calculation method or funding plan which would disproportionately burden future members in order to make up for past reserve deficits, would be a breach of its fiduciary responsibility to those future members. Unlike individuals determining their own course of action, the board is responsible to the “community” as a whole.

Whereas, if the association was setting aside reserves for this purpose, using the vehicle of the regularly assessed membership dues, it would have had the full term of the life of the roof, for example, to accumulate the necessary moneys. Additionally, those contributions would have been evenly distributed over the entire membership and would have earned interest as part of that contribution

l Option 2 – The second option is for the association to acquire a loan from a lending institution in order to affect the required repairs. In many cases, banks will lend to an association using “future homeowner assessments” as collateral for the loan. With this method, the current board is pledging the future assets of an association. They are also incurring the additional expense of interest fees along with the original principal amount. In the case of a $150,000 roofing replacement, the association may be required to pay back the loan over a three to five year period, with interest.

l Option 3 – The third option, too often used, is simply to defer the required repair or replacement. This option, which is not recommended, can create an environment of declining property values due to expanding lists of deferred maintenance items and the association’s financial inability to keep pace with the normal aging process of the common area components. This, in turn, can have a seriously negative impact on sellers in the association by making it difficult, or even impossible, for potential buyers to obtain financing from lenders. Increasingly, lending institutions are requesting copies of the association’s most recent reserve study before granting loans, either for the association itself, a prospective purchaser, or for an individual within such an association.

l Option 4 – The fourth option is to pass a “special assessment” to the membership in an amount required to cover the expenditure. When a special assessment is passed, the association has the authority and responsibility to collect the assessments, even by means of foreclosure, if necessary. However, an association considering a special assessment cannot guarantee that an assessment, when needed, will be passed. Consequently, the association cannot guarantee its ability to perform the required repairs or replacements to those major components for which it is obligated when the


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need arises. Additionally, while relatively new communities require very little in the way of major “reserve” expenditures, associations reaching 12 to 15 years of age and older, find many components reaching the end of their effective useful lives. These required expenditures, all accruing at the same time, could be devastating to an association’s overall budget.

TYPES OF RESERVE STUDIES

Most reserve studies fit into one of three categories:

l Full Reserve Study (Year 1) – The reserve provider conducts a component inventory, a condition assessment (based upon on-site visual observations), and life and valuation estimates to determine both a “fund status” and “funding plan.”

l Update without Site Inspection (Year 2) – The reserve provider conducts life and valuation estimates to determine the “fund status” and “funding plan.”

l Update with Site Inspection (Year 3) – The reserve provider conducts a component inventory (verification only, not quantification unless new components have been added to the inventory), a condition assessment (based upon on-site visual observations), and life and valuation estimates to determine both the “fund status and “funding plan.”

THE RESERVE STUDY: A PHYSICAL AND FINANCIAL ANALYSIS

There are two components of a reserve study – a physical analysis and a financial analysis:

l Physical Analysis – During the physical analysis, a reserve study provider evaluates information regarding the physical status and repair/replacement cost of the association’s major common area components. To do so, the provider conducts a component inventory, a condition assessment, and life and valuation estimates.

l Financial Analysis – The financial analysis assesses the association’s reserve balance or “fund status” (measured in cash or as percent fully funded) to determine a recommendation for the appropriate reserve contribution rate in the future, known as the “funding plan”.

DEVELOPING A COMPONENT LIST

The budget process begins with full inventory of all the major components for which the association is responsible. The determination of whether an expense should be labeled as operational, reserve, or excluded altogether is sometimes subjective. Since this labeling may have a major impact on the financial plans of the association, subjective determinations should be minimized. We suggest the following considerations when labeling an expense.

OPERATIONAL EXPENSES

Occur at least annually, no matter how large the expense, and can be budgeted for effectively each year. They are characterized as being reasonably predictable, both in terms of frequency and cost. Operational expenses include all minor expenses, which would not otherwise adversely affect an operational budget from one year to the next. Examples of operational expenses include:


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l Utilities – Electricity, gas, water, telephone, cable TV

l Administrative – Supplies, bank service charges, dues & publications, licenses/permits/fees, insurance(s)

l Services – Landscaping, pool maintenance, street sweeping, accounting, reserve study l Repair Expenses – Tile roof repairs, equipment repairs, minor concrete repairs, operating

contingency

RESERVE EXPENSES

These are major expenses that occur other than annually, and which must be budgeted for in advance in order to ensure the availability of the necessary funds in time for their use. Reserve expenses are reasonably predictable both in terms of frequency and cost. However, they may include significant components that have an indeterminable but potential liability that may be demonstrated as a likely occurrence. They are expenses that, when incurred, would have a significant effect on the smooth operation of the budgetary process from one year to the next, if they were not reserved for in advance.

Examples of reserve expenses include:

• Roof Replacements

• Park/Play Equipment

• Painting

• Pool/Spa Re-plastering

• Deck Resurfacing

• Pool Equipment Replacement

• Fencing Replacement

• Pool Furniture Replacement

• Asphalt Seal Coating

• Asphalt Repairs

• Lighting Replacement

• Asphalt Overlays

• Insurance(s)

• Equipment Replacement

• Reserve Study

• Interior Furnishings

BUDGETING NORMALLY EXCLUDED FOR:

Repairs or replacements of components which are deemed to have an estimated useful life equal to or exceeding the estimated useful life of the facility or community itself, or exceeding the legal life of the community as defined in an association’s governing documents. Examples include the complete


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replacement of elevators, tile roofs, wiring and plumbing. Also excluded are insignificant expenses that may be covered either by an operating or reserve contingency, or otherwise in a general maintenance fund. Expenses that are necessitated by acts of nature, accidents or other occurrences that are more properly insured for, rather than reserved for, are also excluded.

Construction defects and other conditions which result in major performance deficiencies cannot be modeled or accurately budgeted for as part of a standard reserve fund analysis.

PREPARING THE RESERVE STUDY

Once the reserve components have been identified and quantified, their respective replacement costs, useful lives, and remaining lives must be assigned so that a funding schedule can be constructed. Replacement costs and useful lives can be found in published manuals such as construction estimators, appraisal handbooks, and valuation guides. Remaining lives are calculated from the useful lives and ages of assets and adjusted according to conditions such as design, manufactured quality, usage, exposure to the elements and maintenance history.

By following the recommendations of an effective reserve study, the association should avoid any major shortfalls. However, to remain accurate, the report should be updated on an annual basis to reflect such changes as shifts in economic parameters, additions of phases or components, or expenditures of reserve funds. The association can assist in simplifying the reserve study update process by keeping accurate records of these changes throughout the year.

FUNDING METHODS

From the simplest to the most complex, reserve study providers use many different computational processes to calculate reserve requirements. However, there are two basic processes identified as industry standards – the cash flow method and the component method:

l Cash Flow Method – Develops a reserve-funding plan where contributions to the reserve fund are designed to offset the variable annual expenditures from the reserve fund. Different reserve funding plans are tested against the actual anticipated schedule of reserve expenses until the desired funding goal is achieved. This method sets up a “window” in which all future anticipated replacement costs are computed, based upon the individual lives of the components under consideration. The Threshold Funding Model Projection and the Current Assessment Funding Model Projection are based upon the cash flow method.

l Component Method – Develops a reserve-funding plan where the total contribution is based upon the sum of contributions for individual components. The component method is the more conservative of the two funding options, and assures that the association will achieve and maintain an ideal level of reserve over time. This method also allows for computations on individual components in the analysis. The Component Funding Model Projection is based upon the component methodology.


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FUNDING STRATEGIES

Once an association has established its funding goals, the association can select an appropriate funding plan. There are multiple basic strategies from which most associations select. It is recommended that associations consult professionals to determine the best strategy or combination of plans that best suit the association’s need. Additionally, associations should consult with their financial advisor to determine the tax implications of selecting a particular plan. Further, consultation with the American Institute of Certified Public Accountants (AICPA) for their reporting requirements is advisable. Associations will have to update their reserve studies more or less frequently depending on the funding strategy they select. The various funding plans and descriptions of each are detailed below:

l Full Funding – Given that the basis of funding for reserves is to distribute the costs of the replacements over the lives of the components in question, it follows that the ideal level of reserves would be proportionately related to those lives and costs. If an association has a component with an expected estimated useful life of ten years, it would set aside approximately one-tenth of the replacement cost each year. At the end of three years, one would expect three-tenths of the replacement cost to have accumulated, and if so, that component would be “fully-funded.” This model is important in that it is a measure of the adequacy of an association’s reserves at any one point of time, and is independent of any particular method which may have been used for past funding or may be under consideration for future funding. This formula represents a snapshot in time and is based upon current replacement cost, independent of future inflationary or investment factors.

Note that, for a given component, “Fully Funded Reserves” = (“Adjusted Age”/“Remaining Useful Life”) x “Current Replacement Cost” When an association’s total accumulated reserves for all components meet this criterion, its reserves are considered “fully-funded.”

l Threshold Funding Model (Minimum Funding or Baseline Funding) – The goal of this funding method is to keep the reserve cash balance above zero. This means that while each individual component may not be fully funded, the reserve balance overall does not drop below zero during the projected period. An association using this funding method must understand that even a minor reduction in a component’s remaining useful life can result in a deficit in the reserve cash balance

l Threshold Funding Model – This method is based upon the cash flow funding concept. The minimum reserve cash balance in threshold funding, however, is set at a predetermined dollar amount (other than $0)

l Current Assessment Funding Model – This method is also based upon the cash flow funding concept. The initial reserve assessment is set at the association’s current fiscal year funding level and a 30-year projection is calculated to illustrate the adequacy of the current funding over time


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RESERVE STUDY METHODOLOGY

PHYSICAL ANALYSIS METHODOLOGY

Throughout the course of Forensics’ physical analysis of the Property, the following methods were employed:

l Review of Background Information – The following background information was reviewed by Forensic as part of the Reserve Study preparation for the Property: ¡ Previous reserve study report generated by Western Architectural dated 4/11/2014

¡ Declarations, governing documents, and plat map provided by property manager

l Component Inventory Generation – The component inventory was developed to include commonly-owned building components or systems, all or part of which will normally require major maintenance, repair, or replacement in more than 1 and less than 30 years, as well as the finish paint application for those included components. Please note that the inventory specifically did not include the components or systems listed in the “Reserve Study Exclusions” section of this report, as well as the following ¡ Items that can be funded from the general budget

¡ Common elements whose responsibility does not include all of the unit owners

¡ Items with an expected useful life (EUL) and/or remaining useful life (RUL) greater than 30 years

¡ Items that lack a predictable EUL and/or RUL

¡ Items with a replacement cost less than the minimum threshold of $1,000

l Visual Site Inspection – In order to evaluate and document the current physical condition of the Property, Forensic performed a visual review of the unconcealed and accessible surfaces of the components listed in the “Component Inventory” section of this report. For multiple components, Forensic reviewed a sufficient representative sample of that component (as determined by our professional judgment) in order to make quantity or useful life determinations.

At no time during Forensic’s time on site at the Property were destructive or invasive testing methods employed in order to observe the condition of concealed building components or systems. As such, the concealed conditions associated with the components listed in the “Component Inventory” section of this report are not included as part of this Reserve Study. Additionally, faulty construction of concealed elements may affect the observable components.

l Component Quantity Determinations – Forensic utilized multiple methods to determine component quantities (depending on the component), including field take-off estimates, partial take-offs from construction drawings, and evaluation of the component quantities provided in previous reserve studies.

l Component Useful Life Determinations – Forensic utilized multiple methods to determine component EUL values (depending on the component), including typical useful life tables provided by Fannie Mae, databases provided by Reserve Analyst software, product manufacturer literature, modification of the component quantities provided in previous reserve studies, and Forensic’s professional judgment. RUL values were determined by subtracting the current age of each component (based on the in-service date provided by the Association or previous reserve study) from the EUL.


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FINANCIAL ANALYSIS METHODOLOGY

Throughout the course of Forensic’s financial analysis of the Property, the following methods were employed:

l Financial Parameter Determinations – In order to perform the financial analysis component of this Reserve Study, Forensic relied upon the values provided by the Association for the fiscal year start/end dates, reserve fund starting balance, reserve fund contribution rate, interest rate, and tax rate. Forensic determined an appropriate inflation rate based upon the 12-month moving average inflation rate, as provided by the U.S. Bureau of Labor Statistics. The 30-year planning horizon incorporated in this Reserve Study is based upon State of Oregon requirements.

l Component Replacement Cost Determinations – Forensic utilized multiple methods to determine component current replacement cost values (depending on the component), including databases provided by Reserve Analyst software, product manufacturer and vendor literature, adjustment of costing information provided in previous reserve studies, and Forensic’s professional judgment. Future replacement cost values were determined by projecting the current replacement cost values out to their RUL replacement year(s), as modified by the inflation rate determined by Forensic.

Funding Model Projections and Computations – Forensic utilized the mathematical modeling capabilities of Reserve Analyst software to generate the Annual Expenditure Summary, Current Assessment Funding Model Projection, and Threshold Funding Model Projection via the “Cash Flow Method.”


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DISCLOSURES AND LIMITATIONS

GENERAL INFORMATION

Forensic’s Reserve Study of the Property has been prepared in general conformance with the following industry association standards:

l ASTM E 2018-08 “Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process,” (2008).

l Community Associations Institute (CAI) Research Foundation, “Best Practices: Report #1 Reserve Studies/Management”

l Community Associations Institute (CAI), “National Reserve Study Standards,” (2009) l Fannie Mae “Expected Useful Life Tables,” developed by On-Sight Insight of Needham, MA l “Fannie Mae Physical Needs Assessment Guidance to the Property Evaluator” This document has been provided pursuant to an agreement containing restrictions on its use. No part of this document may be copied or distributed, in any form or by any means, nor disclosed to third parties without the expressed written permission of Forensic. The Association shall have the right to reproduce and distribute copies of this report, or the information contained within, as may be required for compliance with all applicable regulations.

COMPLIANCE WITH STATE REGULATIONS

This Reserve Study was prepared in general compliance with all applicable state requirements. Please refer to the appropriate appendix to this report for detailed information regarding specific state requirements. Note that this Reserve Study was prepared by a building envelope consultant, suitably qualified by knowledge, skill, and experience to act as a Reserve Study Professional. Please refer to the appropriate appendix to this report for detailed information regarding provider qualifications.

CONFLICTS OF INTEREST

Forensic has no financial interest in the Association, and is unaware of any potential conflict of interest that may negatively impact the veracity or accuracy of this report.

BASIC ASSUMPTIONS

This reserve study and the parameters under which it has been completed are based upon information provided to us in part by representatives of the Association, its contractors, assorted vendors, specialist and independent contractors, the Community Association Institute (CAI), and various construction pricing and scheduling manuals including, but not limited to: Marshall & Swift Valuation Service, RS Means Facilities Maintenance & Repair Cost Data, RS Means Repair & Remodeling Cost Data, National Construction Estimator, National Repair & Remodel Estimator, Dodge Cost Manual and McGraw-Hill Professional. Additionally, costs are obtained from numerous vendor catalogues, actual quotations or historical costs, and our own experience as a building envelope consultant.

It has been assumed, unless otherwise noted in this report, that components will not be subjected to extraordinary usage or be exposed to any problematic operational environments, that all components have been designed and constructed properly (including concealed elements), and that each estimated useful life (EUL) will approximate that of the norm per industry standards and/or manufacturer’s


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specifications. In some cases, estimates may have been used on components, which have an indeterminable but potential liability to the Association. The decision for the inclusion of these as well as all components considered is left to the Association.

It has also been assumed that the Association will employ a high standard of ongoing maintenance to facilitate EUL expectations for individual components, and that those components have been constructed and placed in service in such a manner as to facilitate reasonable access for ongoing maintenance and inspection purposes.

RESERVE STUDY UPDATES

We recommend that your reserve study be updated on an annual basis due to fluctuating interest rates, inflationary changes, and the unpredictable nature of the lives of many of the components under consideration. All of the information collected during our inspection of the Property and computations made subsequently in preparing this Reserve Study are retained in our computer files. Therefore, annual updates may be completed quickly and inexpensively each year. A visual site inspection is recommended every three (3) years in order to more accurately update your Reserve Study.

In addition, any of the parameters and estimates used in this Reserve Study may be changed at your request, after which we will provide a revised Study as an additional service billed on an hourly basis.

This Reserve Study is provided as an aid for planning purposes and not as an accounting tool. Since it deals with events yet to take place, there is no assurance that the results enumerated within it will, in fact, occur as describe.


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DOCUMENT REVISIONS

Forensic reserves the rights to amend, modify, and/or re-issue this document as more information is reviewed or as additional Property site visits proceed. This document is intended solely for use by our client and should, in any event, be reproduced only in its entirety, with the “Disclaimers and Limitations” section included.

We appreciate your confidence in Forensic and we look forward to addressing any questions or concerns that you may have regarding the contents of this report. Please do not hesitate to contact Forensic at (503) 772-1114 or [email protected] if we can be of further assistance. Thank you.

Respectfully submitted,

FORENSIC BUILDING CONSULTANTS

Matthew Ariniello, Building Science Technician

Toby C. White, Vice President and Director of Technical Services


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END OF DOCUMENT

Documents

Mahonia Townhomes STUDY 20 NTENANCE …...Overview of Capital Planning Tools 37 Reserve Study Methodology 42 Disclosures and Limitations 44 END OF DOCUMENT 47 TRUSTED SOLUTIONS 15