Presentation on theme: "1 Introduction To Asset Management Community Development Law Center 700 SW Taylor, Suite 310 Portland, OR 97205 and Housing Development Center 2627 NE."— Presentation transcript:
1 Introduction To Asset Management Community Development Law Center 700 SW Taylor, Suite 310 Portland, OR 97205 and Housing Development Center 2627 NE Martin Luther King Jr. Blvd. Portland, Or 97212
2 Presenter Information 4 Community Development Law Center 700 SW Taylor, Suite 310 Portland, OR 97205 Charlie Harris 503.471-1182 firstname.lastname@example.org Leon Laptook 503.471.1180 email@example.com 4 Housing Development Center 2627 NE Martin Luther King. Jr. Blvd. Portland, OR 97212 503.335.3668 Robin Boice firstname.lastname@example.org Eli Spevak email@example.com
3 Acknowledgments 4 Thank you to Neighborhood Partnership Fund for sponsoring this training and PDC for providing this space. 4 Thank you to HUD for the funding to make this training possible. 4 The work that provided the basis for this publication was supported by funding under an award with the US Department of Housing and Urban Development. The substance and findings of the work are dedicated to the public. The author and publisher are solely responsible for the accuracy of the statements and interpretations contained in this publication. Such interpretations do not necessarily reflect the views of the Government. 4 Thank you for taking time out of your busy work lives to attend!
4 I. What is Asset Management 4 Definition: A systematic plan for, and ongoing oversight of, the management of one or more housing project(s) in furtherance of the projects goals and the organizations mission.
5 Asset Management is generally not what we thought of when we formed our CDCs. We focused on developing affordable housing. For many, Asset Management is a new line of business and requires thinking about how it fits with our organization's mission and goals.
6 Why is Asset Management Important 4 Difficult to house populations 4 Limited funds 4 Limited ability to raise additional funds 4 Public agencies requiring maximum accountability
7 Asset Management Specifically Involves 4 Making sure project: –meets owners social goals –remains financially viable –maintains physical quality –stays in compliance with legal requirements
8 Analysis of Project in Relation to Overall Portfolio 4 Housing Needs of Target Population versus other Projects 4 Need for Cash Flow 4 Tenant Services 4 Bookkeeping and Record-keeping Requirements
10 II. Asset Management Roles and Goals 4 People- keep owner, manager,tenants, funders and community happy 4 Money- Keep money flowing while keeping rents affordable –Income –Expenses –Cash Flow 4 Property- Keep project in good repair over life of the project
11 Goals of Asset Management (contd) 4 Owner: wants mission fulfilled –affordable housing for target population while fostering organizations financial health and community reputation –Note: Non-profit organization does not mean no profit. Take out profit and you have non-organization
12 General Goals of Asset Management (contd) 4 Property Manager: wants good project with maximum fee for minimum hassle.
13 General Goals of Asset Management (contd) 4 Target Population: wants affordable, safe, secure living environment while being treated fairly. –Tenants –Applicants and potential tenants
14 General Goals of Asset Management (contd) 4 Funders: want return on investment, compliance with project requirements and reports –Investors (limited partners) –Lenders –Government Agencies OHCS City or County IRS –Foundations
15 General Goals of Asset Management (contd) 4 Community: –city –neighbors –police –social service agencies 4 Want well designed, well maintained project that is an asset to the community.
16 Differences from Property Management 4 PM- Rent Collection 4 AM- Policy on Late Payment 4 Overlap- Tenant Relations Workouts with Tenants *** 4 PM- Record Keeping 4 AM- Reporting to Lenders 4 Overlap- Dealing with Regulations/Obligations
17 Differences from Property Management (contd) 4 PM- Monthly Financial Reporting 4 AM- Communicating with Investors Hiring Accountants, Attorneys, etc. Cash Management 4 Overlap- Annual Budgeting
18 Differences from Property Management (contd) 4 PM- Management of Daily Operations 4 AM- Development of Strategic and Property Goals Hire/Fire/ Evaluate Property Manger Hold/ Sell/Refinance Decisions 4 Overlap- Security Crisis Management
19 Differences from Property Management (contd) 4 PM- Project Maintenance 4 AM- Reserve Accounts 4 Overlap- Capital Planning
20 Clarify Areas of Overlap Between Owner and Property Manager 4 Marketing Units 4 Tenant Eligibility Determinations 4 Project Budget 4 Property Taxes 4 Property and Liability Insurance 4 Purchasing Supplies and Equipment 4 Resident Manager Hiring 4 Reporting and Record-keeping
21 Board Roles 4 Who on Bd. is responsible (full Bd., committee, one person?) 4 What kind of info does Bd. receive, how often? 4 What decisions does Board want involvement in: –Hiring/evaluating Property Manager –Tenant Selection Criteria –Eviction Process/Grievance Procedure –Budget Approval
22 Staff Roles 4 Develop Management Plan 4 Budget with Property Manager. 4 Monthly financials 4 Annual Inspections 4 Review of Compliance Requirements 4 Annual Property Manager evaluation
24 III. Sources of AM Responsibilities 4 Project Documents Management Documents Financing Documents Construction Documents 4 State and Federal Laws
25 Management Documents 4 Management Plan 4 Management Agreement 4 Lease and Occupancy Rules 4 Schedules for Maintenance and Capital Replacement
26 Construction Documents 4 Plans and Specifications 4 Property Related Surveys 4 Warranties
27 Financing Documents 4 Grant Agreements (e.g. HOME, Housing Trust Fund) 4 Loan Documents (Promissory Note, Loan Agreement, Trust Deed) 4 Partnership Agreement (LIHTC) 4 Declarations of Land Use Restrictive Covenants
28 Federal and State Laws 4 Laws related to financing subsidies 4 Oregon Residential Landlord Tenant Act (ORS Chapter 90) 4 Fair housing laws- Make sure your staff and property manager get training 4 Americans With Disabilities Act
35 V. Oversight of the Money Financial Viability 4 Baseline Financial Viability –Cover operating expenses –Keep project out of default Make required debt payments to lenders, primary and subordinate Make required reserve contributions Meet minimum debt coverage requirements of lender
36 Additional Project Financial Goals 4 Deposit additional funds in replacement reserves for long term capital needs 4 Fund asset management costs 4 Cover resident services costs 4 Fund or maintain operating reserves 4 Support for your organization –subsidize other projects –subsidize other lines of business –fund a portion of general operating costs
41 Debt Structure Issues 4 Faulty underwriting assumptions, sometimes uncorrectable even with best management: –rents projected higher than market –operating expenses projected too low –insufficient reserve contributions or insufficient start-up reserves –debt payments too high/insufficient cash flow
42 Oversight of the Money Basic Documents 4 Budget 4 Income and Expense Report 4 Rent Roll 4 Balance Sheet 4 Annual Audit and Tax Return 4 Organizations Financial Statements
43 Budget 4 Prepare with property manager; Board should review and approve 4 Basis for determining whether actual expenses for upcoming year are reasonable 4 Sources of data for budget 4 Annually update 4 Rent increases- Allowable maximum rents; utility allowance updates; need; market 4 Replacement reserve & operating reserve needs
44 Budget (contd) 4 Budgeting process is a good time to do a review of financial performance
45 Budget (contd) 4 Identify Trends: 4 Calculate CDN or other industry standards 4 Expenses that are consistently higher/lower than budget or other projects 4 Annual rent collection as percent of rents, how much past due, written off debt 4 Vacancies- specific units or unit types 4 Capital needs assessment- inspection findings
46 Budget (contd) 4 Issues of concern/findings in audit? 4 Trends indicated policy or management changes? 4 Capital improvement plan- Longer term planning? 4 Financial concerns- corrected through management changes, capital spending, changes to debt structure? 4 Longer term financing requirements- LIHTC year 15, OAHTC year 20, interest rate savings?
47 Income and Expense Report 4 Primary tool to determine project health 4 Must be detailed and include current period, year to date, comparison to budget 4 Review monthly 4 Usually prepared on cash basis; need statement of accrued but unpaid expenses 4 Dont be afraid to ask questions
48 Income and Expense Report (contd) 4 Income: Compare Gross rental income and Net rental income to see vacancy loss 4 Add other income to get Effective Gross Income
49 Income and Expense Report (contd) 4 Operating Expenses –know whats included in each line item –whats reasonable (compare to budget) –reason for variances 4 Some common issues –for high turnover and vacancies: look at waiting list; reasons for applicant denials and tenant move-outs; make-ready time
50 Income and Expense Report (contd) –repairs and maintenance –insurance –property taxes- exempt? If not exempt, valuation issues? –Include expenses manager may not pay-audit, resident services coordinator, tax credit monitoring –Reserves: operating, replacement, tax and insurance escrows –Know whats included in loan payment-mortgage P &I, reserves, fees, escrows?
51 Income and Expense Report (contd) 4 Net Operating Income= effective gross income minus operating expenses 4 Debt Service Coverage= Net Operating Income divided by Debt Service –1.2 to 1.3Excellent –1.1 to 1.2Good –less than 1.1Poor –less than 1.0Major Problem
52 Rent Roll 4 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. 4 Vacancy Rate= # of vacant units total # of units 4 Most underwriting pro formas assume a 5% vacancy rate
53 Balance Sheet 4 The project balance sheet describes the relative financial position of the project at a given point in time. 4 It consists of assets, liabilities, and owners equity. 4 Profits or losses from the income and expense report cause changes in the owners equity on the balance sheet.
55 Annual Audit and Tax Return 4 Prepared on an accrual basis 4 May re-categorize capital expenses and repairs 4 Owners Board should review and approve Annual Audit; have auditor present
56 Organizations Financial Statements 4 Need to ensure that organizations statements accurately incorporate project statements 4 Issues: –cash v. accrual basis –allocation of costs between project and organization –when does project cash flow appear on organizations statements
58 VI. Oversight of the Physical Property 4 Maintenance Plan/Capital Replacements 4 Inspections 4 Relation to Design 4 Relation Between Physical Problems and Financial Problems
59 VII. Monitoring, Reporting, Record- keeping 4 Use of compliance charts –Rent Restriction- sources of restriction, levels, duration,referencing documents –reporting information- with contact persons, referencing documents –payment requirements- amounts, duration, starting dates, contingent payment calculations, contact persons
60 Monitoring, Reporting, Record-keeping (cont) 4 Calendar with required reporting forms 4 Files and filing –whats in tenant files –whats in project files –how long to keep files 4 Dont expect uniformity among funder reporting requirements
61 VIII. Organizational Approaches to Asset Management 4 Staff, Board, Property Manager Roles 4 Paying for Asset Management 4 Integration with Housing Development Activities 4 Tools and Systems
62 Staffing and Paying for Asset Management 4 How much money do you need to cover your costs? 4 Who will do asset management? 4 Sources- out of project budget, organization budget, other sources of funding.
63 Integration with Housing Development Activities 4 Take development of operating budget seriously: –define on site staffing/ costs/ foregone rent –evaluate actual maintenance costs of similar projects and populations –build in asset management fee as an expense –dont underestimate needed reserve contribution
64 Integration with Housing Development Activities (contd) 4 Design with maintenance and utility costs in mind 4 Require developers to provide compliance charts as part of their scope of development work (whether in-house or out-sourced)
65 Integration with Housing Development Activities 4 Structure the right debt payment: Net cash flow needs to provide: –Cushion for variances in revenues and expenses –Cover any asset management, resident services or reserve contribution not included in operating expenses –Meet other cash flow expectations of your org. 4 For extremely low income, 1.10 debt coverage is not enough
67 Tools and Systems 4 Property Management Plan 4 Asset Management Plan 4 Capital Replacement Schedule 4 Asset Management Database 4 Project Binders
68 Wrap-up 4 Next Training: –Developing an Asset Management Plan and Dealing with Troubled Projects –January 14 and 15, 2002 4 Technical Assistance Request Forms 4 Thank you for attending! 4 Thank you for filling out evaluations!