By Richard Hirschman, ARS, Inc.

Every homeowners association should have a current reserve analysis to coincide with its annual operating budget. Following a (reserve) funding plan is crucial to preventing the three things reserve specialists don't like to see: a special assessment, deferred maintenance, or a sharp increase in reserve contributions. Interpreting a reserve analysis can be a daunting task, whether it's your first time or you have read many. They are long – can be 100 pages or more – have several summaries, graphs, and a whole lot of numbers that can confuse and deter any community manager or board member. But there are a few key factors to look for to understand one like a pro!

First, all reserve studies should have an Executive Summary.  This is usually one page and shows the report results as a percentage compared to 100% funded. It also shows the first-year funding plan shown in annual, monthly, and monthly per unit figures. Understanding the executive summary will help you know your community's current overall financial health – as it relates to reserves. Reviewing the executive summary with your board will usually focus the board’s attention very quickly because it can see how much money is recommended to be contributed into reserves annually and monthly. The board will immediately compare that to what it is currently contributing.

Second, look for a summary sorted by the year of replacement; in our reports, it is the Annual Expenditure Detail (sorted by description). This summary sorts each component by the component’s year of replacement over 30 years. Summaries are an excellent tool for managers and the board because you can look at upcoming years and see how much money is projected to be spent out of reserves and what components are recommended to be replaced. For example, if a community's roof is recommended to be replaced in 2023, the manager and board can start preparing for this expense by getting bid proposals and inspections as needed.

Third, you want to examine the Projections page. This page shows the recommended funding plan over 30 years. It also contains other vital information such as projected beginning balance, annual member contribution, annual expenditure costs, launched annual ending balance, projected annual fully funded balance, and annual percent funded. This page is a great tool to examine the progress of your community's financial contribution reserve efforts during 30 years.

The last key factor to look at when interpreting a reserve analysis is examining the component detail section. This section looks at each component in the reserve analysis on one page. The component detail section is what drives the summaries (key factors) listed above. Each page in the component detail section has a title or component description, placed-in-service date, useful life, and remaining life, as well as a replacement year. It also shows the quantities, unit cost, future cost, a comments section, and a component photo.

Finally, ask for help! Your Reserve Specialist is specifically trained to help explain the results of the analysis and offer funding recommendations specifically designed to ensure every member of your community pays their fair share at any given time throughout the life of your community. And remember, there is no "one size fits all" for a reserve funding plan. Each community is unique, and a reserve analysis is designed explicitly for your community.

Richard Hirschman has been a reserve specialist practicing throughout Colorado since 2009. He is a past Chairman of the CAI Programs and Education Committee and is committed to helping HOA boards understand and communicate reserve studies to their communities. For more information, please visit his website at www.arsinc.com/colorado.

By Kacie Dreller, Haven Community Management 

Holding a seat on your association’s board of directors is a highly coveted role within community associations. The pay is amazing, board members are highly respected, and earning a seat on the board of directors requires significant campaigning to beat out the competition. 

Oh wait…none of that is true.

The reality is that potential board members are few and far between, unless of course there is serious discontent in the community or the threat of a significant assessment increase that is perceived by the membership as being unwarranted. Instead of leaping at the opportunity to participate, most homeowners are content to sit back and let those few poor souls serving on the board of directors handle the affairs of the Association. And we all know that those brave souls are most likely serving on the board of directors because they made the mistake of showing up to a board meeting to complain about something, which resulted in the well-known response of, “It sounds like you’d be a great board member.” Congratulations! You have now been appointed to the board of directors because you decided to complain about your neighbor’s landscaping!

Over the course of my career, I’ve heard the same handful of reasons why homeowners don’t want to serve on the board of directors: 

1.) “I don’t have time.” 

2.) “I don’t know anything about what it means to serve on the board of directors.” 

3.) “I don’t want angry neighbors banging on my door all the time.” 

So, how do we change this perception that being a board member is something that so few have the time for or the knowledge to be useful? 

My answer to this question is simple: Set a good example. Be a board member that utilizes the resources available to support the role. Show your neighbors that being a board member doesn’t require that you give up your hobbies or first-born child. 

How do you do this, you ask? Well, first, don’t spend hours of your time dealing with the affairs of the association. Use your association’s management company for the services for which the association pays. Don’t take on the work yourself and God forbid, don’t announce at board meetings that you have spent a significant amount of time working on a specific project that your management company could have handled for you! I frequently hear board members talk about how they don’t have time to do their full-time job because of board duties, yet they won’t let management handle the tasks in which they are contracted.  If you find that your management company isn’t providing you the support you need, then speak up and ask for change. Homeowners aren’t going to raise their hands to participate if all they hear about is how much work it is to be on the board of directors.

Second, make it known that the management company is the resource for answering homeowner questions. If a homeowner stops you on the street, shows up at your door, emails, or calls you, direct them to the management company for assistance. Doing so will eliminate the perception that board members must always be available to the membership, and it will also help homeowners understand that board members don’t have to be industry experts. Even if not fully true, stating that you don’t know the answer will go a long way in convincing homeowners that you don’t have to be an industry or neighborhood expert to be a board member. 

Lastly, if you know of someone in the neighborhood who would be a good fit for the board of directors, appeal to their self-esteem by asking them to attend board meetings to address specific needs in which the community is struggling. Making them a useful contributor to the community, before being asked to join the board of directors, will help build their confidence and understanding that if managed correctly, board member involvement doesn’t equate to a full-time job.

Kacie Dreller, CMCA®, AMS®, PCAM® is the Vice President of Haven Community Management. Kacie is recognized in the industry for her expertise in community management, professionalism, strength in leadership, and her desire to serve. Kacie considers herself to be a lifelong learner and is currently attending the University of Colorado to obtain her Masters of Science in Organizational Leadership degree. 

By Bryan Farley, Association Reserves - CO

After you are done ringing in the New Year, you are starting to get back into the swing of things and you plan on reaching out to vendors to ask for preliminary bids.  You notice that the preliminary asphalt seal coat bid is projected to be around $20,000, but your Reserve Study shows a $15,000 estimated (current) cost. Or you notice that the paint proposal is coming in at around $50,000 but the Reserve Study has an estimated $80,000 (current) cost. 

What is going on? Why would your Reserve Study professional show such different costs for an expense? The answer is due to the unpredictable nature of the projections. As the saying goes – “It’s tough to make predictions, especially about the future.” 

What can we do about it?

The goal of the Reserve Study is to offset the ongoing deterioration of a property. That means the purpose is not to make sure that the property has exactly $20,000 in year 2026 for the next asphalt seal, since the seal may cost more (or less) than what is projected on the Reserve Study, or the project may not even occur in year 2026! Rather, the Reserve Study will focus on the annual rate of deterioration. The way the math works, (assuming asphalt sealing occurs every 4 years), is: $20,000/4 = $5,000. That means that the asphalt seal deteriorates by about $5,000 a year; therefore, the client will need to offset that deterioration by putting $5,000 back into the Reserve account. Since costs may change next year, the client should anticipate that the $5,000/year number is just the ‘baseline’ amount needed. This means that if they are just putting away $5,000, then they are not factoring in inflation or the need to ‘catch-up’ if the Reserve account is underfunded. 

The Reserve Study will then make a funding recommendation, based on the National Reserve Study funding principles, that not only offsets this annual deterioration but also allows for the inclusion of inflationary pressure, deferred maintenance, and risk avoidance. When a Reserve Specialist makes a funding recommendation, it is with the goal to incur the least amount of risk for special assessments. 

How to Reduce Special Assessment Risk? 

Statistically, a property that is between 70% to 130% funded will have a less than 1% risk of special assessment, whereas a property that is less than 30% funded will have a 30%-60% risk of special assessment. Therefore, the funding goal is to target a 100% funding level at the end of a 30-year timeline. However, the question we always receive is – “Is it unrealistic to be 100%?” Our response is that the point is not about achieving a specific percentage number, but rather fund the reserves to be in a specific range.  

 If a client is funding with a 50% funding goal, then a large increase in costs or supply issues in 2025 may severely deplete the reserve account. For example, a $20,000 increase in the asphalt seal cost may now drop the percent funded by 20 points, putting the property in a high-risk position of special assessing their owners. 

However, if we are targeting a 100% funding level, then a 20 point drop still leaves the property at a low-risk position, or around ~ 80%. 

Therefore, the way to reduce special assessment risk is by continually contributing funds into the Reserve account. This needs to happen every month of every year. It is as important as any other bill that the property needs to pay for. 

How does the property know what the right amount of money is to contribute?

It is by commissioning a professional Reserve Study!  The Reserve Study will guide the property to hedge the risk of special assessments by continually putting proper reserve contributions into the reserve account to offset ongoing deterioration. We argue that if you take care of the payments of the ongoing deterioration today, then the funds will be ready to go in the uncertain future tomorrow. Therefore, instead of thinking of the Reserve Study as a magic 8-ball, think of the Reserve Study as a planning tool that helps your property offset current annual costs of deterioration. Every one of your assets has a bill, however, not every bill is ‘due’ at the end of the month. Some bills may be due in five years, while others will be due in twenty. The Reserve Study will show your owners that even though the cost of the project will not be paid for in another twenty years, there is still a monthly cost that must be paid for now. This way, every owner, (not just the owners who happen to live at the property when the project occurs), will pay a fair and equitable distribution of the costs of the property’s assets. 

Bryan Farley is the president of Association Reserves - CO and has since completed over 2000 Reserve Studies and earned the Community Associations Institute (CAI) designation of Reserve Specialist (RS #260). 

By Gail R. Gudder, Moeller Graf

In the technologically-driven culture in which we now live, the question arises as to what is required of volunteer leaders as far as staying educated about all the technology options available?  The flip side of that question, of course, is the question of security and privacy that can arise from taking advantage of the many technological resources.  These questions have become even more pertinent in the past year and a half as the pandemic pushed meetings online and forced managers to go remote. This article will briefly examine the obligations of HOAs to provide technological education for its Board of Directors and Owners.  

Board of Directors

The Colorado Common Interest Ownership Act (“CCIOA) C.R.S. §38-33.3-209.6 provides a means of financing Board education using common assessments.  This provision governs the content of such education but does not make such education mandatory.  In order to get reimbursement using common assessments, the CCIOA requires that the educational meetings and seminars be related to responsible governance of the Association, be specific to Colorado and make reference to the CCIOA. 

Looking at §303(2), the declarant appointed Board members are required to exercise the care required of fiduciaries.  The Board members that are not declarant appointed are not held to this same high standard of care and (for “full CCIOA” communities) will not be liable for acts or omissions made within the scope of their Board duties unless the acts or omissions are wanton or willful.  Added to this is the Colorado Revised Nonprofit Corporation Act (“Nonprofit Corporation Act”), C.R.S. §7-128-401(1), which requires that volunteer leaders discharge their duties in good faith with the care of an ordinarily prudent person and in a manner believed to be in the best interest of the nonprofit corporation. 

So, what does all this mean when considering technology education in general and in a post-pandemic world? Likely, it is no longer acceptable for Board members to remain resistant to online meeting tools such as Zoom, Google Meet, or Microsoft Teams.  We have found that virtual meeting platforms have made Board and owner meetings much more accessible during the pandemic, to the point where we question whether it is prudent to disregard the ability of a group to hold virtual or hybrid meetings even when it’s not necessary. Luckily, these applications are extremely user friendly and relatively secure.  The pandemic has caused Board members to become more adaptable and tech savvy.  

Other technology that could be valuable for Board members in their responsible governance of the Association:

• Website building applications are essential for creating and maintaining an association website where governing documents, announcements and notices can be posted.
• Email programs are also essential for 21^st Century communication with Owners and Managers. We generally recommend a cloud-based email program for volunteer leaders’ emails, as opposed to comingling association emails with the volunteer leaders’ private, business, or other email accounts. 
• Social Media sites can be used for connecting with Owners and disseminating information. It is important to recognize that platforms such as Nextdoor have been routinely accepted by owners as a source of credible association information, which may or may not be the case in any given circumstance. We typically don’t encourage volunteer leaders to monitor social media platforms to ensure accurate association information due to the time commitment involved and general impossibility of doing this effectively-- but we do recommend that it is made abundantly clear to owners that they are welcome at open board meetings and would be well served to fact check issues with the board or management team before posting on social media.
• Microsoft Word and Adobe Acrobat are important for creating notices and other documents.
• There are countless other products that can be used in the responsible governance of an Association. 

When choosing what products to use, Boards must be cognizant of security and privacy requirements as well as the cost to adopt and the cost to learn.  Clearly, all members of the Board do not need to be educated in all the products that are adopted, but the primary user should have a good working knowledge of the tools used. 

A final issue that may arise in connection with Board member’s education is the expertise of management companies hired by Associations.  Under Colorado law, association managers and management companies are currently not required to be licensed and therefore don’t have continuing education requirements for licensure.  However, in order to stay competitive, managers are well served to be, and largely are, very tech and technology-security savvy.  While the Nonprofit Corporation Act §401(2) specifically states that directors or officers are “entitled to rely on information, opinions, reports, or statements … prepared or presented by” a variety of experts, this provision does not absolve the Board members of their ultimate duty to manage and make decisions for the governance of the Association. 

Owners

The CCIOA §38-33.3-209.7 sets forth the requirements related to Owner education.  This provision includes a mandate that is not present in the Board education provision and states that the Association shall provide, or cause to be provided, education to Owners at no cost at least once a year. The provision goes on to state that the Board is to determine the criteria for compliance with this section.  There is little guidance in the CCIOA pertaining to this requirement. This section of the Act provides that the education must address “the general operations of the association and the rights and responsibilities of owners, the association and its executive board under Colorado law.”  Technology education could fall within the “general operations of the association” language.  Examples of technology training that might be offered to the Owners are:

• Training on the capabilities and navigation of the Association website and social media pages.
• Accessing governing documents, meeting minutes, and other administration documents.
• Training in making electronic payments. 
• Conferencing applications for attending Board and Owner meetings.
• Training in using the resources available on the Colorado Department of Regulatory Agencies Website.
• Training in attending webinars and other online education. 

As with the education of the Board members, the Association must keep in mind the security and privacy issues of providing these educational opportunities, as well accessibility to Owners who do not have access to the necessary technology.  

Conclusion

When carrying out their duties to the association, the members of the Board must consider how best to educate themselves and provide education for the Owners.  The lessons in the pandemic, we believe, show that using technology to include owners in association operations has been extremely helpful and has resulted in easier and more robust participation on the part of the owners. We hope the lessons learned during the pandemic with respect to the use of technology can continue to foster a lower-cost exchange of information and greater participation by the owners.

Moeller Graf was founded in 2005 by Tim Moeller and David Graf. Both partners have been practicing for 20+ years. David Graf is nationally recognized as a leader in the community law space with a heavy emphasis on educating others. Tim Moeller has dedicated extensive time to legislative groups who lobby on behalf of improving the HOA experience and outcomes. The firm currently employs eight additional attorneys, all with a diversified skill set ready to tackle the challenges that any situation may bring. The firm has dedicated its practice solely to representing the entity of Common Interest Communities. The practice is a full-service firm within community law focusing on; transactional, litigation and collections/recovery work. The firm currently has two locations in Colorado and is seeking additional regional expansion in the coming months. The client and manager experience is at the forefront of how Moeller Graf believes it is differentiating and defining itself as a premier provider of community law in Colorado.  

By Clint Larson, Saddle Rock Security

For decades now, we have been able to use proximity cards, keys, or codes to open a locked door.

Cards have had some advantages over keys and codes, but those advantages have disappeared.  It is very easy to copy these cards, just like you would a key.  Once the keys or cards are copied, then you lose control of who has access to the facility.

Today there are smart access control systems that give you the ability to utilize smart phone technology to authorize and grant access directly from the phone.  Rather than turning on your phone, opening the app, and then clicking on the app to open the door; you can leave the phone in your pocket or purse, and then wave or touch the reader to activate the door.

So what?You can use your phone - how will that help?  These systems are cloud based, in other words they are connected to the internet, but again, so what?

Well, once they are connected to the internet, you can start to connect them to other connected products. 

What would you be able to do if your access control system was connected to the property management software?  How about a reservation system for the club house or pool? How about cameras or lights?

Let’s look at a couple of items, like club house reservations and property ownership transfers.

How do you handle access now? What if someone loses the key/card, or gives out the code? How do you get the clubhouse key back, or how often do you change the code?  What if someone moves into the community, and they want access to the pool the same day?  What if you have 2 or 3 reservations on the same weekend?  Who is responsible for the cleanup if there is a mess?  How would you limit the number of people at the pool or gym? How do you address package delivery or vendor access?

With a smart system connected to other services, these questions are easily addressed.

Connecting to the management software then allows you to control who has access to the pool, let’s say.  So, if the owners wanting access to the pool are delinquent or have an outstanding violation, then access would be removed (in accordance with the governing documents and policies).  Once the delinquency was corrected or the violation satisfied, access would then be reinstated.  This could all be done without any intervention by the manager or anyone else.

With smart access controls, you have the ability to enable a self-service reservation portal for residents.  Users would then be able to schedule the date and time they wanted, receive access to the clubhouse during their reserved time slot, all without talking to the management company or having to deal with keys, cards or codes.  With this type of system in place, you could accommodate more reservations without the worry of double-booking the space.

For vendors, you can schedule them for specific times, or they can call in when they are on the property and the manager can remotely open the door from anywhere, or you can provide them with a self-service vendor portal where they can manage their own access.

You can also connect cameras to smart access controls to record a quick video clip of who opened the door once it’s activated.  You also have the option to have lights activate when the door is opened. 

With the Smart access control systems that are now available, you can throw away your keys and fobs!

With the utilization of smart phones, you will receive better control and reporting, especially since people are less likely to let someone borrow their phone to go to the pool, then they are to loan a key or card.

Cloud-based reporting is part of some smart access controls systems that gives the manager and the board better insight as to who and when the facilities are being used. They can now find out exactly how many people are using the pool, gym, or clubhouse.  They can find out what time of day and how many times a day it is being used, or how many times it is being used in a week or month.  With this type of information, boards can now make more informed decisions about expenditures and upgrades to the existing facilities.

Clint Larson the CEO of Saddle Rock Security has more than 20 years of service to management companies, managers, boards, and communities. For more information, please reach out to clint@saddlerocksecurity.com. 

By Ginny Campbell, CAI-RMC Editorial Committee

We all know it’s not so fun to spend money on those pesky community projects that don’t have a big wow-factor. The pretty projects are fun, but predictive maintenance is often the most valuable.  It can be much less stressful for leadership to avoid maintenance topics that create tension among your community members.  It might even be popular to side with a frugal board and defer larger repair needs.  But as good stewards of association funds, is it always best for managers and board leaders to put off repairs, in hopes of keeping the peace?

One HOA board president thinks it is ot.  For this article, we will call her “Jane.”  Jane is the president of her community’s association, and she has seen what happens when delayed routine maintenance becomes a million-dollar+ emergency in a matter of years.  The problem was their 443 elevated decks, staircases, and walkways in her community.  Many of these were shared spaces between units. Water intrusion and general wear were ignored for years, finally amounting to a massive effort to coordinate the repairs with urgency.

Prevention would have been simple enough:  Route downspouts to avoid water intrusion, perform deck repairs early on, tackle the appropriate coating and caulking maintenance yearly.  When finally a realtor posed a lawsuit threat due to injury while onsite, the community took note and responded.

“The general mood about the deck repairs was negative,” Jane says. “People did not want to pay for repairs.  We heard quite a few owners say that they could fix their deck in an hour, or knew someone who could.  After hours dissecting community by-laws and declarations, it was decided that homeowners did not have the right to hire anyone to work on limited common elements without board approval. 

Jane explains the process almost like five stages of denial (and finger-pointing) before real progress was made.  The community did not trust the board to handle such a large project, and asked that they form a committee of non-board homeowners.  This new deck committee ended up being key in convincing the owners that repairs were needed, and MUCH sooner than later. Multiple unbiased vendor bids and observation reports were vital in educating the homeowners. 

Multiple payment options were entertained, including a second monthly assessment.  This was rejected due to the time it would take for funds to accumulate.  A large loan option was suggested, and in the end, thatwas the best way to finance the project.

Due to the amount of shared community spaces, it was decided for everyone to share costs evenly, as opposed to individual homeowners paying very different amounts per household. Almost a year into the project, Jane says, “People have accepted the project, but we do have those who still believe that ‘their deck was fine.’  The decks throughout the community were in many different stages of disrepair, but every one of them needed work.”

Financing gave owners two options: 1) pay one lump sum of roughly $5,600 per household with no interest, or 2) finance over 5 years, adding $110/month to their regular monthly dues.  “Out of 254 units, we had approximately 80 pay up front.  Those who paid up front actually helped those who financed, because we ultimately borrowed less money, lowering the interest owed.”

If she knew then what she knows now, Jane would have done things a little differently:

“First step, get non-boardmember homeowners involved immediately.  When a board starts to think about a big project, this is the time to engage homeowners and understand community bylaws.  This gives people more confidence that the board does not have an ulterior motive.”  

“Next, make sure you have a management company capable of handling multiple bids and financing.  We did not have good management for the first two years of the project, which delayed progress and ballooned the scope.” Underqualified management puts too much responsibility on the volunteer board members, and impacts the mood and opinions of owners.  “Think about it like this: if your management company can't handle small work orders, they surely cannot handle the massive projects.”

Finally, be transparent.  Negativity spreads like wildfire. Jane tells us that even one small indication that information is being withheld is enough to create discord. “Not every single thing needs to be disclosed, but keeping everyone abreast will help a lot.”

She also suggests that when homeowners say they know a company that can do a project cheaper, don't immediately say no. Have their referral contact the management company directly to determine if the project fits their insurance and manpower abilities.  “Some companies never reached out to our management at all. This was a very small thing that spoke volumes.”

This is a common tale among communities like this.  Band-aiding the problem is often the easy way to go, but having a predictive mindset can save your association hundreds of thousands of dollars in just a matter of years.  Imagine how far those extra funds can go when a great leadership team helps align the community with the bigger picture!  Strategic planning, predictive maintenance, and investing in repairs early will always amount to a better use of the association’s budget, allowing you all kinds of wow-factor opportunities down the road. 

Ginny brings a broad background in multifamily services to her role at Denver Commercial Property Services, building relationships between homeowners and contractor partners. She stays busy outside of community association work with her three kiddos, a passion for live music and outdoor fun.

 

By Jessica Towles, CMCA, AMS, PCAM, Hammersmith Management

Owners and Board Members across the country have been shaken to the core by the tragedy at Champlain Towers South in Surfside, Florida.  It is hard to believe it was several months ago.  As with all disasters, time will continue to pass.  We will change our vernacular from “months ago” to “earlier this year” to “last year” to “several years ago,” and with those changes, the fear will fade further and further into the past.  More likely than not, we will again become complacent.  Keep reading for lessons you can take from this tragedy to help your communities today. 

What lessons can we take away from the building collapse at Champlain Towers South?  

#1 – Do the right thing even when no one else is doing it.

It is completely human for us to want to return to a place that feels "normal" and to want to reestablish our routines.  It is also human for us to stop pushing specific issues or discussion points after being told no over and over again.  As Board Members and Community Association Managers, we often receive pushback when raising assessments, discussing major structural repairs, and making recommendations or decisions that benefit the greater good but may be temporarily painful.  We have to be vigilant that our return to normal includes a continued focus on best practices, following our fiduciary responsibilities, and heightened awareness around our aging communities and infrastructures. 

#2 – Ask questions.

There are no stupid questions. If you're concerned about building safety, cracking, the reserve study for your building, an engineering report, etc., – ASK questions.  Are you a Board Member?  Ask your manager to set up meetings with the appropriate business partners to help break down issues or reports.  Ask to do a physical tour.  Are you a manager?  Talk to your coworkers, ask your supervisor, talk to your business partners.  And my number one recommendation for any manager is to be curious.  If you haven't seen a particular issue before and have someone come out and look at the situation, join them, bring a notebook to take notes, and ask questions. Not only will you learn more about the specific problem, but you will also gain knowledge about the physical components of your building(s).  Knowledge is power.  Ask questions so you can make knowledge your SUPERPOWER! 

#3 – Know your Reserve Study.

Undoubtedly, having a Reserve Study helps minimize Board Member liability, assists in long-term planning, and helps provide transparency with your community membership.  It is just as important to read, review, understand this report, and plan to implement the recommendations it presents.  Your Reserve Study is an essential tool that sometimes contains bad news.  Either a building component is failing sooner than initially anticipated, or your funding needs have changed, and you need to increase how much the Association is putting into reserves.  Regardless of the situation, your Board needs to plan to address the issues, so the community is in the best position possible in the long run.  It isn't mandatory to raise your assessments 150% when you have to increase reserve contributions drastically.  You can plan to increase the contribution incrementally over a few years to meet the community's long-term needs.  However, your Board chooses to get there, the most critical piece is communicating the plan to your owners! 

#4 – Budget appropriately.

Many line items within the Reserve Study will have both operating and reserve line items.  For example, concrete repairs might be performed annually or semi-annually based on inspections and reported issues.  If a particular piece of concrete heaves or becomes a trip hazard immediately following that year's phase, do you wait an entire year or 24 months before repairing it? No.  It would be best to have funds set aside for those repairs either in a general maintenance line or a specific concrete operating line.  

In addition to ensuring you have the appropriate operating and reserve lines planned for, you need to budget appropriately for all of your operating expenses.  Sound financial planning begins with expenses.  Determine the needs and desires of the community members to determine the level of service you will provide to the community.  Has your Association always pulled weeds from your plant beds weekly?  Changing that to monthly may save money in the landscape contract, but what are the unintended consequences? Once you've determined the expenses, you can then calculate your assessments.  Labor rates and materials continue to increase.  It often is not reasonable to have a zero increase in assessments year over year. You will have to cut services in some areas to accommodate increases in others.  That often leads to deferred maintenance and reduced curb appeal. 

If you are interested in additional resources on Aging Infrastructures and our Fiduciary Responsibilities, please visit www.caionline.org/CondoSafety. 

Jessica Towles, Vice President of Community Management, has been in the community association management industry since 2000 with experience maintaining all aspects of community associations and management company administration, including facilities management, financial management and customer retention. In addition to her role with Hammersmith Management, Inc., Ms. Towles currently serves on the Community Associations Institute (CAI) Board of Trustees and is the 2021 President Elect. As a member of the National Faculty for CAI, specializing in the M:100 The Essentials of Community Association Management, she is well equipped to provide continuing education and leadership development to staff, board members, and owners. Ms. Towles ishonored to have received CAI’s Rising Star Award at the National Conference, as well as the Barbara Wick Award recognizing her work both locally and nationally to improve our industry and profession.

By Karl Mertens, M.S., P.E., Knott Laboratory, LLC  

Property managers have a fiduciary responsibility to property owners to retain professionals as needed to help maintain the health of a property. Engineers can be an integral part of this team as they hold an over-arching responsibility to protect the public, specifically if hazards develop in buildings.

The confidence an owner places in an engineer should be backed by thoroughness during the site visit where an engineer uses a similar methodology during every facility condition assessment to document any issues previously known or unknown. After a problem is identified, it is the responsibility of an engineer to consider the severity of the problem. This extends beyond the obvious and immediate issue and reaches into second order thinking about what is contributing to the issue, what future issues will this cause, does it repeat at areas that are not visible, does it need to be addressed immediately, and what impact will this have on the owner and/or occupants of the building. As such, raising a life safety concern about an immediate structural failure is a last resort for engineers and is only used to protect the public from harm.

However, it is possible to prevent a building from reaching the uncomfortable discussion of life safety that neither the engineer nor the owner desires to have.  Much like an annual health care checkup where physicians monitor your health for any changes or indications of a declining condition, regular engineering checkups are extremely valuable in early detection of problems.  Typically, any declining condition caught early is much easier to address and provides more options for treatment. When detected early, the problems are generally less extensive and less costly to maintain. This can be achieved through maintenance and monitoring the condition of the facility over the service life of the structure. As buildings age, unaddressed problems begin to compile, increasing the risk of structural issues, failure and certainly the cost of repairs increase. These increased risks and costs are minimal at first, but typically grow exponentially as time passes when not accounted for.

As such, maintenance and monitoring have multiple elements to consider:

• As an owner and/or property manager, know your building. If you see something that has changed (cracking, water infiltration, etc.), investigate it. If the problem is not obvious, call an expert.
• Any fiduciary to a building owner, such as property managers or HOA boards, should be doing their best to anticipate and expect maintenance costs with buildings.  As buildings age, more maintenance costs should be planned for. An engineer can be a valuable fiduciary for the property owners and managers by working to help establish maintenance programs and early detection of problems. It is much easier to execute repairs if the cost has already been considered.
• Has the usage of the structure changed? If the answer is yes, it is in the best interest of the owner to seek an engineer’s opinion on how this affects the structure. A change in loading may cause issues that an engineer can help identify. In addition, buildings are designed based on the currently adopted building code at the time of construction. Therefore, depending on the age of the structure, code requirements may have changed. However, even if code requirements have changed, the building does not automatically need to be upgraded. There are provisions that allow a structure with adequate performance to remain “as is.” It will be the engineer’s task to walk an owner through any requirements.
• Provide routine evaluations of your structure with a report. While every five years is recommended, as a building ages, increased frequency may be needed. This will create a history that can easily be passed between different individuals caring for the building. Upon receipt of the report, request to have all photographs added to your file. This history (written and photographic) will be invaluable if a future problem arises, as it could lead to before and after documentation of a troubled area.
• There are consequences if maintenance recommendations are ignored. Some items can be cosmetic in nature and will not cause issues if they are neglected. However, not every problem is cosmetic, and if the non-cosmetic problems are ignored, they will eventually force a repair and/or failure. If it reaches this state, the best-case scenario is a costly and invasive repair and the worst-case scenario is a failure resulting in fatalities.
• Considering the Surfside Condominium tragedy, serious conditions were identified prior to the collapse.  Unfortunately, this information was not effectively acted upon. While it is not my intent to assign fault, we can take away some lessons from the inaction. As a property manager, you should make sure to ask questions and fully understand the language presented in an engineering report. If unclear or if the risk is not fully understood, ask additional questions. Similarly, engineers need to work at communicating facility conditions in a manner that can be interpreted simply and with associated risk factors that owners and property managers can understand.

As outlined above, regular maintenance is vital to the performance of a building, especially as it ages. Thus, when establishing a fiduciary relationship between both property owners and property managers, an engineer can be a valuable asset.

Karl Mertens is a Structural Engineer that oversees Facility Condition Assessments for Knott Laboratory. Karl has a wide breadth of structural engineering experience including high rises, medical facilities, hotels, condominiums, higher education buildings, k-12 schools, public works, and new construction/remodel of residential homes/townhomes. Karl enjoys spending time with his family, exercising, and being outside.

By Chris Baker, FRONTSTEPS

First-time homeownership surged after COVID-19, fueled by pent-up demand and historically low mortgage rates. Many of these homeowners are young and will own homes for decades. Their loyalty is enormously valuable to management companies, but it won't come easy. Young consumers are tech-savvy, independent, and impatient. Modern tech is increasingly important in creating the community experience that residents crave. In my conversations with management company executives, they increasingly stress the importance of putting tools into homeowners' hands to manage community living on their schedules and at their convenience. Failing to meet the technological needs of young homeowners could prompt resident turnover and detached, disengaged homeowners.  

 

Here are three homeowner expectations that we see discussed in the marketplace: 

  

Social Connection – Millennials are the first generation with social media embedded in their personal and professional lives. This generation is motivated to stay connected and updated with news, trends, and viral media. 36% of millennial users say they use social media to get their news. It's no surprise they're looking for the same connectivity when becoming a member of an HOA. These homeowners want information on their community 24/7; they want to self-serve and have the convenience of getting things done on their own time. These types of users take advantage of updating their profiles, viewing and joining events, reserving amenities, submitting work orders, and submitting payments. In turn, all these actions completed by these tech-savvy consumers help and provide value to management companies. Providing consumers this type of important information on a unified platform will set communities apart moving forward.  

  

Simple Payments – eCommerce and online banking have been on an upward trend for years, and the pandemic accelerated that shift. Today, 71% of banking is completed online, and 43% of transactions are done on mobile devices. Consumers expect secure and straightforward options when it comes to paying for goods and services, in all aspects of their lives through their HOA. For communities, this means offering solutions that include instant access to upcoming bills, the ability to pay with a few taps, and a log of historic payments for peace of mind. Association boards also benefit from this shift, because it gives them better visibility into theirfinances, provides recurring payment options for consistent only time dues, and helps track delinquencies.  

 

Secure Communities – This past year we saw online shopping grow by 25%. Consumers want their shipments quickly, but more importantly, securely. Many software companies offer security options for homeowners so they can they track these important packages after they have entered communities. These types of features become essential to homeowners living in condominium or high-rise communities. Homeowners can take security measures while sitting on their phone at home, by issuing guest passes to those who need access into the community, etc. All they have to do is enter a name and phone number, and that guest is given a QR code to access the community. 

   

Offering knowledge, communication, and ease of usability will ultimately give these businesses the competitive advantage they're craving. Management companies should focus on working with software companies that appeal to the new expectations of young owners. Mobile apps are good for business, they move more transactions online meaning less overhead, better reporting, and less effort to scale operations. By adopting and enhancing the software provided to homeowners, they’re increasing their chance of securing loyal, long-term residents.  

^{“Chris Baker is the Chief Sales Officer at FRONTSTEPS.  Chris  has been working with the Community Association Management  industry for over 10 years and he’s an expert on helping Management Companies optimize their business with technology. His mission  is to help your company grow faster, reduce expense and do more with your existing resources.”} 

By Aaron J. Goodlock, Orten Cavanagh Holmes & Hunt, LLC

In the wake of the Surfside condominium catastrophe, many communities are grappling with how to address risks associated with aging and deteriorating infrastructure. Among the many lessons learned, the importance of deliberate and long-term financial planning and the avoidance of deferred maintenance may be one of the most paramount. 

Boards of directors are routinely faced with prioritizing and balancing various interests when it comes to utilization and preservation of association funds and resources. A variety of factors, including pressure from owners, can influence the decisions that boards make in terms of establishing and maintaining adequate reserve funds, the frequency of conducting reserve studies, and undertaking (or deferring) capital maintenance and repairs. 

The magnitude of the Surfside tragedy underscores the importance of commissioning regular, comprehensive reserve studies. Prudence dictates that such reserve studies must necessarily include an inspection and analysis of the physical structures/components as well as major mechanical equipment and systems (e.g., building foundation and structural elements, HVAC and boiler equipment, drainage facilities, utilities, elevators, fire suppression systems, etc.). Engaging professional reserve specialists, engineers, and others to regularly inspect the various structural components and central mechanical systems helps to protect associations and communities from experiencing disasters similar to Surfside.

However, simply having a reserve study performed is not sufficient. Associations must be proactive in addressing and correcting problems and concerns identified in the reserve report and setting aside necessary funds for future replacement and repairs. Associations would be remiss not to heed the professional advice of reserve specialists, engineers, etc., with respect to repairing and replacing aging, deteriorating, or damaged infrastructure. Boards that ignore or fail to adhere to such advice can put the association and the community at significantly greater risk. Alternatively, boards of directors that engage professional advisors and listen to and follow their advice substantially reduces the risk of liability.

The healthiest and safest communities (i.e., those least likely to experience disaster, get hit with large special assessments, or face significant potential liability) are also those that actively plan for the repair and replacement of aging infrastructure by: (1) establishing and maintaining fully-funded reserves (commencing after the initial construction by the developer/builder is complete); (2) periodically conducting and updating reserve studies (ideally annually); (3) budgeting for and performing regular maintenance to preserve (and possibly extend) the remaining useful life of capital assets; and (4) avoiding deferred maintenance.

The current regulatory framework in Colorado is extremely lax in terms of physical inspection requirements and/or mandatory reserve funding. There are no statutes in Colorado that require associations to undertake regular inspections or put aside funds for future repairs or replacement. Accordingly, it’s incumbent on boards of directors, as fiduciaries, to assume such responsibility and ensure that the property is regularly inspected and adequately maintained. 

Despite the lack of statutory requirements, associations and boards should strive to maintain fully-funded reserves, continuously assess maintenance needs, and diligently perform regular and routine maintenance. To accomplish these objectives requires active board member engagement and owner communication regarding community needs and expectations. The association’s reserve study report, reserve specialist recommendations, and budgets are useful tools to educate owners about the importance of maintenance and financial planning. 

A crucial element with respect to maintenance is to avoid unnecessary or prolonged delay. If damage is identified during an inspection or otherwise, the association should take prompt steps to fix the problem and make any necessary repairs. Depending on the nature of the problem, repairs can be funded and paid for from the association’s operating or reserve funds. If there are significant structural concerns and the association does not have adequate funds to pay for the repairs, the association should consider alternative funding options such as a special assessment or obtaining a loan, and increasing the association’s budget to meet ongoing operating and maintenance expenditures, as well as replenishing and funding future reserves. 

Lastly, safety – not frugality – is key. The safety and integrity of the community’s buildings and infrastructure must take precedence over any contrary desire to minimize assessments. Sacrificing maintenance and repairs puts associations at substantial legal and financial risk. Conversely, investing in regular upkeep and improvements will have numerous positive impacts, such as increasing the marketability and property values in the community, which is both advantageous to owners and desirable to future, prospective buyers.  

Aaron J. Goodlock is an attorney at Orten Cavanagh Holmes & Hunt, LLC.  He provides general counsel and transactional services to community associations throughout Colorado.