New Economics Means New Strategies for Condominium Reserves
Bob Burns, P.E., R.S.
Faced with our new economic priorities, capital reserve planning for condominiums can become somewhat of an endangered species. The continuing upward spiral of energy cost is placing unforeseen strains on the operating side of their budgets. Vendors, of course, have no choice but to pass along their increases in costs for fuel and material to their customers. On the income side, homeowners are themselves looking for ways to reduce their own costs. Driving their cars and heating their homes has created a new set of priorities for them. They are not happy candidates for increases in condominium fees. As the pressure on operating costs increases, condominium management can be tempted to divert to the operating side what formerly had been contributions to the reserve account. It’s sort of like robbing reserve to pay operating. But those roofs and roads are still going to need to be replaced on their own schedule, oblivious to the economic crunch. The future still needs to be planned for because deferred maintenance invariably leads to reduced property value. Now more than ever, preparation of a capital reserve study by a credentialed professional to maximize performance of the common elements is essential. Tighter economic restraints call for closer collaboration between condominium management and the professionals who advise about how to sustain the quality of their primary assets. The emerging key to achieving sustainability of assets is closer involvement of management in the preparation of capital reserve studies than has previously been the case. Maximizing performance through collaboration pays dividends. Some boards, particularly those of smaller associations, understandably feel that the fee for a professional reserve study is something they cannot justify when budgets get tighter. Fortunately, there is a way to engage the services of such a professional at a reduced fee. It's called a client-assisted reserve fund study. Using provided guidelines, the client assists by doing the on-site field work - providing the benchmark data about the physical assets of the association. The reserve specialist then analyzes the data and produces the work product. It will detail when common area components need to be replaced, what the costs will be to do so, and what contributions from the memberships are needed to support the plan. The work product of our firm is an interactive electronic one that allows unlimited testing of future changes in funding strategies. A certified reserve specialist is always available for consultation during the preparation of the study.
