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Capital Improvements

»Capital Improvements

Capital Improvements

April 22, 2020| Lester Yat

Posted by adminlemus on April 13, 2020

What is an integrated approach in a capital improvement project?

“The foot bone’s connected to the leg bone. The leg bone’s connected to the knee bone….” Generations of children have learned this little anatomical ditty — but it’s a concept that carries beyond the familiar, and simplistic, “skeleton dance.”

Take, for example, your typical building. Whether it’s a single-family home, a townhouse apartment or a high-rise condominium, the structure is composed of connected elements. A homeowner, condo board member or apartment owner could easily update the childhood song: “The window’s connected to the side wall…”

In fact, that’s basically how a builder views those components: They are all related. So it’s not surprising that when a condo board or building owner asks a contractor about replacing a building’s 20-year-old, energy-inefficient windows, the response is likely to include a suggestion that it’s time to look at the siding, too. Replacing the roof shingles? Take a look at the gutters and downspouts that handle the runoff from the roof at the same time — and realize that this isn’t a ploy by the contractor to simply increase the size of the job.

Think about it: You don’t want cold air, or water, leaking in around the windows. And you certainly don’t want to see your beautiful new siding disturbed a year or two down the road when you decide to upgrade your home’s windows.  More than a concern about aesthetics, an integrated approach to dealing with siding and windows, for example, will ensure that the window openings are properly flashed and integrated with the house-wrap material. And all the time spent measuring trim, caulking and sealing the window and door openings can be done once, instead of repeated.

But, you say, you can’t afford to do the whole job at once! Even though you have a repair and maintenance budget, and even though your association had a reserve study done and tucks money away in the reserve fund every month, those major component replacements can be costly.

While it’s tempting to create a “to-do” list of replacement projects, and complete them one at a time as funds become available, that approach is not the most efficient for the building envelope — nor cost effective in the long run.

Fortunately, many contractors today are offering sensible, and affordable, solutions to the funding dilemma. If your association, for example, consists of several buildings, contractors might suggest doing an integrated siding/window replacement in stages; instead of doing all the siding on all the buildings, and then a few years later coming back to replace all the windows, you can set a schedule for doing both components on, say, 20 percent of the buildings each year for five years.

In addition to ending up with a better, more weather-resistant job on each building, you can probably get a fixed price now for the entire job — and avoid the prospect of higher prices down the road.

This integrated approach, incidentally, can be applied not just to siding and windows, or to roofing and upgraded gutters/downspouts, but also to other projects around your property. Consider landscaping: if you’re going to renovate the lawn, or replace hardscaped areas, take a look at your shrubs, trees, even at your irrigation system as well. Why dig up that nice new lawn a couple of years down the road in order to update that aging system?

Are Green Engineering options part of Reserve Funds?

Apartment owners and condominium owners need to prepare an annual budget, and a big piece that factors into the budget is the reserves.   The aspects of a condominium association and a homeowner association have different aspects to each and are not quite the same.

Reserves are integral to any entity’s budget because that is money saved for situations that tend to be sudden or unplanned, such as a construction project that comes out of nowhere. Such maintenance is performed less frequently due to low volume, but it does happen.

Reserves include funds for things like roof replacement, painting of building property, pavement resurfacing, etc.

The usefulness of reserves is that it offers a great planning tool, as long as managers and associations explore proactive options and show responsibility. For example, if a manager knows that a roof will need to be replaced in 10 years for about $100,000, then an annual budget of reserves would ideally contain $10,000 toward that eventual project.

As rules differ in certain states and associations, it is important for people who deal with budgets to be cognizant of not being delinquent in payments. That in turn could cause a cash flow problem down the line that could be detrimental to a financial landscape.

That brings up the question: how much should an association have in reserves?

The answer is that each apartment and condo is unique in its own right, notably in the problems or volume of maintenance that is needed. Aspects like size and location also impact how much of a reserve budget will be needed over time.   Though, there are factors that help mitigate how associations should determine their own budgets.

Some aspects include funding methodology, a five-year capital plan, proper budgeting and assessing, operating an account balance, proactive planning and fiduciary spending.

Then there is the reserve study, which is a comprehensive budget tool that consists of a financial and physical analysis of a particular community that aligns with its respective governing documents. The studies play a role in figuring out maintenance, repair and replacements; the amount of financial hardship or liability that can occur if there is not enough money saved to deal with potentially-hazardous situations can become a serious issue.

Reserve studies should be updated every 3-5 years.

Some would say the primary purpose of reserve studies are that they establish a guideline of fiscal responsibility and allow for entities to not put all their eggs in one basket, so to speak. They can save and spread out costs for major expenditures over time, making general spending more comfortable.

There are green engineering options that go hand in hand with reserves, such as the environmentally-friendly and proactive option of replacing wood fences with composite materials.

Green engineering, according to one engineering company, refers to three main areas: using art and science to create land development designs that are not only cost-sensitive and environmentally friendly, but also exceeding a client’s needs without degrading the natural surroundings of a premises; designing places for people to work, play and cohabitate; and working for both your own business entity and the environment.

The point is, managers must be aware of the overall budget but also note an asterisk next to reserves. Many unplanned things occur in the nature of a business, and rather than scrounge up leftover change from between couch cushions, being able to access stored money that was budgeted and planned is the most viable course of action.