Best-Practices-of-Asset-Management-Neighborworks-Part-One

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Nov 18, 2013 (3 years and 7 months ago)

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Best Practices of

Asset Management


Asset Managing Your Portfolio:

Presented by: David Fromm,
NeighborWorks® America

Creating Value as an Asset Manager


The top ten asset management tasks


Top ten indicators valued by asset managers


Most common problems in affordable housing


Most valued partnerships and why


How to get the most from your property
management firm


How to participate in pre
-
development as well as
workout/disposition strategies



NeighborWorks® America

September 2012

2

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3

1.
Tickler File/Planning
Schedule

2.
Operating Budget
Variance Review

3.
Balance Sheet
Review

4.
Portfolio Review

5.
Property Manager
Review



6.
Staffing the Board’s
Asset Management
Function

7.
Evaluate New
Projects

8.
Monitor Owner Fees
and Incentives

9.
Gather and Interpret
Key Data

10.
Initiate Work Out
Plans



Top Ten Monthly Tasks


1. Tickler File/ Planning Calendar





Annual Budget


Reports


Annual Audit


Tax Returns


Real Estate Tax
Agreements


Owner
obligations/loan
requirements/
warranties

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1. Tickler File/ Planning Calendar


Capital Plan


Income Certifications


Property Inspections


Corp. report to
Secretary of State


Contracts

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2. Operating Budget: Variance Review


Evaluate performance
against benchmarks


Revenues


Expenses


Make
recommendations in
MAJOR revenue and
cost drivers

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3. Balance Sheet Review


Changes/size of


Cash balances


Accounts receivable


Accounts payable


Reserve Balances


Ratios


Working capital


Current ratio


Owner

s equity


Debt to equity

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4. Portfolio Review


Pick ways to analyze


PUPY, PUM, PBR, %


Type, Location, Size


Monitor for compliance
(debt service coverage
ratios, cash flow)


Analyze trends


Link mission,
obligations and
opportunities

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5. Property Manager Review


Evaluate based on annual
management plan and
budget


Meet formally, monthly or
quarterly


Specific areas:


Financial


Compliance


Physical


Social (

double bottom line

)

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6. Staff the Board

s Asset Management
Function


Property and portfolio
performance against
Board’s goals


Economic performance
of properties


Impact of properties on
organization: $ +


Overall performance of
property manager


Current trends effecting
properties

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7. Evaluate New Projects


Realistic operating
assumptions: NOI


Design


Reserve requirements


Cash flow expectations


Debt structure


Reporting and compliance
requirements


Market conditions


Service programming


Fees: prop and asset mgmt


Staffing

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8. Monitor Owner Fees and


Incentives


Asset management
function often covered
by these fees


Communicate
expectations clearly to
property manager


Alert ED and Board to
any change in
projections

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9. Gather and Interpret Key Data


Public laws


Regulations and
programs


Real estate market
conditions and
opportunities (refi
opportunities)


Adequacy of insurance

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10. Initiate Workout Plans


Identify key players


Create plan


Identify

workout
team



Select workout
leader


Monitor progress



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Top Ten Indicators

1.
Debt Service
Coverage (DSC)

2.
Rent Increase
Implemented

3.
Cash Flow

4.
Compliance with
Annual Budget

5.
Stakeholder
Satisfaction





6.
Unit Turnovers on
Schedule

7.
Rent Collection

8.
Portfolio Review and
Board Requirements

9.
Capital Needs and
Reserve Balances

10.
Property Standards

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1. Debt Service Coverage (DSC)


Debt Service Coverage (DSC)


Indicates how well the property
can meet its hard debt
requirements. A DSC of 1.2 is
good. May be less in higher cost
markets


DSC Calculation = NOI/Annual
Hard Debt (Principal + Interest)


Key indicator tracked by investors
and lenders


Anything over 1.0 indicates
positive cash flow


Is a work out needed?


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2. Rent Increase Implemented


Rent Increases


Annual


On time


Track with pro forma


Increasing rents 2%
has TWICE the
impact of reducing
ALL costs


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3. Cash Flow


Cash Flow


Defined in partnership
and/or regulatory
agreement; definition is
not universal; good asset
managers hit the cash
flow targets


Often only source of
asset management fees


Often source of deferred
developer fees

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4. Compliance with Annual Budget


Annual Budget


Reflects annual financial
plan for the property


Review monthly or
quarterly, depending on
property


Make adjustments to
meet NOI target; don

t
wait until the end of the
year


Watch revenue and
expense changes with
greatest impact


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5. Stakeholder Satisfaction


3rd Party
Relationships


Accurate and timely
reports, budgets


Successful physical
and financial
inspections


No audit findings


No mortgage defaults


Positive resident
survey



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6. Unit Turnovers On Target






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Unit Turnovers


High turnovers increase
vacancy losses and increase
operating costs (double
whammy)


Slow re
-
occupancy is
unrecoverable revenue


Indicator of potential
problems:


Property condition/safety


Stiffer competition/more
attractive alternatives


Deteriorating economy


Poor management



Quick turns and low
vacancies add revenue:
occupancy is KEY


7. Rent Collection


Rent Collection


MUST be consistent, fair
and timely


Once residents get one
month behind, very
difficult to catch up


Create realistic collection
TARGET and check
collections weekly (even
daily) until in line


Bad debts are rarely
collectible and rarely
budgeted in pro formas

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8. Portfolio Review and Board Requirements


Portfolio Review


Analyze performance
and trends in entire
portfolio as well as
individual properties


May be meeting Board
goals for properties
but some stronger
properties could help
weaker ones


Goals for residents

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9. Capital Needs and Reserve Balances


Capital Needs and
Reserve Balances


Capital Needs Assessment
(C N A) is current and on
track with plan


Reserve and operating
balances in line with needs


Operating reserve target:
3
-

6 months of operating
expenses



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10. Property Standards


Property Standards


Curb appeal


Professionalism and
appearance of staff


Common area upkeep


Signage


Private area upkeep
(patios, balconies)


“Look Up” test



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Most Common Problems In Affordable Housing

The Market




The Financing



The Management




Physical Condition







Property not

competitive



Overleveraged



Subsidy and/or


other restrictions



Functionally


obsolete



Hazardous



Deferred


maintenance



Unresponsive



Combative



Not skilled enough

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Most Valued Asset Management Partnerships


Property Manager


Has most impact on a
day
-
to
-
day basis


Affects portfolio capacity
of the asset manager


If asset manager can not
handle 15
-

20 properties
because of property
management demands,
consider doing your own
management unless there

s
an independent resource to
pay for asset management.


Lenders & Investors


Best financial terms
don

t always make the
best partner; evaluate
long term compliance
and oversight
relationship & costs


Have significant
influence on your
reputation (pro and
con)

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Most Valued Asset Management Partnerships


Board of Directors


Set property goals


Evaluate disposition
strategies



Finance Managers


Negotiate property vs
organizational financial
needs


Housing Development
Staff


Influence new project
design, budget, staffing
plan, resident mix,
marketability



Other

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Getting the Most from Your Property
Management Firm


Understand what it
costs to operate a
property management
firm to better evaluate
whether or not you

re
getting your money

s
worth. 63% to 75% of
fee revenue goes to
support non
-
site
staffing, including
supervisory and
accounting.


Understand that a
management company
seeks long term
relationships. A
management company
loses money in the
first year, breaks even
in the second and
begins to make some
money in the third
year of a contract.



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Getting the Most from Your Property
Management Firm


The Management
Contract should detail
expectations of
management company re:


meetings,


overseeing capital projects,


reporting, staffing.


If you want reports
different than standard
reports, specify. If you
want a say in who the staff
is, specify.



Dealing with residents:
clarify how resident
complaints will be
handled.


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Getting the Most from Your Property
Management Firm



Meet monthly and have
a standing agenda that
includes



budget variance review,



resident issues,


capital projects,



upcoming
compliance/inspection
activities.


Walk the property and
look at all vacant unit



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Getting the Most from Your Property
Management Firm


Test early and often for
redundancies of effort
by property and asset
managers.


Appreciate that this is
very hard work and it is
very easy to fail.




Cultivate a long term
relationship(s). The more
you shop around and
make management
company changes, the
fewer

good


managers
will want to work with you.


Communicate,
communicate,
communicate.


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How to Participate in New Developments


Help develop

獴慮摡牤r


景爠湥眠潲w
redeveloped developments based on portfolio
experiences and best practices:


Number of units


Management and other fees (bookkeeping, asset mgmt)


Number of bedrooms/unit


Operating costs (per unit and as a percentage of
revenues)


Geography (property without a site office must be within
a 30 to 45 minute drive of another property)

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How to Participate in New Developments


Help develop

摥d楧渠i瑡湤慲摳


景爠湥眯
redeveloped properties


Site office location and size


Unit mix (what works in the market)


Materials used (durability)


Maximizing energy efficiency


Safety


Parking and trash removal (two major problems hard to
cure if you don

t get it right the first time)

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5. SKILLS REQUIRED


Ability to evaluate reports
of third party professionals
re: physical condition;
reasonably knowledgeable
about physical standards;
ability to identify and
prioritize maintenance
deficiencies


Ability to analyze property
documents (eg
-

be able to
determine mortgage loan
requirements and monitor
for compliance
)




Financial Analysis:
spreadsheets, comparisons,
variances; knowledge of
standards (pupy, pum, %)


Functional knowledge of
property management
operational benchmarks

5. SKILLS REQUIRED (cont)


Ability to evaluate adequacy
of insurance coverage,
exposure posed by
outstanding law suits,
potential claims not yet
filed (eg. Safety locks on
windows)


Ability to monitor third
party property contracts for
responsibilities, payment
schedules, deadlines, term,
default, termination
provisions



Knowledge of local real
estate market (be able to
evaluate ability to increase
rents)


Ability to monitor changes
in public laws that impact
property operations; follow
newspapers and industry
publications


5. SKILLS REQUIRED (cont)


Ability to comply with or
monitor compliance
accuracy and timeliness of
reporting requirements to
state and local governments,
investors, private and public
lenders. Also must monitor
completion and submission
of annual audit to
appropriate parties.


Understand property’s
position vis a vis an entire
portfolio



Ability to evaluate the
Property Management Agent
objectively within market
choices


Ability to determine whether
property results are acts
performed exclusively by
Property Management Agent
or other forces are involved

5. SKILLS REQUIRED (cont)



Ability to see a property’s
“big picture” by identifying
major cost and
performance drivers: not
just variances between
budgets and actuals


Ability to negotiate
performance standards
appropriate for property
and Board goals



Ability to motivate and
provide incentives to
Property Manager


Ability to summarize
analysis succintly, in
writing and graphic form,
and in person for Board


Technical skills to prepare,
usually with Property
Management Agent, annual
budget and capital schedule

1.




KNOW THY DEAL:





DEAL BOOK summarizes:


Structure of ownership


Partners


Fees & Incentives


Liabilities & Warranties


Sponsor guarantees


Structure of Debt


Compliance Requirements


Underwriting & Operating
Assumptions


Cash Flow Expectations


Key Dates


Cliffs


Disposition Plan



KNOW THY DEAL:



Sponsor


Developer


General Partner


Limited Partners/
Investors


Property Manager


Lenders


Regulators


Residents

KNOW THY DEAL:



Equity Sources


Low Income Housing Tax
Credits


Public Investment


Private Investment


Grants


Cash Reserves


Debt Sources


Banks


State Housing Finance
Agency


HUD


CRA pools

KNOW THY DEAL:




Partnership Agreement


Regulatory Agreement


Loan documents, promissory
notes and mortgages


Subsidy contract(s)


Programmatic contracts


Management Plan


Operating Pro Forma


Initial Budget


Multi
-
year Projections


Investment Pro Forma (sources
and uses)


Property Management Contract


Ground Lease (if applicable)


KNOW THY DEAL:




KEY document that
summarizes how asset is
projected to perform
financially


Identifies projected
benchmarks for


Annual rent increases


Modest annual operating
increases


Debt service coverage
requirements


Reserve funding


The End Game


Be pro
-
active: have an asset management
plan for each development


Know Thy Deal


Trend and re
-
project the pro forma every few years


Perform Capital Needs Assessments every 5 years


Monitor/manage investor capital accounts


they do!


Trend and re
-
project the pro forma every few years


Demonstrate to stakeholders that you are planning for the
future


Leave plenty of time to assemble the work
-
out team and
necessary resources



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