DEPRECIATION REPORT. Sonoma Pines

Transcription

1 1 DEPRECIATION REPORT Sonoma Pines ADDRESS: Sonoma Pines Drive Westbank, B.C. PREPARED FOR: Sonoma Pines Home Owners Association c/o Associated Property Management 1441 St. Paul Street Kelowna, BC V1Y 2E4 Prepared By: D. Allan Beatty, AACI, P.App February 20, 2013

2 2 February 20, 2013 Sonoma Pines Home Owner Association c/o Associated Property Management #1441 St. Paul Street Kelowna, BC V1Y 2E4 Attention: Mr. Robert Zivkovic, Strata Manager Dear: Mr. Zivkovic Re: Depreciation Report - Sonoma Pines Sonoma Pines Drive, West Kelowna, British Columbia Pursuant to your request for a Depreciation Report, I have prepared the attached document for the consideration of Sonoma Pines Home Owner Association. This Depreciation Report, also commonly known as a Reserve Fund Study, describes the reserve fund concepts and major reserve fund items. It provides current and future replacement reserve estimates and recommends reserve fund actions. The effective date of this report is February 20, A Depreciation Report is a financial planning tool and should be viewed as such. Sonoma Pines is located on Westbank First Nations Land and it is our understanding that the head lease requires adherence to the Strata Property Act and Regulations, unless specifically exempted from those requirements in their bylaws. The Home Owner's Association has recognized that similar issues arise for this type of development comparable to freehold land, and as far as could be determined in our investigation, they do follow similar practices as other strata developments. A study of this nature is subject to constantly changing circumstances and should be reviewed in detail annually and updated, at a minimum, every three years. It is also noted that unexpected events may occur that have not been contemplated within our scope of work, however, most of these expenses should still come out of the Contingency Reserve, since they could not be predicted for either operating expense budgeting or for normal contingency fund expenses. We also note that the subject is an individual association managed through Sonoma Pines Home Owners Management Ltd. (SPHOM), however for the purpose of this report it is referred to as (Sonoma Pines) Home Owners Association. The H.O.A. has distinct responsibilities for the "Common H.O.A. Section and for the "Multi-Family Section. This stems from the fact the development has approximately 151 single family homes which the Home Owners Association is responsible for only common H.O.A components such as the clubhouse, roadways, landscaping and fencing. The "Multi-Family Section (195 units plus 4 show home units) will include exterior building components in addition to the common elements. Given this relationship, the study that follows splits the calculations for individual reserve components into one of these two areas. Any of these models can be customized based on a wide variety of background assumptions. We would be happy to present additional modeling, if you think it would be beneficial for discussion purposes.

3 We appreciate the opportunity of performing this depreciation report for you. If you have any questions, please do not hesitate to contact the undersigned. Recommendations are presented on Page 6, as a summary of the conclusions presented in each section of the report which follows. Additional options for each section are also presented in the body of the report, with supporting documentation in the Addenda section. Respectfully submitted, KENT-MACPHERSON 3 D. Allan Beatty, AACI, P.App

4 Table of Contents 4 Title Page 1 Letter of Transmittal 2 Table of Contents 4 Executive Summary of Facts & Conclusions 5 Recommendation 6 Part I - General Information 9 Intended Use and Intended Users 9 Purpose of a Depreciation Report 9 Rules and Regulations 9 Property and Boundaries 10 Scope of Investigations 10 Common Property and Limited Common Property 12 Depreciation Report- Definitions and Concepts 13 Reserve Fund Projection Factors 13 Part II - Descriptions 15 General Description 15 "Common" Reserve Items 15 "Multi-Family" Reserve Items 17 Building Observed Condition and Maintenance History 18 Reserve Items - Principles and Concepts 19 Part III - Reserve Items: Description and Estimates - Common HOA Section 21 Benchmark Analysis - "Common" HOA Section Year Cash Flow - Fully Funded Year Cash Flow Projections - With Special Levies Year Cash Flow Projections - With Borrowing 40 Part IV - Reserve Items: Description and Estimates Multi-Family Section 41 Benchmark Analysis - "Multi-Family" Section Year Cash Flow - Fully Funded Year Cash Flow Projections - With Special Levies Year Cash Flow Projections - With Borrowing 53 Part V 54 Limiting Conditions 54 Certification 55 Addenda 56 Addenda "A"1 - Cash Flows for Special Levy Model - Common HOA 57 Addenda "A"2 - Cash Flows with Borrowing - Common HOA 60 Addenda "B"1 - Special Levy Model - Multi-Family 62 Addenda "B"2 - Borrowing Model - Multi-Family 64 Site Plans 65 Qualifications 66 Page

5 Executive Summary of Facts and Conclusions 5 This executive summary has been prepared as a quick reference of pertinent facts and estimates of this Depreciation Report, and it is provided as convenience only. Readers are advised to refer to the full text of this Depreciation Report for detailed information. Client: Sonoma Pines Home Owners Association Date of Inspection: November 21 and December 13, 2012 Effective Date of Report: February 20, 2013 Property/Location: Depreciation Elements: Sonoma Pines Drive, West Kelowna, B.C. COMMON HOA SECTION Clubhouse Common Amenity 1. Superstructure & Foundation 2. Building Envelope - Exterior Walls 3. Windows and Doors 4. Roof Cover 5. Interior Finish & Decorating 6. Plumbing 7. HVAC and Electrical Common Site Improvements 8. Landscaping and Irrigation 9. Roadways and Curbs 10. Underground Services 11. Fencing 12. Parking, Paths and Sidewalks MULTI-FAMILY SECTION 1. Superstructure and Foundations 2. Building Envelope - Exterior Walls 3. Windows and Doors 4. Roof Cover 5. Decks 6. Driveways & Patios

6 Recommendation 6 The Sonoma Home Owner's Association has a projected reserve fund position of $530,000 for the year ending March 2013, comprised of $370,000 in the Common HOA section, and $160,000 for the Multi- Family" section. A funding level of $175,000, increasing by 2.25% per year until it reaches $270,000 (year 20) should be put into the Common HOA reserve, along with $130,000 to the multi-family reserve, increasing by a similar percentage, until it reaches $200,000 (also in year 20, with $15,000 increases for years These funding levels should be sufficient to avoid special levies over the projection period. The following recommendations include the recognition of the current reserve fund position is reasonable, in view of the age and condition of the property, and the various assumptions implied in this Depreciation Report. In addition to the funding levels, the following recommendations are also made: 1. Reserve funds should be fully invested in qualified securities to earn the maximum interest available at all times. An attempt should be made to achieve investment returns in the 2.5% range, on average. 2. Reserve fund expenditures should be planned in advance of contemplated major repair or replacements, to ensure maturity of investments to provide the cash resources as required. 3. The Reserve Fund Plan or Program should be reviewed annually and this study must be updated every three years. 4. A formal reserve fund plan and strategy should be prepared and implemented. Although three options are presented, we recommend Option 1 for both the Common HOA and Multi- Family sections. Sonoma Pines is comparatively early in its life cycle, and a prudent approach to contributing to the contingency reserve has been followed to date. Being early in its life, the residents of Sonoma Pines should be able to achieve "Full Funding" much easier than older strata developments, many of which are now faced with making up for past years where contribution levels have been below optimal levels. In those cases, strata corporations face the prospect of introducing special levies or borrowing to address major expenses for repairs. A healthy contingency reserve plan will also assist in preserving unit values, compared to similar strata developments who are either under-funded in terms of their reserve account, or those that may face a special levy for specific major repairs. Thus, a good reserve has proven to be an advantage for realtors when marketing stratified property. In addition to that advantage, both lenders and mortgage insurance providers are paying increasing attention to the status of the contingency reserve in assessing the mortgage risk and related underwriting decisions. While Options 2 and 3 provide lower annual contributions, we only recommend either of these options when a project has had a history of below optimal contributions and faces fairly immediate requirements for major repairs, where a special levy or taking a loan is the most practical option.

7 COMMON HOA SECTION: 7 5. Option 1: In my opinion the current reserve fund position of Sonoma Pines Home Owner's Corporation is sufficient, if annual contributions are raised to an amount within a range of $175,000 in year one ($41.66 per unit per month, based on 350 units). This amount should be increased incrementally at 2.25% until it reaches $270,000 per year and kept at that level until year 30. MULTI-FAMILY SECTION The results of this model suggest a small surplus at the end of the projection period; however, it is less than $30,000. This model also provides for a healthy fund balance to address those replacements that will not occur until after year 30, of $450,000. Option 2 involves a lower level of funding on an annual basis (approximately $130,000, also increasing at 2.25% per year) but would require periodic special levies. These would be required around year 15, and again in years 20 and 25. The amounts required to maintain funding at 75% of the recommended level are in the order of $400,000 to $500,000 each. Under this model, the closing cash position is less than $100,000 and the unfunded deficit position would be approximately $440,000. Option 3 involves borrowing funds periodically to address replacements, with a similar objective of maintaining a reserve that is roughly 75% of the optimum level. In this model, regular annual contributions are set at a similar level as Option 2, augmented by periodic borrowing. For the six to ten years following the borrowing event, annual contributions would be increased to cover the cost of an amortizing loan. We have conducted this analysis on the basis of borrowing money at the point where the deficit increases to more than 50% of the projected reserve requirement. This offsets lower annual costs against six to ten year periods of higher annual Contingency Reserve assessments. Borrowing would be expected around year 10 (a $450,000 loan), repaid over 6 years at $80,000 per year. A second loan would be required in year 24, (a $1,250,000 loan), repaid at $170,300 per year over a ten year period. There would be approximately $800,000 of the loan outstanding at the end of year 30, as well as an unfunded deficit of $440, In my opinion the current reserve fund position of Sonoma Pines Multi-Family Section is sufficient, if a level funding amount is maintained at $130,000, increasing by 2.25% per year until it reaches $200,000 then increasing in $15,000 increments at five year intervals (i.e. to $215,000 from years 25 to 29 inclusive, and to $230,000 in year 30). A small deficit occurs at the end of the projection period ($1,800) with a closing cash balance of $1,227,000. This healthy fund balance will be in place to address those replacements that will not occur until after year 30, and closely match the reserve requirement. The project is in the early phase of its life cycle, thus contributions as outlined in the report that follows, along with attempting to achieve an average rate of return of 2.50% on the reserve funds held on account should avoid the requirement for special levies.

8 Option 2 involves a lower level of funding on an annual basis. For year one, a total contribution of $97,500 is required to reach the 75% level of the reserve requirement augmented by annual increases. Periodic Special Levies, based on specific assumptions would be required around year 15, ($375,000) and in each year from year 25 though 27 ($300,000 each year), to maintain this level of funding. A significant deficit position would exist at the end of year 30 (approximately $240,000). Option 3 involves borrowing funds periodically to address replacements, based on a similar contribution level as option two. For periods of six to ten years following the borrowing event, annual contributions would be increased to cover the cost of an amortizing loan. We estimate that loans would be required in year 10 ($375,000) repaid at $66,800 per year for the following six years, with a large loan ($1,200,000) required in year 27. For a loan of this size, a ten year amortization would require payments of $170,300 per year. However, only three year of payments would occur, and the loan balance would be approximately $800,000 at the end of the 30 projection period. In addition, an unfunded deficit of $322,000 would also exist. The closing cash balance is better under this model ($900,000) but not the net revenue position, accounting for the outstanding loan. 8 Respectfully submitted, KENT-MACPHERSON D. Allan Beatty, AACI, P.App

9 Part I - General Information 9 Intended Use and Intended Users This report has been prepared for the Sonoma Pines Home Owners Association and through them, the property manager for the subject complex and the unit owners in the complex. Only those parties are recognized as intended users of this report, for the sole intended use of establishing a reserve fund strategy and plan. Liability for unintended uses made of this document or to unintended users is expressly denied. It is recognized that this document may be disclosed as part of Form B requests; however use of the report is still restricted to the intended users as outlined above. Purpose of a Depreciation Report The purpose of this Depreciation Report is to identify and estimate the replacement cost of the various reserve items and prepare reserve fund estimates of reserve requirements, as at December 24, This Depreciation Report, which includes an analysis of the required reserve funding, complies with the Strata Property Act, and Regulations, including amendments up to B.C. Reg. 238/2011, December 24, Section 94. Our qualifications appear in the Addenda Section C. We also certify that we have liability insurance coverage and confirm that there is no undisclosed relationship between the preparer of this report and the Home Owner's Association. It is also important to understand that the Depreciation Report is only one component of a Reserve Fund Strategy. It provides options for the H.O.A. to consider in formulating their strategy, and should not be considered as being conclusive on any given point or any specific strategy. Sonoma Pines-Rules and Regulations Division 1 - Duties of Owners, Tenants, Occupants and Visitors Repair and Maintenance of Property By Owner: 2. (1) An owner must repair and maintain the owner's lot, except for repair and maintenance that is the responsibility of the Sonoma Pines Homeowner Management Ltd. ( SPHOM ) under its Articles of Incorporation. (2) An owner shall keep all areas of the lot clean, free of debris and well maintained at all times. (3) An owner shall be responsible for any damage occurring to common property, limited common property/assets or those parts of lot, which the SPHOM must repair or insure under these rules and regulations. Costs of repairs or insurance deductibles will be charged back to an owner, tenant, or occupant or visitor who is responsible for any damage. (added May 2009) Division 2 - Powers and Duties of SPHOM Repair and maintenance of property by SPHOM 1. SPHOM must repair and maintain all of the following: (a) common assets of SPHOM; (b) common property that has not been designated as limited common property;

10 SONOMA PINES Multi Family (4, 5A, 5B, 6) Management Ltd. (SPMFM) 10 Rules and Regulations: Obtain approval before altering a lot: 2. (1) An owner must obtain the written approval of SPMFM Ltd. before making an alteration to a lot that involves any of the following: (Added May 2009) (i) the structure of a building; (j) the exterior of a building including the color of the building; (k) chimneys, stairs, balconies or other things attached to the exterior of a building Multi-Family: including planters, trellises, ornaments or any other items; (Added May 2009) (l) doors, windows or skylights on the exterior of a building; (m) fences, railings or similar structures that enclose a patio, balcony or yard; (n) common property located within the boundaries of a lot; (o) those parts of the lot which the SPMFM must insure; (p) removal or addition of vegetation, planting of any hedges or trees, except for annuals and perennials. All trees planted by homeowners must not exceed 3 meters when grown to maturity. (Added May 2009) Property and Boundaries Description: The subject development is a planned, 11 phased project with a mixture of detached single family homes and semi detached multi-family townhomes. Currently there are 151 single family homes located in Phases 1, 2, 3, and 5B. Multi-Family units occupy the remaining phases with a current total unit count of 199. Phases 8 and 9 are under construction with over 40 undeveloped lots remaining for improvement. There are no immediate plans to build out the remaining phases, beyond Phase 9. As indicated earlier, it is necessary to split the responsibilities of the Home Owners Association and the Multi-Family sections according to what its individual responsibilities are. They are called the Common HOA section and the Multi-Family section for purposes of this report. Lot boundaries 68 (1) Unless otherwise shown on the accepted plan, if a lot (unit) is separated from another lot (unit), the common property or another parcel of land by a wall, floor or ceiling, the boundary of the lot (unit) is midway between the surface of the structural portion of the wall, floor or ceiling that faces the lot and the surface of the structural portion of the wall, floor or ceiling that faces the other lot, the common property or the other parcel of land. (2) If a lot (unit) is not separated from another lot, the common property or another parcel of land by a wall, floor or ceiling, the boundary of the strata lot is as shown on the plan. (3) A boundary shown on the plan must be shown in a manner approved by the H.O.A. Scope of Investigation The subject property was inspected on November 21, 2012 with a re-visit on December 13, 2012 to evaluate the fencing and landscaping components. Some of the Architectural and Mechanical Plans were available for the buildings, to assist in some of the area calculations; however, a thorough interior and

11 exterior inspection was also completed on the clubhouse. This provided an opportunity to view the state and condition of many of the items that are the subject of this report in the Common Section. The multi-family homes were viewed from the street only. The home owner association documents and available financial statements and/or budgets were also examined. Documentation provided by the association council and discussion with the Property Manager includes the recent history of the contributions to and the transfers from the reserve fund as well as various documents including: SPHOA and SPMFA Council Minutes 2012 AGM minutes May 2011 and May 2012 Financial/Balance Sheets- March 2011-March 2012 Current budget Rules and Regulations for Sonoma Pines 11 Cost data have been investigated, using construction cost services, modified as to time, location and quality of construction. Where such data was incomplete, contractors and suppliers were interviewed with respect to local conditions and costs of similar repair projects. Reserve Fund Estimates Replacement reserve estimates are classified in terms of building groups, common element facilities and site improvements. Reserve fund estimates include not only replacement components but also repairs to building and equipment that occur on an infrequent or unexpected basis. Any additions or improvements made by unit owners to their respective premises are not included in these estimates. Owners should be advised by the Board to adopt maintenance programs for their respective units and any limited common property or exclusive use property under their control. Reserve fund estimates include provisions for demolition and disposal costs, dumping fees, as required, and are adjusted for applicable taxes such as the Provincial Sales Tax and Goods and Services Tax ("HST"). Conditions and Assumptions In estimating various reserve items, certain assumptions are made in respect to structural and nonstructural repairs and replacements. For example, reserves for exterior walls, most structural repairs, replacements of mechanical and electrical components are difficult to predict and quantify, particularly the exact timing that such repairs or replacements will be required. The only reasonable approach is to provide an approximate time frame and in some cases contingency estimates, where replacement of an entire system may not be required. Where contingency allowances are made, they are described as such, so that the reader of the report is clear on the basis of how these costs were estimated. Reserve fund estimates are subjective and based on an understanding of the life cycle of building components and experience gained from observing buildings over a 30 year period. It must be appreciated that reserve fund budgeting and projections are not exact sciences. They are, at best, prudent provisions for most contingencies, if, as and when they arise. It is also necessary to consider the reserve as a fund to provide for repairs and replacements; some of which may be higher or lower than the amounts projected in this document. The fund should be considered a pool of money available for the required repairs and replacements, some of which could vary

12 from the amounts estimated in the schedules that follow - in particular the larger amounts that are projected with future inflation, which may or may not trend as expected. In essence, the association should adopt a long-term policy regarding reserve fund allocations that must be flexible to accommodate changes in reserve fund requirements in the future. Moreover, the association should consider the different options available to fund replacement and repair of common property - whether the best option for their unit owners is a fully funded reserve, or some combination of prudent contingency contributions and special levies or accessing credit (borrowing to complete major repairs) when large expenses are required. 12 Insurance Repairs Insurance and/or warranties should cover the buildings and improvements against premature failure and numerous perils, but it is not intended to be a maintenance program. The difference between an insurance claim and maintenance repairs is not always clear, and it can result in prolonged disputes. For example, an unexpected sewer cave-in and resulting back-up is a legitimate insurance claim, and as such, it should be covered by the insurance policy subject to the stated deductible. In contrast, the deterioration of a catch basin and sewer connection over time, which caused a cave-in resulting into a sewer back-up, is a building repair expense. Common Property and Limited Common Property The Strata Act defines common property as (a) (b) that part of the land and buildings shown on a strata plan that is not part of a strata lot, and pipes, wires, cables, chutes, ducts and other facilities for the passage or provision of water, sewage, drainage, gas, oil, electricity, telephone, radio, television, garbage, heating and cooling systems, or other similar services, if they are located (i) within a floor, wall or ceiling that forms a boundary (A) (B) (C) between a strata lot and another strata lot, between a strata lot and the common property, or between a strata lot or common property and another parcel of land, or (ii) wholly or partially within a strata lot, if they are capable of being and intended to be used in connection with the enjoyment of another strata lot or the common property; Although the subject is not formally subject to the Strata Property Act, it functions similarly to strata property. Limited common property is common property designated for the exclusive use of the owners of one or more units such as balconies, storage lockers and parking stalls. These elements may technically be the responsibility of the owner to maintain and repair. However, it is common for the H.O.A. or the Strata to maintain control over these elements to ensure a consistent and timely approach is taken to repair and refurbish these components, as well as to preserve the look of the project. At times, this is a prudent course of action to ensure that a unit owner's failure to act will not affect other units. It is noted that balconies are the responsibility of the subject H.O.A., whereas in some projects this limited common property is the responsibility of the unit owner.

13 Depreciation Report - Definitions and Concepts 13 A Depreciation Report is a financial document, and as such should be viewed as a guide to planning budgets and maintenance programs, and unlike a technical audit, it does not deal with detailed technical matters. Rather, this document takes a business approach to reserve fund management. This Depreciation Report comprises the following elements: (1) identifies the reserve components, their quality, normal life span and present condition; (2) provides a current replacement cost estimate including the cost of removing worn-out items and special safety provisions; (3) projects the useful life of components that will require replacement in terms of remaining serviceable years; C O R P V A L U A T I O N S L T D (4) projects future replacement costs at an appropriate and compounded inflation rate; (5) projects the value of current reserve funds compounded at a long term interest rate; (6) calculates current reserve fund contributions required and to be invested in interest bearing securities. The salient estimates and conclusions of this Depreciation Report are contained in the various schedules that appear at the end of the report, and summarized in the Recommendations section. Any recommendations are for guidance purpose for management and the H.O.A. Replacement cost estimates are based on the assumption of using quality materials, as specified or built, using union labour and current construction techniques, and including contractors' overhead and profit. No allowance is made for premiums related to overtime, labour shortages or work stoppages during repair projects that may affect costs. Structural Deficiencies While not expert in engineering matters, we did not observe any signs of structural deficiency in our inspection of the subject property. On-site personnel confirm that some basement repair, and patio areas have been repaired, but these have come under the builder or home warranty, without a cost to the Home Owner's Association. Also, it is assumed mechanical equipment and infrastructure components are inspected and maintained on a reasonably frequent basis, as part of ongoing operations, and paid for from the operating account. Reserve Fund Projection Factors Historically, building costs have been rising at various rates from year to year, depending on business cycles, economic conditions, interest rates, etc. In boom periods, cost increases were fairly pronounced, whereas in recessionary times, cost increases were only nominal or costs even declined. Analyzing long term cost increases, construction cost indices were examined as well as consumer price indices related to building construction.

14 The most recently available data on average annual cost increases are from the two most well respected construction cost guides, the Marshall and Swift Cost Manual, and R.S. Cost Manual for the BC Interior Region and Reed Construction Data, for Canada are summarized as follows: 14 Source Marshall Reed Construction for RS Means and Swift Canada Past Year 2% 1.4% Not reported for full year Past 3 Years 1.5% 1.3% 1.6% Past 5 Years 2% 2.2% 2.5% Past 10 Years 4% Not reported for prior periods 3.3% Overall Consumer Price Index over a similar period was 1.6% over the past year, and has averaged 1.8% over the past 10 years. Construction price increases have been somewhat higher than these averages, some of which can be attributed to the over-heated construction trends in the 2004 through the 200 time period. Analyzing these cost increases, it can be concluded that the rates of increase over the past couple of years are somewhat lower than the longer term inflationary factor. The figure for the interior region confirms a drop in construction costs since 2009 (the three year average is lower than more recent figures) with some recovery since then. Over the 2004 through 2008 period the construction trades in the local market were in high demand due to a boom in the construction of new single family homes and in the renovation market. Lumber and fuel price increases in 2005 and 2006 contributed to relatively high year to year increases through that period as well. Long-term cost increases are not expected to be impacted by extreme inflationary pressures; and therefore, the long-term average cost factor should level out at about 2.25% per year. Similarly, interest rates have fluctuated from period to period, and in the past have been impacted by the high rates of inflation as well as government policies. The recent trend in bond and GIC rates is near record low interest rates where they are expected to remain for the foreseeable future. A cogent benchmark is Government of Canada Bond yields, recently reported at 1.25% for a one to three year issues, up to 1.75% for a seven year issue. New bonds are offered at 0.75% for 2 years, up to 3.75% for seven years. GIC rates, which, depending on the selected maturity generate a range in rates from 1.25% to 2.75% (per GIC Direct as of May 15, 2012) for terms of one to seven years. The HOA has invested a portion of the existing contingency reserve in GICs, which will return 2.6% for two years, and 2.7% for three years. Maintaining a fairly conservative strategy, and factoring in a return to more normal rates in the longer term a rate of 2.5% should be achievable, however, the H.O.A maintains some cash in short term or savings accounts at a lower rate. Annual returns on funds held on reserve are calculated net of $100,000 in cash on a going forward basis. Hence, in projecting replacement cost estimates and reserve fund requirements, the following factors were used: Inflation Rate 2.25% Interest Rate 2.50%, with minimum cash balance of $100,000 in the reserve account. Reserve fund projections should be regularly reviewed to adjust for changes in inflationary trends and investment returns, as they significantly impact long term reserve fund requirements.

15 Part II - Descriptions 15 General Description Sonoma Pines was originally planned as an 11 phase development with a mixture of styles, but generally one to four unit dwellings, from 1,140 to 1,450 square feet, many of which have walk out style lower levels. The site has variable topography, generally sloped from south to north and west to east. Along the northeast, the boundary of the property is shared with the Twin Eagles Golf Course. Many of the subject units have a view to the golf course, Lake Okanagan, or both. Building areas and dimensions were obtained from the insurance appraisals conducted on the subject development, and/or the blueprints for some of the units. Buildings Units in the subject project are classified under one of two types - either single family or multi-family. The single family units function like a bare land strata. Unit owners are responsible for all maintenance for the single family units, with the exception of roads, landscaped areas, fences, underground services, and a proportionate share of the repair and replacement of the components related to the clubhouse. In addition to these common elements, the multi-family owners are jointly responsible for repair and replacement of the structural components of the multi-family units, as well as the exterior walls, windows and doors, roof cover, decks, patios and driveways. Project Data Single Family Units 151 Multi Family Units 199 (includes 2 singles within Multi-Family phases and 4 show homes) Average Unit Area (Multi) 1,300 square feet Roads (Lineal Ft) 15,000 Retaining Walls (Lin Ft) 8,000 Fences (Lin Ft) 12,000 Sidewalks (Lin Ft) 4,400 Landscaping (Est. Area) Approx 12.0 acres Basic Construction Components In order to align the reserve components under the two distinct categories (the "Common Assets" and the "Multi-Family Assets") they are split into two categories for purposes of description. The order in which they appear later, in the analysis section corresponds with the following descriptions. Clubhouse "Common" Reserve Items A Clubhouse was recently completed for the use of all residents of the Sonoma Pines residential community. At the time of inspection, the main floor of this one storey plus walk out basement style structure was finished. The basement area, at the time of inspection, was framed only. The wood frame

16 with pitched, asphalt shingle covered roof contains 3,044 square feet on the upper level, and 2,855 square feet on the lower level. The main floor is configured with a great room, meeting room, kitchen, games room, washrooms and service and corridor areas. Finish includes engineered hardwood, carpet tile, sheet vinyl and tile floors, gyproc walls and ceilings, wood trim, and standard quality lighting fixtures. Overall quality is rated as slightly above average, and condition is rated as good. Replacement and repair of the structure includes all interior and exterior elements including the exterior wall, windows and doors, carpets, paint and furnishings, electrical, mechanical and plumbing systems, patios and walkways, and roof cover. 16

17 Site Improvements 17 Site improvements include the road network throughout the complex, underground services, landscaping and irrigation system, street lighting, signs, fences and retaining walls, paved areas for parking, RV parking, sidewalks and walking paths. Foundations and Structural Components "Multi-Family" Reserve Items This component includes the structural foundations, basement level walls, floor slab and basic framing for the multi-family units. Building Structure/Exterior Walls The subject buildings are wood frame construction over concrete foundations (some with partial or full basements) with acrylic stucco and some wood trim elements. This component includes the finish of exterior walls, as opposed to the structural components, which are covered above. Windows and Doors Double glazed, sealed window units. Balcony areas accessed by sliding glass doors, French doors or, in the case of some units, a mixture of both. Exterior entrance doors are solid core, with metal cover. Roof Cover Building is constructed with wood frame pitched roof with asphalt shingle cover with metal soffits, eave troughs and downspouts along exterior walls.

18 Balcony Decks 18 Balconies have wood joist floors, Dura-deck finish with metal and glass railings. Driveways and Patios Concrete driveways and a combination of concrete and paving stone patios. Management Policy Building Observed Condition and Maintenance History Discussions with the Property Manager indicate that The Board is currently operating under their own policies. Most condominium associations establish their own specific bylaws to outline key areas related to the division of responsibilities between the Association and individual unit owners. While not bound by the same legislative framework, the subject has been structured similarly to other strata developments. We have examined the Home Owner Association Management Agreement and found it to be in line with standard bylaws as compared to similar developments, including those having to split the responsibilities by defined sections. Historical Reserve Fund Operation It appears that contributions have been made to the Contingency Reserve account on a regular basis, with few withdrawals from the fund to pay for any replacement of repair of common area facilities. Most required repairs have come under the builder warranty or the New Home Warranty Program. Most other required repair and replacement costs have been funded from the operating account - however, the costs in this regard have been relatively minor over the past few years. Information provided in the year end summary of operations, the current budget and the balance sheet as of October 2012 indicate that there is currently $455,000 in the contingency reserve fund. The budget for 2012 to March 2013 provides for additional contributions. A separate fund is dedicated to the Phase 3 gate fund, which is considered a dedicated fund, and thus not included as a reserve item for the regular fund. For the balance of the fiscal year, additional contributions of approximately $75,000 are due. Within the total of $530,000, the expected balance by the end of this fiscal year, the contingency is expected to be $160,000 for the multi-family fund, and $370,000 for the common area fund.

19 Reserve Items - Principles and Concepts 19 Definitions In estimating reserves required for maintaining the building components and improvements at desired standards, the various reserve components, estimated replacement costs and project cost estimates are made in accordance with anticipated life spans. Therefore, it is essential that the terminology and methodology are clearly understood. Reserve Item Current Replacement Cost Expected or Normal Life Span Actual Age Estimated Effective Age Remaining Life Span Projected Inflation Projected Interest Rate Current Replacement Reserves Future Replacement Reserves Current Reserve Requirements Future Reserve Accumulation Future Reserve Requirements Annual Reserve Assessment Identification and description of the building component or improvement. The estimated cost of repairing or replacing an item at current prices including the cost of demolition and disposal. The estimated life expectancy of an item in terms of years under normal conditions. The chronological age of the project or reserve item expressed in years. An observed condition estimate of improvements not necessarily the actual age, expressed in years. The difference between the expected or normal life span and the estimated effective age of a reserve item. An estimated long-term inflation factor used in projecting cost estimates. An averaged long-term interest rate used in calculating interest earned from the investment of reserve funds. The estimated cost of replacing a reserve item at current prices. The estimated cost of replacing a reserve item at future prices, based on the projected long term inflation rate. Reserve fund levels required today considering the estimated effective age of the improvements. The current reserve requirements invested at the projected interest rate over the relevant time period. The shortfall between the future replacement reserves and the future reserve accumulation. Annual amount required to be paid into the reserve fund and to be invested at the projected interest rate to fund the future reserve requirements.

20 Component Analysis 20 Once the requirements for existing and anticipated future repairs and replacements are formulated, an analysis is made of the current reserve account. The stated policy/strategy that the H.O.A. is following with respect to annual contributions to the reserve fund account is also examined. This analysis essentially matches the recent operations to the long-term requirement to set aside sufficient funds in order to meet all future obligations. There are certain assumptions required in order to formulate the future reserve requirements, especially in those areas where it is difficult to forecast, with certainty, when some items will require repair or replacement. In those cases, a contingency allowance has been made. There are also certain items that may require attention more than once over the 30 year forecast period. For example, scheduled replacement of common area floor coverings may well be required more than once over the period that this study covers. Accordingly, the cost to complete this replacement must be included two or more times over the cash flow horizon, at a suitable cost to complete the replacement when it is expected to occur. In other words, if the carpet is replaced every 9 to 10 years, this event will occur three times through the study period. Therefore, the amount of funds set aside for carpet replacement must respond to a number of events for the same item. Furthermore, certain components may not require replacement over the forecast period; however, they will require replacement at some point beyond that time frame. The fund must be sufficient to also respond to those replacements while maintaining a relatively level annual contribution. For example, a component such as the exterior siding may have a service life that is beyond the cash flow forecast period. If this life span is 45 years, and the forecast covers a 30 year period, the siding will only have a life expectancy of 15 years at the end of the study period. There must be a proportionate share of the expense set aside (i.e. 30/45ths) if the replacement is to be done on an orderly basis. Therefore, the commentary that follows covers all items that will normally be expected to be replaced or refurbished before the full life expectancy of the overall project is reached. The fund is a combination of event-driven contingencies, plus an allowance for partially depleted building components.

21 Part III - Reserve Items - Description and Estimates Common HOA 21 Structural and Architectural Reserve Component: Superstructure & Foundation This component includes the basic building framing, foundations and structural components of the recreation centre. These components are expected to last the entire life of the building and should not require a reserve contribution unless some unexpected deterioration becomes evident. The clubhouse is a wood framed pitched roof structures built on concrete slab on grade with concrete grade beams and footings. Unit Quantity: 1 Allowance Unit Cost Estimate: $5,000 Allowance Replacement Cost Estimate: $5,000 Life Span Estimates: Normal Life Expectancy: 20 Years Effective Age: 0 Years Estimated Remaining Life: 20 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $5,000 $7,074 $0 $7,074 $291 Component Analysis: A small contingency allowance is made for this item, which would allow repair of any settlement cracks in foundation, basement floor slab or damage to wood frame members from settlement issues.

22 22 Building Envelope - Exterior Walls Unit Quantity: 2,665 Sq Ft Unit Cost Estimate: $3.25 per Sq Ft Replacement Cost Estimate: $8,661 Structural and Architectural This component comprises the exterior wall finishes for the clubhouse - doors and windows as part of the building envelope are considered under a separate heading. The exterior finish will not require replacement over the life of the building. The exterior stucco finish should last the life of the building, and is permanently coloured, so should only require re-painting as a result of fading from the sun. The wood trim elements and fascia will require re-painting more frequently, on a six to eight year time frame. Life Span Estimates: Normal Life Expectancy: 18 Years Effective Age: 0 Years Estimated Remaining Life: 18 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $8,661 $12,928 $0 $12,928 $577 Component Analysis: There were no obvious deficiencies in these components at the time of inspection. To maintain the integrity of the building exteriors, periodic building envelope inspections should be conducted as a preventative maintenance item, and should address issues like re-caulking of window and door openings. Repainting is projected for year 20, however, with more frequent restaining of the wood components of the exterior finish, the life expectancy is reduced 18 years.

23 23 Structural and Architectural Reserve Component: Building Envelope - Doors and Windows This reserve component comprises both interior and exterior doors, patios doors and all exterior windows. For reserve purposes, an average life span of 25 years is appropriate for doors, and 40 years for windows. It is estimated that at most only 50% of the windows and doors need to be scheduled for replacement, as those with relatively lighter use will last indefinitely. Unit Quantity: 43 # Unit Cost Estimate: $925 Avg Replacement Cost Estimate: Life Span Estimates: Normal Life Expectancy: 35 Years Effective Age: 0 Years Estimated Remaining Life: 35 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $9,944 $21,665 $0 $21,665 $394 Component Analysis: On a cash flow basis, an allowance is made for a percentage of total doors and windows that could fail earlier than their normal service life expectancy - 20% of the total cost for this item is scheduled for year 15, with the balance of door replacement occurring at year 25. Both the failure rate and timing of these replacements could vary and therefore the replacements in around the 15 year mark could be considered a contingency allowance. Windows are not scheduled for replacement until beyond the 30 study period, however, similar to the doors, some allowance is made at year 15 to account for possible early failure of a few windows. For modelling purposes, an average life expectancy of 35 years is used as the average between 25 years on doors and 40 years on windows.

24 24 Structural and Architectural Reserve Component: Roof Assembly- Roof Cover The clubhouse has asphalt single roof cover. A typical shingle roof will last approximately 30 years. Teh subject's asphalt shingles come with at 30 year warranty, but many factors can influence the actual life such as the number of severe weather events, severity of temperature changes between seasons and so forth. Unit Quantity: 4,504 Sq Ft Unit Cost Estimate: $3.50 per Sq Ft Replacement Cost Estimate: $15,762 Life Span Estimates: Normal Life Expectancy: 30 Years Effective Age: 0 Years Estimated Remaining Life: 30 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $15,762 $30,727 $0 $30,727 $700 Component Analysis: Normal life expectancies are expected for the roof cover in the case of the subject property. Costs include removal of old roof cover prior to applying the new roofing material. For cash flow modelling re-shingling is scheduled for year 30.

25 25 Structural and Architectural Reserve Component: Interior Finish and Decorating This reserve component area consists of the clubhouse flooring, interior wall and ceiling finish, equipment and additional built-in features. For this study, only the finish on the main floor is included, as the basement was framed only at the time of our inspections. Common areas consist of painted gyproc walls and textured drywall ceiling finish. Built in kitchen cabinets, tables and chairs, TV and fireplace in common room, and pool table and miscellaneous equipment in the lounge are also included. A large semi-circular patio is located off the common room. Some of the items in this category represent discretionary expenditures and might only occur when the fund is in good condition (e.g. the pool table), however, periodic re-decorating will be required. An average life expectancy of 12 years is used, as an average between 8 for redecorating and 16 years, which is when some items of equipment will most likely require replacement. Unit Quantity: 4,048 Sq Ft 1 Allow Unit Cost Estimate: $7.19 per Sq Ft Replacement Cost Estimate: $29,105 Life Span Estimates: Normal Life Expectancy: 12 Years Effective Age: 0 Years Estimated Remaining Life: 12 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $29,105 $38,013 $0 $38,013 $2,755 Component Analysis: Some of the expenditures in this category represent discretionary and/or can be delayed if the strata does not have the funding in a given year to effect a replacement. It is not uncommon for a strata to address replacements in this category from surpluses in the operating budget as opposed to drawing funds from the reserve fund. Technically they are reserve items. The allowance represents carpet and paint every eight years, with additional equipment replaced in every other cycle, i.e. carpet and paint only in year eight, plus an additional allowance in year 16 for miscellaneous equipment, and then just carpet and paint in year 24.

26 26 Reserve Component: Plumbing Structural and Architectural Plumbing is limited to the clubhouse kitchen, bathrooms, and hot water tank. Typical life expectancy for plumbing fixtures is 30 years, but this can vary widely, especially for sinks and toilets, as opposed to the water heaters and faucets. Some allowance is also necessary for plumbing lines and drains, so a small contingency is added based on a small percentage of the overall plumbing cost for the whole building (an additional $4,000 is added to the total). Unit Quantity: 13 # Unit Cost Estimate: $480 Avg Add: $4,000 Adjustment Replacement Cost Estimate: $10,240 Life Span Estimates: Normal Life Expectancy: 30 Years Effective Age: 0 Years Estimated Remaining Life: 30 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $10,240 $17,232 $0 $17,232 $425 Component Analysis: This calculation is comprised of two components. The replacement cost for fixtures in the clubhouse is done on a cost per fixture basis, projected for year 25. The second component is the allowance for plumbing lines and drains.

27 27 Reserve Component: HVAC and Electrical Unit Quantity: 3,044 Sq Ft Unit Cost Estimate: $7.00 per Sq Ft Replacement Cost Estimate: $21,308 Structural and Architectural The heating, ventilation and air conditioning (HVAC) system and electrical system are considered as a single component for this calculation. The electrical is a 200 amp main distribution panel, with expansion capacity to service the areas yet to be finished. Heat is by two natural gas fired high efficiency furnaces, with an outdoor air conditioning unit. Reserve allowances are made for plugs, lights and switches (30 years), but the main distribution panel should last indefinitely. Heating equipment is assigned a 25 year life. Life Span Estimates: Normal Life Expectancy: 25 Years Effective Age: 0 Years Estimated Remaining Life: 25 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $21,308 $37,164 $0 $37,164 $1,088 Component Analysis: The HVAC components are the larger of the two items included in this category. Therefore, for modelling purposes, a life expectancy of 25 years is used.

28 28 Site Improvements Reserve Component: Landscaping and Irrigation This component includes the extensively landscaped areas, including sod, shrubs, trees, planters, and the underground sprinkler system, but excludes the patio areas associated with the living units - these are included in another category. Most of the items included in this category fall under annual maintenance, such as replacing damaged or worn out sprinkler heads, removing trees, replanting any shrubs and permanent plantings as required. However, the underground supply lines, and distribution equipment for the irrigation system will eventually require replacement. A 50 year life is assigned to this item. The area calculation is based on an estimate of landscaped to the total site area, less hard surfaced areas and the area occupied by dwelling units. Unit Quantity: 12 Acres Unit Cost Estimate: $63,162 per Acre Replacement Cost Estimate: $757,944 Life Span Estimates: Normal Life Expectancy: 50 Years Effective Age: 3 Years Estimated Remaining Life: 47 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $757,944 $2,156,816 $145,148 $2,011,668 $22,946 Component Analysis: The area involved in this component is calculated on a percentage of overall site area, after netting out the areas covered by buildings, patio areas, roadways and sidewalks. It should be treated as an approximate area. These costs are spread equally in five year increments throughout the study period.

29 29 Reserve Component: Roadways and Curbs Site Improvements Roadways are measured by calculating the average width for their estimated length. The internal roadways are an asphalt surface. Minor repair of road surfaces should be treated as a maintenance item, however, at some point the wearing course of the asphalt surface of the road will have to be replaced - however, this does not require that the roadway base be totally re-done, and therefore, the replacement cost is related to only the surface and a portion of the base. Curbs should only require intermittent replacement, not the whole curb along the road's edge, and an allowance of 20% of the total curb area is included. Estimated life expectancy of the roadway is estimated at 25 years for modelling purposes. Allowance is also made for street signs in this component. Unit Quantity: 375,000 Sq Ft Unit Cost Estimate: $2.75 per Sq Ft Replacement Cost Estimate: $1,031,250 Life Span Estimates: Normal Life Expectancy: 25 Years Effective Age: 3 Years Estimated Remaining Life: 22 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $1,031,250 $1,682,507 $123,750 $213,044 $50,912 Component Analysis: One of the local roads received a new asphalt overlay this past year, due to some heaving and premature cracking. Sonoma Pines Drive is expected to get a new topping this coming year, but this is part of the planned installation, and will not be at the expense of the contingency reserve. The effective age is adjusted accordingly. While the life expectancy of the wearing course, as indicated above, is expected to be 25 years, a contingency allowance is made of premature wearing of 10% of the roads, with a proportionate share of the cost to repair curbs. This allowance is made in year ten of the projection period, as some of the roads will be at or past the mid point of their life cycle.

30 30 Reserve Component: Underground Services Site Improvements This item includes the water, sanitary and storm sewer lines throughout the site coming from the local service provider, connecting to the subject from surrounding service mains. An average length of run is used in the calculation. With current materials, barring an unforeseen event, the sewer lines should have an 80 year life. Even then, it is not expected that the entire system would require replacement - the budget is set at 75% of the total cost new. A separate allowance is made for repair or replacement of a small percentage of hydrants and catch basins, on a contingency basis. Unit Quantity: 15,000 Lin Ft Unit Cost Estimate: $375 per Lin Ft Replacement Cost Estimate: Life Span Estimates: Normal Life Expectancy: 80 Years Effective Age: 4 Years Estimated Remaining Life: 76 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $4,218,750 $22,887,368 $2,021,655 $26,679,151 $97,214 Component Analysis: Allowance for the water and sewer distribution lines is on a contingency basis, since their replacement will not be required until well beyond the end of this study period. A contingency allowance will provide a reserve in the event of an unexpected failure in either the sewer or water distribution lines. The contingency factor is established at 10% of cost new, for underground services, plus an allowance for hydrants ($6,000 per) and catch basins ($2,000 per) since the failure rate on these systems is not expected to be a high probability. These events are split evenly at the 10 and 20 year points in the study period, with the balance included at the full life expectancy.

31 31 Site Improvements Reserve Component: Fencing and Retaining Walls There are three types of fence in and surrounding the subject site, the most common being 8 foot wood sections that vary from 3.5 feet to 5 feet high. There is some two-rail fence, mostly along the golf course, and some chain link fence along the south perimeter of the east portion of the property. Also included in this section is the extensive retaining walls that occur throughout the site. These are generally from one to four courses of rock wall, some of which is stagger-backfilled. Unit Quantity: Fence 12,000 Lin. Ft Retaining 8,000 Lin Ft Unit Cost Estimate: Fence $18.00 per Lin Ft Retaining $75.00 per Lin Ft Replacement Cost Estimate: $246,000 Life Span Estimates: Normal Life Expectancy: 15 Years Effective Age: 4 Years Estimated Remaining Life: 11 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $246,000 $314,218 $65,600 $86,073 $18,276 Component Analysis: The fences will require attention every few years with respect to a restaining program, with replacements of sections where the posts or the fencing boards rot prematurely. A wood fence should last 15 years, but some early failure can be anticipated, and therefore, some contingency allowance is also appropriate. Retaining walls are less likely to fail and much more durable than the wood fences, but again, some allowance should be made for periodic repair of the retaining walls. For modelling purposes, we have assumed re-painting will be part of the annual maintenance. Starting in year 11, provision ae made to replace 20% of the fence every five years. For the retaining walls, an allowance is made to repair approximately 5% of the retaining walls on a similar schedule - every five years. An additional allowance is made specifically for the gates, which are expected to be replaced in years 15 and 20.

32 32 Site Improvements Reserve Component: Surface Parking, Paths and Sidewalks This component includes the RV and guest parking, concrete sidewalks and gravel walking paths. Asphalt has an life expectancy of 25 years, and sidewalks are in the order of 35 years. Gravel walking paths are considered to be a maintenance item and with proper care should not be required to be fully replaced. For this component, and average life expectancy of 32 years is used, as the amount of concrete sidewalks forms the greater portion of this component, and it has the longer life expectancy. Street lighting fixtures are also included under this heading. Unit Quantity: 1 Allow Unit Cost Estimate: $800,000 Allow Replacement Cost Estimate: $800,000 Life Span Estimates: Normal Life Expectancy: 32 Years Effective Age: 4 Years Estimated Remaining Life: 28 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $800,000 $1,491,636 $100,000 $199,650 $32,413 Component Analysis: Allowance for the parking and sidewalk areas is treated similar to the underground services and roadway. A contingency allowance will provide a reserve in the event of an unexpected damage that could occur due to snow removal, or heaving. The contingency factor is established at 15% of cost new, for sidewalks and paved parking. These events are split evenly at the 10 and 20 year points in the study period, with the balance included at the full life expectancy.

33 Benchmark Analysis Common HOA Section 33 Reviewing the various reserve fund items in terms of their condition and life cycle, and analyzing the contingencies for such items as exterior walls, roofing, windows, paving, sewer systems, various reserve fund estimates were produced - they appear on the following page. In estimating the replacement costs of reserve items, we relied on Building Service and Costing publications, such as the Means Repair & Remodeling Cost Data, and Marshall and Swift Cost Service. In addition, we verified some estimates by seeking quotations from local contractors, fabricators and suppliers as well as our own cost compilations. The result of this benchmark analysis provides an estimate of how much cash should be in the Contingency Reserve as of the date of analysis. Given the subject is a fairly new project, the recommended level of funding can be accomplished within one fiscal year, according to the estimates. From that point forward, the Benchmark Analysis provides an ongoing tally of the recommended level of reserves. This level does not fluctuate, however, that does not suggest that any number of options may be available in order to achieve some level of funding measured against this "benchmark". The Benchmark Analysis provides the following estimates relative to the next steps in the process: There is just under $7,200,000 of common property and limited common property that the H.O.A. is responsible to maintain, refurbish or replace based on today's cost. Allowing for inflation between the date of analysis and the first replacement of each component, these elements will cost $28,700,000 in aggregate at their respective dates of replacement, some of which are as far out as 80 years (they average 30 years). Of the 12 components, 7 are not expected to require replacement until sometime after the 25 year mark (although the cash flow schedule does provide for some contingency allowances in earlier periods. These components, collectively, represent almost 82% of the required reserve. There is expected to be $370,000 in the contingency reserve fund, by the end of this fiscal year, according to the information supplied to us. This compares to a figure of $545,000 that is indicated as the "Current Reserve Requirement" which is what should be in the fund. Due to the fact the clubhouse is new, and few other expenses are expected in the first few years, the fund will be in a comparatively strong cash position in the first few years of the projection period. The Benchmark Analysis suggests that an annual contribution of $228,000 is required on an annual basis; however, with the contribution of investment income throughout the study period, a lower contribution level can be maintained, and increased incrementally over time. This is partly due to high cash balances in later years which support annual contributions starting at $175,000 per year, then increasing at 2.25% per year. At this funding level, contributions eventually end up at a much higher level. However, it must be kept in mind that these are at inflated dollars. At year 20, the annual contributions level off at approximately $270,000 for the balance of the projection period, and still maintain an optimal reserve position. These estimates are summarized on the following page.

34 Schedule "A" (1) Benchmark Analysis Common HOA Section 34 C D E F G H I J K RESERVE COMPONENTS EXPECTED EFFECTIVE REMAINING CURRENT FUTURE CURRENT FUTURE FUTURE ANNUAL LIFESPAN AGE LIFE SPAN REPLACEMENT REPLACEMENT RESERVE FUND RESERVE FUND RESERVE FUND RESERVE FUND Construction Cost Inflation Index 2.25% Years Years Years COST COSTS REQUIREMENTS ACCUMULATION REQUIREMENTS ASSESSMENT Interest rate 2.50% FV=PV(1+I)^n PV*EA/NL FV=PV(1+I)^n FRC-FRFA PMT=FV*I/((1+I)^n-1) FV=F7(1+0.02)^E7 F7*D7/C7 FV=H7(1+0.05)^E7 G7-I7MT=J7*0.05/(1.05^E7-1) CLUBHOUSE COMMON AMENITY 1 Superstructure & Foundation ,000 7, , Building Envelope - Exterior Walls ,661 12, , Window s and Doors ,944 21, , Roof Cover ,762 30, , Interior Finish & Decorating ,105 38, ,013 2,755 6 Plumbing ,240 19, , HVAC and Electrical ,308 37, ,164 1,088 COMMON SITE IMPROVEMENTS 8 Landscaping and Irrigation ,944 2,156,816 45, ,148 2,011,668 22,946 9 Roadw ays and Curbs ,031,250 1,682, , ,044 1,469,463 50, Underground Services ,218,750 22,887, ,938 1,377,741 21,509,627 97, Fencing and Retaining Walls , ,218 65,600 86, ,145 18, Parking, Paths and Sidew alks ,000 1,491, , ,650 1,291,986 32,413 TOTAL RESERVES 7,153,965 28,700, ,764 2,021,655 26,679, ,037

35 Schedule A (2) - 30 Year Cash Flow - Common HOA Section - Fully Funded Schedule "A"(2) - Reserve Fund Cash Flow Projections presents a 30 year reserve fund projections showing cash positions, cash flows and cash expenditures for a fully funded model. The objective of the exercise is to illustrate the impact of future expenditures on cash flows. This is not to suggest that cash flows will follow the pattern indicated in the spreadsheet; rather this is a tool to ensure that available cash does not go below zero in any one year, and identifies any substantial shortfall in the funds available relative to reserve requirements. Following the discussion of the fully funded model, two other options are explored - a Special Levy Model and a Borrowing Model. Detailed spreadsheets for these two options are presented in the Addenda, Section "A". Cash Flow Models As required by the legislation, three options are required to be included in a Depreciation Report. For purposes of the subject, the following three options are explored: 1) Fully Funded. A fully funded reserve calculates contribution requirements over time with a goal to maintain the reserve at or near 100%. It is fully funded to meet the future renewal costs and avoid special levies, as well as providing a sufficient pool of funds for the period beyond 30 years. 2) Special Levy. The goal is to keep the reserve cash balance above zero. Current funding is at a rate of approximately 75% of the optimal level, anticipating periodic special levies in order to raise funds to perform the work. 3) Borrowing. Maintain reserve funds at approximately 75% of the fully funded level. The H.O.A. will borrow funds at specific future dates when several larger expenses are expected, to be re-paid over a ten year horizon, resulting in a higher annual contribution matched to the budget plus the cost of amortizing the loan. To allow for consistency, each of the cash flow projections is organized under the following headings. Opening Cash Balance This is the reserve fund position at the beginning of each and every fiscal year showing the cash resources available that consist of (1) bank deposits, (2) qualified investments, and (3) accrued interest earned. Total Cash Resources These represent the total cash resources available in any fiscal year and include the current year's cash flow. Reserve Fund Expenditures These are annual expenditures listed in the categories established in the cash flow statements. In some cases these expenditures do not necessarily appear at the total amounts shown in the Benchmark Analysis, since some of them are broken into two different time frames. Closing Cash Balance This is the reserve fund position at the end of each fiscal year, which is carried forward to the next year. 35

36 Deficiency Analysis 36 The Reserve Deficiency has been projected by formula taking into account the inflation factor, interest rates and reserve fund expenditures. The 30 year cash flow is used as a guideline as many replacements would occur during that time line. It must be kept in mind that certain replacements will not occur during the 30 year cash flow horizon, so a fund will also have to be in place to accommodate replacements that will occur on a cyclical basis, such as floor coverings, roof coverings, etc. as well as those that will be required beyond the 30 year forecast period. In fact, over a long enough period, virtually all of the reserve items identified in the study will require further replacement or refurbishment. From a Depreciation Report perspective, the end of that (30 year) period never arrives, as the study should be renewed and re-calibrated at regular intervals. This allows the in association of the actual experience in the project so that the projected reserve amounts are continually reflective of the long-term requirements of a well planned contingency reserve. In order to examine alternatives, a series of tests were applied to the cash flow projections in order to ensure that, according to the forecasts, the cash balance of the reserve account never reaches zero (or a negative figure) and allow a reasonable reserve fund surplus by the end of the period. Cash Flow Model #1: Fully Funded The first test that was applied was at an annual funding level that reflects the findings of the Benchmark Analysis. In Cash Flow Model #1 the funding formula starts at $175,000 (an average of $42.00 per unit per month) is used, increasing by 2.25% per year over the projection period, until it levels out at the 20 year mark, at $270,000 per year, for the last 10 years. The results of this model suggest a small surplus in the last year of the projection period (less than $30,000). This model also provides for a healthy fund balance to address those replacements that will not occur until after year 30, of $450,000. This compares to a "Reserve Requirement" of $420,000, so the fund will be well positioned to respond to repair and replacement events after the 30 year projection period.

37 Schedule "A" (2) Cash Flow Analysis Common HOA Section - Years Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Reserve Estimate OPENING BALANCE 370, , , , ,640 1,067,196 1,286,969 1,516,638 1,556,448 1,801,955 1,335,004 1,269,490 1,522,256 1,583,971 1,854,772 Reserve Fund Contributions 175, , , , , , , , , , , , , , ,960 Reserve Fund Interest Income 2.50% 6,750 10,544 15,281 16,184 21,266 24,180 29,674 35,416 36,411 42,549 30,875 29,237 35,556 37,099 43,869 Total Cash Resources 551, , , ,640 1,163,196 1,286,969 1,516,638 1,756,548 1,801,955 2,058,304 1,584,490 1,522,256 1,786,371 1,854,772 2,137,601 RESERVE FUND EXPENDITURES 1 Superstructure & Foundation 0 2 Building Envelope - Exterior Walls 0 4,000 3 Window s and Doors 0 2,800 4 Roof Cover 0 5 Interior Finish & Decorating 0 15,000 6 Plumbing 0 7 HVAC and Electrical 0 COMMON SITE IMPROVEMENTS 8 Landscaping and Irrigation 45, , , ,400 9 Roadw ays and Curbs 123,750 30,000 96, , Underground Services 210, , Fencing 65, ,000 25, Parking, Paths and Sidew alks 100,000 70,300 TOTAL EXPENDITURES 30, , , , , , , ,800 CLOSING BALANCE 521, , , ,640 1,067,196 1,286,969 1,516,638 1,556,448 1,801,955 1,335,004 1,269,490 1,522,256 1,583,971 1,854,772 2,109,801 DEFICIENCY ANALYSIS Reserve Requirements 545, , , ,549 1,090,625 1,249,927 1,509,212 1,774,980 1,847,291 2,121,510 1,679,285 1,634,304 1,903,198 1,976,415 2,253,862 2,510,446 Reserve Fund Surplus 5,986-45,464-94, , , , , , , , , , , , ,645

38 38

39 Schedule "A" (2) Cash Flow Analysis Common HOA Section - Years Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Reserve Estimate OPENING BALANCE 2,109,801 2,029,382 2,327,450 2,412,292 2,731,302 2,275,364 2,209,748 2,532,492 2,610,404 1,622,464 1,086, , , , ,705 Reserve Fund Contributions 244, , , , , , , , , , , , , , ,000 Reserve Fund Interest Income 2.50% 50,245 48,235 55,686 57,807 65,783 54,384 52,744 60,812 62,760 38,062 24,673 1,252 8,034 7,920 14,868 Total Cash Resources 2,404,382 2,327,450 2,638,592 2,731,302 3,064,164 2,599,748 2,532,492 2,863,304 2,943,164 1,930,526 1,381, , , , ,573 RESERVE FUND EXPENDITURES 1 Superstructure & Foundation 0 7,800 2 Building Envelope - Exterior Walls 0 5,700 3 Window s and Doors 0 13,900 4 Roof Cover 0 30,800 5 Interior Finish & Decorating 0 25,000 15,000 6 Plumbing 0 20,000 7 HVAC and Electrical 0 37,200 COMMON SITE IMPROVEMENTS 8 Landscaping and Irrigation 45, , , ,600 9 Roadw ays and Curbs 123, , , Underground Services 210, , Fencing 65, ,000 35, , , , Parking, Paths and Sidew alks 100,000 88,000 1,300,000 TOTAL EXPENDITURES 375, , , , ,900 1,320, ,600 1,231, , ,800 CLOSING BALANCE 2,029,382 2,327,450 2,412,292 2,731,302 2,275,364 2,209,748 2,532,492 2,610,404 1,622,464 1,086, , , , , ,773 DEFICIENCY ANALYSIS Reserve Requirements 545,764 2,426,244 2,714,937 2,784,547 3,082,198 2,598,489 2,501,488 2,792,063 2,837,001 1,815,263 1,245, , , , , ,280 Reserve Fund Surplus -396, , , , , , , , , , ,646-86,249-48,942-10,703 28,493

40 40

41 Cash Flow Projections Common HOA" Section - With Special Levies 41 The second option is based on the same Benchmark Analysis figures, but approaches the funding side differently. Detailed cash flow projections for this model are presented in the Addenda. In this model, a lower annual contribution is projected, augmented by special levies at different intervals in the 30 year projection period. There are numerous options for a model of this nature, which could include smaller, more frequent special levies, or it could allow for special levies that are tied to specific larger events, for example, a levy to cover the cost of new roof cover for the entire project, or refurbishing the exterior of buildings. These are matters to be decided in the Contingency Reserve Plan that the Strata Council ultimately decides upon. For this modeling exercise, a funding level tied loosely to the 75% of the "optimum" reserve was used as the target for funding. A much lower annual contribution level is projected under this scenario. For year one, a total contribution of $130,000 (average of $31.00 per unit per month) is required to achieve a 75% level of the reserve requirement. This is increased by 2.25% per year through the projection period. The Reserve Fund Surplus (Deficit) is monitored at this funding level, until it cumulatively hits a point where the reserve requirement is more than double the available cash. This model suggests a special levy of $400,000 in year 10 (approximately $1,140 per unit based on current unit count). Another levy of $500,000 (approximately $1,430 per unit) in year 20, would also be required, in addition to the regular contributions of $214,000 that year. A similar special levy is required in year 25 to return the deficit to the 75% level. Between years 25 and 30, cash on hand becomes dangerously low; under $130,000 in year 28. Advantages to this model include the lower annual contributions and the potential to accumulate larger reserves (and more interest accruing) if the projected repair events occur later than planned. Disadvantages include the unpredictability of future events, and periods where cash balances are unacceptably low. For example, if required infrastructure replacement is put off for a few years, and an unexpected repair occurs (like major repair to the irrigation system) that cannot be put off, larger special levies may be required. The choices for this model provide for a lower cash position than the fully funded model, despite the injections of cash. There would still be an unfunded shortfall of approximately $440,000, to address the reserve components that are projected for repair or replacement just beyond the projection period. To choose this option the H.O.A. must be comfortable with the risk profile from unpredictable events. The figures for this model are presented in Addenda "A"-1.

42 30 Year Cash Flow Projections Common HOA" Section - With Borrowing The third model is also projected at roughly the 75% level of funding for the ongoing Contingency Reserve, augmented by borrowing funds at specific intervals. Similar to the Special Levy model, the use of borrowed funds could be triggered by a specific requirement or project, such as a roof replacement. For purposes of this modeling exercise, contribution levels similar to the Special Levy model are projected (i.e. $130,000 per year increasing by 2.25% per year). This funding level is maintained until the closing cash balance drops to an amount below 50% of the Reserve Requirement, on a consistent basis. This would first occur in year 10. Approximately $1,000,000 is expected in expenses over the three year period starting in year 10. Rather than a special levy, the funding is augmented by borrowing enough money to return the fund to the 75% funding level. In order to reach a funding level of approximately 75% of optimal, the Strata would have to borrow $450,000 in year 10. Incoming revenue for that year is then $450,000 in addition to the normal contingency reserve contribution. In order to repay the loan over the next 6 years, a "loan repayment levy" of $80,100 would be collected from unit owners (average of $19.00 per unit per month), and re-paid to the lender, for a period of six years (payments would be made out of the existing reserve in year 1). Based on the same "trigger", the strata would have to borrow another $1,250,000 to address the major expenses between years 24 and 30. This would require payments of $170,300 to repay the loan, or approximately $41.00 per month over a ten year period. If the loan was taken in year 24, there would still be approximately $465,000 outstanding in year 30. A cash balance of $185,000 is less than the required reserve (there should be $615,000 in the reserve), and in addition to the remaining loan indebtedness, there would still be an unfunded deficit of just over $430,000. The risks of this model are similar to the Special Levy model, but the option to borrow may be judged to be an acceptable risk to achieve lower annual reserve contributions in earlier years. The spreadsheets summarizing these calculations are presented in Addenda "A"-2. 42

43 Part IV - Reserve Items - Description and Estimates - Multi-Family 43 Reserve Component: Superstructure & Foundation Unit Quantity: 199 5% Unit Cost Estimate: $5,000 per Unit Replacement Cost Estimate: $49,750 Structural and Architectural This component includes the basic building framing, foundations and structural components of the multi family units. These components are expected to last the entire life of the building and should not require a reserve contribution unless some unexpected deterioration becomes evident. Many of the units include a partial concrete basement with a component that is wood frame, to a walk-out level. The amount shown in the calculation should be considered approximate due to the large number of different floor plans - not all of which were available for review. The life expectancy calculation is based on mid-point of the period between the 10th and 30th year of the projection period, recognizing that it is difficult to predict when these repairs will be required. Life Span Estimates: Normal Life Expectancy: 20 Years Effective Age: 0 Years Estimated Remaining Life: 20 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $49,750 $77,635 $0 $77,635 $3,039 Component Analysis: To date, the repairs completed on these components have been warranty items, covered by the builder or under the New Home Warranty Program. It is understood that a number of basements have displayed issues with settlement and cracking of walls and floors. The New Home Warranty is structured on a year basis, with structural components warrantied for 10 years; which is the period over which most of this type of required repairs should become evident. A contingency allowance is made for this item, which would allow repair of any settlement cracks in foundation, basement floor slab or damage to wood frame members from settlement issues. The allowance is based on 5% of the foundations, at an average cost of $6,000, spread evenly in three year intervals, starting in year 10 of the projection period.

44 Building Envelope - Exterior Walls Structural and Architectural 44 This component comprises the exterior wall finishes for the multi-family units; doors and windows as part of the building envelope are considered under a separate heading. The exterior finish will not require replacement for the typical life of the building, unless a decision is made to do so for aesthetic reasons. The exterior stucco finish should therefore last the life of the building. The exterior wall colour is infused in the finish, but will require painting periodically, estimated here at 30 year intervals - the wood elements and fascias will require re-painting or re-staining more frequently, on a six to eight year time frame, but are a relatively small component, estimated at 5% of the total cost. Unit Quantity: 199 Units Unit Cost Estimate: $5,000 per Unit Replacement Cost Estimate: $995,000 Life Span Estimates: Normal Life Expectancy: 30 Years Effective Age: 3 Years Estimated Remaining Life: 27 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $995,000 $1,814,398 $193,806 $1,620,592 $42,746 Component Analysis: There were no obvious deficiencies in these components at the time of inspection, although it was brought to our attention that some facia boards have required attention due to poor paint adhesion. To maintain the integrity of the building exteriors, periodic building envelope inspections should be conducted as a preventative maintenance item. These are scheduled at 8 year intervals, to coincide with trim painting. The cost for the inspections should come out of the Reserve Fund. A certain amount of re-caulking of windows and doors would be expected as part of this service.

45 Structural and Architectural Reserve Component: Building Envelope - Doors and Windows 45 This reserve component comprises exterior doors, garage doors, patios doors and all exterior windows. For reserve purposes, an average life span of 25 years is appropriate for doors, and 40 years for windows. This produces an average of 35 years, with more weight applied to the window component, which includes patio doors. It is estimated that at most only 50% of the windows and doors need to be scheduled for replacement, as those with relatively lighter use will last indefinitely. Unit Quantity: 199 Units Unit Cost Estimate: $10,500 per Unit Replacement Cost Estimate: 50% Life Span Estimates: Normal Life Expectancy: 35 Years Effective Age: 3 Years Estimated Remaining Life: 32 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $1,044,750 $2,129,308 $197,346 $1,931,962 $40,124 Component Analysis: For calculation purposes, an average number of doors and windows is modelled on the basis of the six most common floor plans, and projected across the inventory. On a cash flow basis, an allowance is made for a percentage of total doors and windows that could fail earlier than their normal service life expectancy - 20% of the total cost for this item is scheduled for year 15, with another 40% occurring at year 25. Both the failure rate and timing of these replacements could vary and therefore the replacements in around the 15 year mark could be considered a contingency allowance.

46 Structural and Architectural Reserve Component: Roof Assembly- Roof Cover 46 The multi-family units have asphalt single roof cover. A typical shingle roof will last approximately 25 years. Asphalt shingles usually now come with at 30 year warranty, but many factors can influence the actual life such as the number of severe weather events, severity of temperature changes between seasons and so forth. The area calculation for roof area is based on a modelling process referring to the area of the six buildings that occur most frequently in the mix of the existing 228 units. Building plans were not available for each unit type and mix in all buildings. This is one of the largest single costs that the multi-family units will face in the projection period. Unit Quantity: 397,127 Sq Ft Unit Cost Estimate: $3.50 per Sq Ft Replacement Cost Estimate: $1,389,945 Life Span Estimates: Normal Life Expectancy: 30 Years Effective Age: 3 Years Estimated Remaining Life: 27 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $1,389,945 $2,534,587 $270,734 $2,263,854 $59,713 Component Analysis: Normal life expectancies are expected for the roof cover in the case of the subject property. Costs include removal of old roof cover prior to applying the new roofing material. For cash flow modelling, replacement of the roof cover for the multi-family buildings is spread over a three year period, between year 27, through year 30 of the projection period.

47 Reserve Component: Decks Structural and Architectural 47 Balcony decks are included under this heading and involve two different aspects. Balcony deck covering will require replacement in the 20 year time frame, at which time an allowance is also included to repair a proportionate share of decking surface and floor framing members on the wood frame decks for the multi-family buildings. Deck railings are also included under this heading, but shouldn't require replacement until they reach the 40 year time frame - the second event for deck cover and deck structure repair and replacement. To account for this, an average 30 year life expectancy is used for modelling purposes. Unit Quantity: Deck 26,865 Sq Ft Railing 4,577 Lin Ft Unit Cost Estimate: $5.50 per Sq Ft $15.00 per Lin Ft Replacement Cost Estimate: $216,413 Life Span Estimates: Normal Life Expectancy: 30 Years Effective Age: 3 Years Estimated Remaining Life: 27 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $216,413 $394,632 $42,153 $352,479 $9,297 Component Analysis: Allowance for the balcony decks is treated similar to the windows and doors. A contingency allowance will provide a reserve in the event of unexpected damage that could occur due to premature wear of deck membranes, or damage subsequent to the cover being punctured or worn through from deck furniture. The contingency factor is established at 15% of cost new, for decks. These events are split evenly at the 10 and 15 year points in the study period, with the balance included at the full life expectancy of 20 years.

48 Reserve Component: Patios and Driveways Site Improvements 48 This component includes the driveway and patio for each of the multi-family units. These improvements have a 30 year life expectancy on average, but some will last longer, if they are lightly used. Wear and tear is not the only problem, as heaving due to freeze-thaw can also affect these components. At most, only a portion of the driveways and patios will require attention over the study period, estimated at 50% of the total. The cost is estimated as a average per unit, as the driveways are a combination of single, double and triple. Unit Quantity: 83,580 Sq Ft Unit Cost Estimate: $5.00 per Sq Ft Replacement Cost Estimate: Life Span Estimates: Normal Life Expectancy: 20 Years Effective Age: 3 Years Estimated Remaining Life: 17 Years Reserve Fund Estimates: (1) Current Replacement Cost: (2) Future Replacement Cost: (3) Future Fund Accumulation: (4) Future Reserve Requirement (5) Annual Reserve Assessment: $208,950 $305,013 $47,691 $257,322 $12,333 Component Analysis: Area calculation is based on an average size of 15' by 20' per driveway, and an 10' by 12' patio. Repair or replacement of these components is more likely to be spread evenly through the study period as opposed to large scale replacements at one time. For cash flow modelling purposes, this cost is allocated at 10% of the total every three years.

49 Benchmark Analysis Multi-Family Section 49 Reviewing the various reserve fund items in terms of their condition and life cycle, and analyzing the contingencies for such items as exterior finish, doors and windows, and roof cover, various reserve fund estimates were produced - these results appear on the following page. In estimating the replacement costs of reserve items, we relied on Building Service and Costing publications, such as the Means Repair & Remodeling Cost Data, and Marshall and Swift Cost Service. In addition, we verified some estimates by seeking quotations from local contractors, fabricators and suppliers as well as our own cost compilations. The result of this benchmark analysis provides an estimate of how much cash should be in the Contingency Reserve as of the date of analysis. Given the subject is a fairly new project, the recommended level of funding can be accomplished within one fiscal year, according to the estimates. According to our review of financial statements, we have assumed an opening balance of $160,000 in the contingency reserve for the Multi-family section. The Benchmark Analysis suggests that there should be $380,000 in the reserve for this portion of the development, suggesting that contribution levels will have to increase. The Benchmark Analysis provides the following estimates relative to the next steps in the process: There is approximately $3,900,000 of common property and limited common property that the H.O.A. is responsible to maintain, refurbish or replace based on today's cost. The biggest single component on the list is roof cover, which is 36% of the total. This is followed closely by the window and door and exterior wall components, at 25% each. Allowing for inflation between the date of analysis and the first replacement of each component, these elements will cost just over $7,255,000 in aggregate at their respective dates of replacement, some of which are as far out as 32 years (they average 25 years). If the recommended amount of cash was in the fund today, an annual funding level of $167,000 would be required to fully fund the reserve.

50 Schedule "B" (1) Benchmark Analysis Multi-Family Section 50 C D E F G H I J K RESERVE COMPONENTS EXPECTED EFFECTIVE REMAINING CURRENT FUTURE CURRENT FUTURE FUTURE ANNUAL LIFESPAN AGE LIFE SPAN REPLACEMENT REPLACEMENT RESERVE FUND RESERVE FUND RESERVE FUND RESERVE FUND Construction Cost Inflation Index 2.25% Years Years Years COST COSTS REQUIREMENTS ACCUMULATION REQUIREMENTS ASSESSMENT Interest rate 2.50% FV=PV(1+I)^n PV*EA/NL FV=PV(1+I)^n FRC-FRFA PMT=FV*I/((1+I)^n-1) FV=F7(1+0.02)^E7 F7*D7/C7 FV=H7(1+0.05)^E7 G7-I7 PMT=J7*0.05/(1.05^E7-1 1 Superstructure and Foundations ,750 77, ,635 3,039 2 Building Envelope - Exterior Walls ,000 1,814,398 99, ,806 1,620,592 42,746 3 Window s and Doors ,044,750 2,129,308 89, ,346 1,931,962 40,124 4 Roof Cover ,389,945 2,534, , ,734 2,263,854 59,713 5 Decks , ,632 21,641 42, ,479 9,297 6 Drivew ay & Patios , ,013 31,343 47, ,322 12,333 TOTAL RESERVES 3,904,808 7,255, , ,730 6,503, ,252

51 Schedule B (2) - 30 Year Cash Flow - Multi-Family Section - Fully Funded 51 Schedule "B"(2) - Reserve Fund Cash Flow Projections presents a 30 year reserve fund projections showing cash positions, cash flows and cash expenditures for a fully funded model. The objective of the exercise is to illustrate the impact of future expenditures on cash flows. This is not to suggest that cash flows will follow the pattern indicated in the spreadsheet; rather this is a tool to ensure that available cash does not go below zero in any one year, and identifies any substantial shortfall in the funds available relative to reserve requirements. Following the discussion of the fully funded model, two other options are explored - a Special Levy Model and a Borrowing Model. Detailed spreadsheets for these two options are presented in the Addenda, Section "B". The basics of this model are the same as the Common HOA discussion. Cash Flow Model #1: Fully Funded The first test that was applied was at an annual funding level that reflects the findings of the Benchmark Analysis. In Cash Flow Model #1 the funding formula starts at $130,000 (an average of $54.00 per unit per month) is used, increasing by 2.25% per year over the projection period, until it reaches $200,000 (year 20) where it remains until year 25, then increases to $215,000. The results of this model suggest a small deficit in the last year of the projection period, which is less than $2,000. This model also provides for a healthy fund balance to address those replacements that will not occur until after year 30, of approximately $1,227,000. This compares to a "Reserve Requirement" of $1,229,000.

52 Schedule "B"(2) - 30 Year Cash Flow Projections Multi-Family" - Fully Funded Years Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Reserve Estimate OPENING BALANCE 160, , , , , , ,322 1,158,072 1,324,534 1,484,976 1,627,223 1,827,800 2,009,745 2,216,376 2,429,292 Reserve Fund Contributions 130, , , , , , , , , , , , , , ,513 Reserve Fund Interest Income 2.50% 1,500 4,788 7,970 11,010 14,760 18,681 22,183 26,452 30,613 34,624 38,181 43,195 47,744 52,909 58,232 Total Cash Resources 291, , , , ,243 1,011,222 1,158,072 1,336,434 1,510,476 1,678,423 1,827,800 2,037,045 2,227,276 2,442,892 2,665,037 RESERVE FUND EXPENDITURES 1 Superstructure and Foundations 0 10,200 10,900 2 Building Envelope - Exterior Walls 99,500 10,400 11,900 13,600 3 Window s and Doors 89, ,000 4 Roof Cover 138,995 5 Decks 21,641 41,000 41,000 6 Drivew ay & Patios 31,343 22,300 23,900 25,500 27,300 29,200 TOTAL EXPENDITURES 0 10,400 22, , ,900 25,500 51, ,300 10,900 13, ,200 CLOSING BALANCE 291, , , , , ,322 1,158,072 1,324,534 1,484,976 1,627,223 1,827,800 2,009,745 2,216,376 2,429,292 2,385,837 DEFICIENCY ANALYSIS Reserve Requirements 381, , , , ,948 1,080,474 1,250,838 1,449,362 1,640,948 1,823,724 1,985,370 2,202,257 2,397,265 2,613,550 2,832,541 2,791,407 Reserve Fund Surplus -89, , , , , , , , , , , , , , ,570

53 Schedule "B"(2) - 30 Year Cash Flow Projections Multi-Family" - Fully Funded Years Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Reserve Estimate OPENING BALANCE 2,385,837 2,612,890 2,861,303 3,088,902 3,345,261 3,611,492 3,865,979 4,146,829 4,448,000 4,721,100 3,457,427 2,889,363 2,285,997 2,540,447 1,316,458 Reserve Fund Contributions 181, , , , , , , , , , , , , , ,000 Reserve Fund Interest Income 2.50% 57,146 62,822 69,033 74,723 81,132 87,787 94, , , ,527 83,936 69,734 54,650 61,011 30,411 Total Cash Resources 2,624,490 2,861,303 3,120,102 3,357,661 3,626,392 3,899,279 4,160,129 4,448,000 4,756,700 5,051,627 3,756,363 3,174,097 2,555,647 2,816,458 1,576,869 RESERVE FUND EXPENDITURES 1 Superstructure and Foundations 0 11,600 12,400 13,300 14,200 15,200 2 Building Envelope - Exterior Walls 99,500 14,900 17,000 1,500,000 3 Window s and Doors 89, ,000 4 Roof Cover 138, , , ,000 5 Decks 21, ,000 6 Drivew ay & Patios 31,343 31,200 33,300 35,600 38,100 40,700 TOTAL EXPENDITURES 11, ,200 12,400 14,900 33,300 13, ,600 1,594, , ,100 15,200 1,500, ,700 CLOSING BALANCE 2,612,890 2,861,303 3,088,902 3,345,261 3,611,492 3,865,979 4,146,829 4,448,000 4,721,100 3,457,427 2,889,363 2,285,997 2,540,447 1,316,458 1,227,169 DEFICIENCY ANALYSIS Reserve Requirements 381,028 3,016,844 3,259,518 3,477,058 3,718,837 3,964,161 4,197,217 4,456,100 4,734,755 4,984,776 3,682,448 3,074,762 2,430,783 2,643,606 1,376,948 1,228,924 Reserve Fund Surplus -403, , , , , , , , , , , , ,159-60,490-1,755

54 Cash Flow Projections Multi-Family" Section - With Special Levies 54 The second option is based on the same Benchmark Analysis figures, but approaches the funding side differently. In this model, a lower annual contribution is projected, augmented by special levies at different intervals in the 30 year projection period. There are numerous options for a model of this nature, which could include smaller, more frequent special levies, or it could allow for special levies that are tied to specific events, related to some of the larger events, for example, a levy to cover the cost of new roof cover for the entire project, or refurbishing the exterior of buildings. These are matters to be decided in the Contingency Reserve Plan that the Strata Council ultimately decides upon. For this modeling exercise, a funding level tied loosely to the 70% of the "optimum" reserve was used as the target for funding. A much lower annual contribution level is projected under this scenario. For year one, a total contribution of $97,500 (average of $41.00 per unit per month) is required to achieve a 75% level of the reserve requirement. This is increased by 2.25% per year through the projection period. The Reserve Fund Surplus (Deficit) is monitored at this funding level, until it cumulatively hits a point where the deficit surpasses the $1,400,000 level, which coincides with the cash on hand being less than 50% of the required reserve. This model suggests a special levy of $375,000 (approximately $1,900 per unit) in year 15, in addition to the regular contributions of $133,000. Near the end of the 30 year projection, costs for re-shingling, exterior re-painting and a portion of doors and windows all could occur within about a five year window. On a cumulative basis, these expenses are over $3,300,000. This would require an additional special levy of $300,000 or $1,500 per unit each year for a three year period, in addition to the regular contributions, in order to maintain a reserve of 70% to 75% of the optimum level. Advantages to this model include the lower annual contributions and the potential to accumulate larger reserves (and more interest accruing) if the projected repair events occur later than planned. Disadvantages include the unpredictability of future events. For example, if exterior paint is put off for a few years, and an unexpected repair occurs (like replacing roof cover) that cannot be put off, larger special levies may be required. The choices for this model provide for a fairly healthy cash position in year 30, ($1.0 million) however, there would also be an unfunded shortfall of approximately $240,000, to address the reserve components that are projected for repair or replacement just beyond the projection period. To choose this option the H.O.A. must be comfortable with its risk profile for that time frame. The figures for this model are presented in Addenda "B"-1.

55 30 Year Cash Flow Projections Multi-Family" Section - With Borrowing The third model is also projected at roughly the 75% level of funding for the ongoing Contingency Reserve, augmented by borrowing funds at specific intervals. Similar to the Special Levy model, the use of borrowed funds could be triggered by a specific requirement or project, such as a roof replacement. For purposes of this modeling exercise, contribution levels similar to the Special Levy model are projected (i.e. $97,500 per year increasing by 2.25% per year). This funding level is maintained until the closing cash balance drops below 50% of the Reserve Requirement, on a consistent basis. This would occur in year 14. Approximately $300,000 is expected in expenses over the three year period starting in year 14. Rather than a special levy, the funding is augmented by borrowing enough money to return the fund to the 75% funding level. In order to reach a funding level of approximately 75% of optimal, the Strata would have to borrow $375,000. Incoming revenue for that year is then $375,000 in addition to the normal contingency reserve contribution. In order to repay the loan over the next 7 years, a "loan repayment levy" of $66,800 would be collected from unit owners (average of $28.00 per unit per month), and re-paid to the lender. Based on the same "trigger", the strata would have to borrow another $1,200,000 to address the major expenses between years 25 and 30. This would require payments of $163,500 to repay the loan, or approximately $68.00 per month over a ten year period. If the loan was taken in year 27, there would still be approximately $800,000 outstanding in year 30. A cash balance of $900,000 is fairly healthy, however, in addition to the loan indebtedness, there would still be an unfunded deficit of just over $320,000. The risks of this model are similar to the Special Levy model, but the option to borrow may be judged to be an acceptable risk to achieve lower annual reserve contributions in earlier years. The spreadsheets summarizing these calculations are presented in Addenda "B"-2. 55

56 Part V- Limiting Conditions 56 The legal and survey descriptions of the property as stated herein are those that are recorded by the Registrar of the requisite Land Titles (Registry) Office and are assumed to be correct. The architectural, structural, mechanical, electrical and other plans and specifications of the building or buildings and improvements are assumed to be correct. Furthermore, all buildings and improvements are assumed constructed and finished in accordance with such plans and specifications, unless otherwise noted. Sketches, drawings, diagrams, photographs, if any, presented in this report, are included for the sole purpose of illustration. No legal survey, soil tests or environmental impact studies, engineering investigations, detailed quantity survey compilations, nor exhaustive physical examinations or destructive testing have been made. Accordingly, no responsibility is assumed concerning these matters, or other technical and engineering techniques that would be required to discover any inherent or hidden condition of the property. The report assumes that the Association desires to maintain the building and grounds in a condition consistent with their original condition over the expected economic life span. In order to arrive at supportable replacement cost estimates, it was found necessary to utilize both documented and other cost data. A concerted effort has been put forth to verify the accuracy of the information contained herein. Accordingly, the information is believed to be reliable and correct, and has been gathered to standard professional procedures, but no guarantee as to the accuracy of the data is implied. The utilization of the cost estimates is valid only within the context of this report. The estimates herein must not be used in conjunction with any other appraisal or contingency reserve fund study and may be invalid if so used. The client to whom this report is addressed may use it in deliberations affecting the subject property only, and in so doing, the report must not be extracted, but must be used in its entirety. Possession of this report or any copy thereof does not carry with it the right of publication nor may it be used for any purpose by anyone but the client without the written consent of the author, and in any event, only with the proper qualifications. The agreed compensation for services rendered in preparing this report does not include fees for consultations and/or arbitration, if any. Should personal appearances be required in connection with this report, additional fees will have to be negotiated. Unless otherwise noted, all estimates are expressed in Canadian currency, and are net of any taxes.

57 Certification 57 A personal inspection of the subject property was conducted on September 4, 2012 by D. Allan Beatty, AACI, P.App and Kari Benum. Data collection and report preparation was completed by D. Allan Beatty, with some research assistance by Ms. Benum. The report has been made in conformance with and is subject to the requirements for a consulting assignment of The Standards of The Appraisal Institute of Canada. In accordance with those standards, it is hereby certified that: To the best of my knowledge and belief, the statements of fact contained in this report are true and correct and verified where possible; All pertinent factors affecting this Depreciation Report were considered to the extent felt necessary in rendering reliable recommendations; There is no past, present, or contemplated personal interest in the property, nor any personal interest or bias with respect to the parties involved. Neither the employment to prepare this Depreciation Report nor the compensation is contingent on the amount of reserve fund estimates reported. The person preparing this report is acting in the capacity of a sub contractor. There is no direct relationship between the person preparing this report and the Strata Manager nor the H.O.A.; The requirements of the Appraisal Institute of Canada's mandatory recertification program have been fulfilled for the current recertification period; The person preparing this report has the competence to complete this assignment. This activity is in direct compliance with the Appraisal Institute of Canada's professional liability insurance coverage for errors and omissions; The report is subject only to the assumptions and limiting conditions listed in the report, and the report identifies all of the limiting conditions including terms of the assignment imposed by the appraiser; The opinions expressed herein are unbiased professional opinions; No significant professional assistance was provided except for those individuals identified herein. Respectfully submitted, D. Allan Beatty, AACI, P.App February 20, 2013

58 A D D E N D A 58

59 ADDENDA "A" 1 CASH FLOWS FOR SPECIAL LEVY MODEL - COMMON HOA - YEARS Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Reserve Estimate OPENING BALANCE 370, , , , , , ,346 1,153,997 1,132,157 1,313,289 1,179,144 1,053,519 1,243,407 1,239,379 1,441,470 Reserve Fund Contributions 130, , , , , , , , , , , , , , , ,000 Reserve Fund Interest Income 2.50% 6,750 9,419 12,977 12,647 16,438 18,001 22,084 26,350 25,804 30,332 26,979 23,838 28,585 28,484 33,537 Total Cash Resources 506, , , , , ,346 1,153,997 1,332,257 1,313,289 1,902,444 1,368,519 1,243,407 1,441,779 1,441,470 1,652,520 RESERVE FUND EXPENDITURES 1 Superstructure & Foundation 0 2 Building Envelope - Exterior Walls 0 4,000 3 Window s and Doors 0 2,800 4 Roof Cover 0 5 Interior Finish & Decorating 0 15,000 6 Plumbing 0 7 HVAC and Electrical 0 COMMON SITE IMPROVEMENTS 8 Landscaping and Irrigation 45, , , ,400 9 Roadw ays and Curbs 123,750 30,000 96, , Underground Services 210, , Fencing 65, ,000 25, Parking, Paths and Sidew alks 100,000 70,300 TOTAL EXPENDITURES 30, , , , , , , ,800 CLOSING BALANCE 476, , , , , ,346 1,153,997 1,132,157 1,313,289 1,179,144 1,053,519 1,243,407 1,239,379 1,441,470 1,624,720 DEFICIENCY ANALYSIS Reserve Requirements 545, , , ,549 1,090,625 1,249,927 1,509,212 1,774,980 1,847,291 2,121,510 1,679,285 1,634,304 1,903,198 1,976,415 2,253,862 2,510,446 Reserve Fund Surplus -39, , , , , , , , , , , , , , ,726

60 ADDENDA "A" 1 CASH FLOWS FOR SPECIAL LEVY MODEL - COMMON HOA - YEARS Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Reserve Estimate OPENING BALANCE 1,624,720 1,469,345 1,689,169 1,692,365 1,926,210 1,881,468 1,738,870 1,987,273 1,993, ,164 1,128, , , , ,499 Reserve Fund Contributions 181, , , , , , , , , , , , , , , , ,000 Reserve Fund Interest Income 2.50% 38,118 34,234 39,729 39,809 45,655 44,537 40,972 47,182 47,341 20,929 25, , ,837 Total Cash Resources 1,844,345 1,689,169 1,918,665 1,926,210 2,670,268 2,128,870 1,987,273 2,246,553 2,257,864 1,679,843 1,381, , , , ,181 RESERVE FUND EXPENDITURES 1 Superstructure & Foundation 0 7,800 2 Building Envelope - Exterior Walls 0 5,700 3 Window s and Doors 0 13,900 4 Roof Cover 0 30,800 5 Interior Finish & Decorating 0 25,000 15,000 6 Plumbing 0 20,000 7 HVAC and Electrical 0 37,200 COMMON SITE IMPROVEMENTS 8 Landscaping and Irrigation 45, , , ,600 9 Roadw ays and Curbs 123, , , , Underground Services 210, , Fencing 65, ,000 35, , , , Parking, Paths and Sidew alks 100,000 88,000 1,300,000 TOTAL EXPENDITURES 375, , , , ,900 1,320, , , , , ,800 CLOSING BALANCE 1,469,345 1,689,169 1,692,365 1,926,210 1,881,468 1,738,870 1,987,273 1,993, ,164 1,128, , , , ,499 97,381 DEFICIENCY ANALYSIS Reserve Requirements 545,764 2,426,244 2,714,937 2,784,547 3,082,198 2,598,489 2,501,488 2,792,063 2,837,001 1,815,263 1,537, , , , , ,637 Reserve Fund Surplus -956,899-1,025,768-1,092,182-1,155, , , , , , , , , , , ,256

61 ADDENDA "A" 2 - CASH FLOWS WITH BORROWING - COMMON HOA YEARS Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Reserve Estimate OPENING BALANCE 370, , , , , , ,346 1,153,997 1,132,157 1,313,289 1,149,044 1,022,666 1,211,783 1,206,964 1,408,245 Reserve Fund Contributions 130, , , , , , , , , , , , , , ,513 Loan Proceeds/Loan Levies 450,000 80,100 80,100 80,100 80,100 80,100 Loan Repayment -80,100-80,100-80,100-80,100-80,100-80,100 Reserve Fund Interest Income 2.50% 6,750 9,419 12,977 12,647 16,438 18,001 22,084 26,350 25,804 30,332 26,226 23,067 27,795 27,674 32,706 Total Cash Resources 506, , , , , ,346 1,153,997 1,332,257 1,313,289 1,872,344 1,337,666 1,211,783 1,409,364 1,408,245 1,618,464 RESERVE FUND EXPENDITURES 1 Superstructure & Foundation 0 2 Building Envelope - Exterior Walls 0 4,000 3 Window s and Doors 0 2,800 4 Roof Cover 0 5 Interior Finish & Decorating 0 15,000 6 Plumbing 0 7 HVAC and Electrical 0 COMMON SITE IMPROVEMENTS 8 Landscaping and Irrigation 45, , , ,400 9 Roadw ays and Curbs 123,750 30,000 96, , Underground Services 210, , Fencing 65, , Parking, Paths and Sidew alks 100,000 70,300 TOTAL EXPENDITURES 30, , , , , , , ,800 CLOSING BALANCE 476, , , , , ,346 1,153,997 1,132,157 1,313,289 1,149,044 1,022,666 1,211,783 1,206,964 1,408,245 1,615,664 DEFICIENCY ANALYSIS Reserve Requirements 545, , , ,549 1,090,625 1,249,927 1,509,212 1,774,980 1,847,291 2,121,510 1,679,285 1,634,304 1,903,198 1,976,415 2,253,862 2,535,446 Reserve Fund Surplus -39, , , , , , , , , , , , , , ,781

62 ADDENDA "A" 2 - CASH FLOWS WITH BORROWING - COMMON HOA YEARS Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Reserve Estimate OPENING BALANCE 1,615,664 1,460,063 1,679,655 1,682,613 1,916,215 1,406,222 1,251,744 1,487,968 1,481,865 1,492,282 1,197, , , , ,646 Reserve Fund Contributions 181, , , , , , , , , , , , , , ,845 Loan Proceeds/Loan Levies 80,100 1,250, , , , , , ,300 Loan Repayment -80, , , , , , , ,300 Reserve Fund Interest Income 2.50% 37,892 34,002 39,491 39,565 45,405 32,656 28,794 34,699 34,547 34,807 27,443 10,323 3,877 2,835 8,966 Total Cash Resources 1,835,063 1,679,655 1,908,913 1,916,215 2,160,022 1,641,744 1,487,968 1,734,765 2,812,982 1,748,839 1,451, , , , ,456 RESERVE FUND EXPENDITURES 1 Superstructure & Foundation 0 7,800 2 Building Envelope - Exterior Walls 0 5,700 3 Window s and Doors 0 13,900 4 Roof Cover 0 30,800 5 Interior Finish & Decorating 0 25,000 15,000 6 Plumbing 0 20,000 7 HVAC and Electrical 0 37,200 COMMON SITE IMPROVEMENTS 8 Landscaping and Irrigation 45, , , ,600 9 Roadw ays and Curbs 123, , , , Underground Services 210, , Fencing 65, , , , , Parking, Paths and Sidew alks 100,000 88,000 1,300,000 TOTAL EXPENDITURES 375, , , , ,900 1,320, , , , , ,800 CLOSING BALANCE 1,460,063 1,679,655 1,682,613 1,916,215 1,406,222 1,251,744 1,487,968 1,481,865 1,492,282 1,197, , , , , ,656 DEFICIENCY ANALYSIS Reserve Requirements 545,764 2,451,869 2,741,202 2,811,469 3,109,793 2,661,775 2,566,356 2,858,552 2,905,152 1,885,118 1,609, , , , , ,647 Reserve Fund Surplus -991,806-1,061,547-1,128,856-1,193,578-1,255,552-1,314,612-1,370,583-1,423, , , , , , , ,991

63 ADDENDA "B" 1 - SPECIAL LEVY MODEL - MULTI-FAMILY YEARS Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Reserve Estimate OPENING BALANCE 160, , , , , , , ,165 1,018,101 1,132,050 1,225,769 1,375,710 1,504,841 1,656,401 1,811,917 Reserve Fund Contributions 97,500 99, , , , , , , , , , , , , ,135 Special Levy 375,000 Reserve Fund Interest Income 2.50% 1,500 3,975 6,307 8,455 11,272 14,219 16,701 19,904 22,953 25,801 28,144 31,893 35,121 38,910 42,798 Total Cash Resources 259, , , , , , ,165 1,030,001 1,157,550 1,276,969 1,375,710 1,532,141 1,667,301 1,825,517 2,362,849 RESERVE FUND EXPENDITURES 1 Superstructure and Foundations 0 10,200 10,900 2 Building Envelope - Exterior Walls 99,500 10,400 11,900 13,600 3 Window s and Doors 89, ,000 4 Roof Cover 138,995 5 Decks 21,641 41,000 41,000 6 Drivew ay & Patios 31,343 22,300 23,900 25,500 27,300 29,200 TOTAL EXPENDITURES 0 10,400 22, , ,900 25,500 51, ,300 10,900 13, ,200 CLOSING BALANCE 259, , , , , , ,165 1,018,101 1,132,050 1,225,769 1,375,710 1,504,841 1,656,401 1,811,917 2,083,649 DEFICIENCY ANALYSIS Reserve Requirements 381, , , , ,948 1,080,474 1,250,838 1,449,362 1,640,948 1,823,724 1,985,370 2,202,257 2,397,265 2,613,550 2,832,541 2,791,407 Reserve Fund Surplus -122, , , , , , , , , , , , ,148-1,020, ,758

64 ADDENDA "B" 1 - SPECIAL LEVY MODEL - MULTI-FAMILY YEARS Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Reserve Estimate OPENING BALANCE 2,083,649 2,257,770 2,450,908 2,620,805 2,816,953 3,018,778 3,210,597 3,430,635 3,672,975 3,889,352 2,856,198 2,528,157 2,174,641 2,389,100 1,128,121 Reserve Fund Contributions 136, , , , , , , , , , , , , , ,883 Special Levy 300, , ,000 Reserve Fund Interest Income 2.50% 49,591 53,944 58,773 63,020 67,924 72,969 77,765 83,266 89,324 94,734 68,905 60,704 51,866 57,228 25,703 Total Cash Resources 2,269,370 2,450,908 2,652,005 2,829,353 3,033,678 3,243,897 3,443,935 3,672,975 3,924,952 4,450,398 3,395,157 3,062,741 2,404,300 2,628,121 1,339,707 RESERVE FUND EXPENDITURES 1 Superstructure and Foundations 0 11,600 12,400 13,300 14,200 15,200 2 Building Envelope - Exterior Walls 99,500 14,900 17,000 1,500,000 3 Window s and Doors 89, ,000 4 Roof Cover 138, , , ,000 5 Decks 21, ,000 6 Drivew ay & Patios 31,343 31,200 33,300 35,600 38,100 40,700 TOTAL EXPENDITURES 11, ,200 12,400 14,900 33,300 13, ,600 1,594, , ,100 15,200 1,500, ,700 CLOSING BALANCE 2,257,770 2,450,908 2,620,805 2,816,953 3,018,778 3,210,597 3,430,635 3,672,975 3,889,352 2,856,198 2,528,157 2,174,641 2,389,100 1,128, ,007 DEFICIENCY ANALYSIS Reserve Requirements 381,028 3,016,844 3,259,518 3,477,058 3,718,837 3,964,161 4,197,217 4,456,100 4,734,755 4,984,776 3,682,448 3,074,762 2,430,783 2,643,606 1,376,948 1,228,924 Reserve Fund Surplus -759, , , , , ,620-1,025,465-1,061,780-1,095, , , , , , ,917

65 ADDENDA "B" 2 - BORROWING MODEL - MULTI-FAMILY YEARS Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Reserve Estimate OPENING BALANCE 160, , , , , , , ,165 1,018,101 1,132,050 1,225,769 1,375,710 1,504,841 1,656,401 2,120,117 Reserve Fund Contributions 97,500 99, , , , , , , , , , , , , ,135 Loan Proceeds/Fees 375,000 66,800 Loan Repayment -66,800-66,800 Reserve Fund Interest Income 2.50% 1,500 3,975 6,307 8,455 11,272 14,219 16,701 19,904 22,953 25,801 28,144 31,893 35,121 38,910 50,503 Total Cash Resources 259, , , , , , ,165 1,030,001 1,157,550 1,276,969 1,375,710 1,532,141 1,667,301 2,133,717 2,303,754 RESERVE FUND EXPENDITURES 1 Superstructure and Foundations 0 10,200 10,900 2 Building Envelope - Exterior Walls 99,500 10,400 11,900 13,600 3 Window s and Doors 89, ,000 4 Roof Cover 138,995 5 Decks 21,641 41,000 41,000 6 Drivew ay & Patios 31,343 22,300 23,900 25,500 27,300 29,200 TOTAL EXPENDITURES 0 10,400 22, , ,900 25,500 51, ,300 10,900 13, ,200 CLOSING BALANCE 259, , , , , , ,165 1,018,101 1,132,050 1,225,769 1,375,710 1,504,841 1,656,401 2,120,117 2,024,554 DEFICIENCY ANALYSIS Reserve Requirements 381, , , , ,948 1,080,474 1,250,838 1,449,362 1,640,948 1,823,724 1,985,370 2,202,257 2,397,265 2,613,550 2,832,541 2,791,407 Reserve Fund Surplus -122, , , , , , , , , , , , , , ,853

66 ADDENDA "B" 2 - BORROWING MODEL - MULTI-FAMILY YEARS Year Year Year Year Year Year Year Year Year Year Year Year Year Year Year Reserve Estimate OPENING BALANCE 2,024,554 2,197,198 2,388,821 2,557,167 2,751,723 2,951,918 3,139,916 3,352,614 3,583,929 3,785,427 2,433,363 1,789,697 2,145,339 2,346,273 1,067,430 Reserve Fund Contributions 136, , , , , , , , , , , , , , ,000 Loan Proceeds/Fees 66,800 66,800 66,800 66,800 66,800 1,200, , , ,500 Loan Repayment -66,800-66,800-66,800-66,800-66, , , , ,500 Reserve Fund Interest Income 2.50% 48,114 52,430 57,221 61,429 66,293 71,298 75,998 81,315 87,098 92,136 58,334 42,242 51,133 56,157 24,186 Total Cash Resources 2,208,798 2,388,821 2,588,367 2,764,123 2,966,818 3,173,216 3,365,914 3,583,929 3,821,027 4,027,563 2,656,697 3,033,439 2,361,473 2,567,430 1,256,615 RESERVE FUND EXPENDITURES 1 Superstructure and Foundations 0 11,600 12,400 13,300 14,200 15,200 2 Building Envelope - Exterior Walls 99,500 14,900 17,000 1,500,000 3 Window s and Doors 89, ,000 4 Roof Cover 138, , , ,000 5 Decks 21, ,000 6 Drivew ay & Patios 31,343 31,200 33,300 35,600 38,100 40,700 TOTAL EXPENDITURES 11, ,200 12,400 14,900 33,300 13, ,600 1,594, , ,100 15,200 1,500, ,700 CLOSING BALANCE 2,197,198 2,388,821 2,557,167 2,751,723 2,951,918 3,139,916 3,352,614 3,583,929 3,785,427 2,433,363 1,789,697 2,145,339 2,346,273 1,067, ,915 DEFICIENCY ANALYSIS Reserve Requirements 381,028 3,016,844 3,259,518 3,477,058 3,718,837 3,964,161 4,197,217 4,456,100 4,734,755 4,984,776 3,682,448 3,074,762 2,430,783 2,643,606 1,376,948 1,228,924 Reserve Fund Surplus -819, , , ,114-1,012,243-1,057,302-1,103,487-1,150,826-1,199,349-1,249,085-1,285, , , , ,009

67 Section C Site Plans 67