RESERVE STUDIES FOR THE COMMUNITY ASSOCIATION INDUSTRY

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1 Serving associations nationwide offices Arizona, California, Florida, and Utah RESERVE STUDIES FOR THE COMMUNITY ASSOCIATION INDUSTRY You can count on us for quality service no matter what type of association, and no matter where it s located. We have been providing quality reserve study services since Experience Quality service Competitive fee structure Easy-to-read reports Software Add these factors together and you ve got the winning combination you need for your reserve study. We have the experience you need. The hundreds of associations we have served speak to our quality service. Add to that our competitive fee structure and our easy-to-read reports, and you ve got the right team for your reserve study. Whether you re a high rise association in the city, a unique condominium project in the desert, or a large-scale gated community, we ve got the experience, and we can handle the job. Reserve Study Services Levels of Service Unique Association Considerations Reporting 5 Reasons to Select FAI for your reserve study Who We Are Contact Us

2 Reserve Study Services Facilities Advisors Inc. (FAI) can provide you with information that no one else can provide, such as a complete inventory by location, down to the level that we can show you every common area component in a specific room. A Facilities Advisors Inc. reserve study with Facilities 7 software provides you with a dynamic management tool, not a static "once every three years" paper report. An FAI reserve study gives you the 3 most important things an Association should get from a Reserve Study 1. A solid financial plan with reports that make sense 2. A comprehensive and competent site visit and component condition assessment 3. Guidance in the development of a structured maintenance plan to minimize overall future costs A reserve study is a financial projection that calculates the funding requirements to replace the association s common area components that it is responsible for maintaining. The reserve study report contains a funding plan to meet these requirements, generally designed to level out cash flow and avoid special assessments. The funding plan incorporates inflation, interest earnings, financing programs and repayment of debt. Details of the Reserve Study A study includes detail information at the component level to determine future expenditures. The funding plan includes certain general, system-wide assumptions. Detail component data Acquisition date Acquisition cost Estimated replacement cost Estimated life Estimated remaining life Summary funding assumptions Estimated inflation rates Estimated interest earnings on invested funds Detail of invested funds, interest rates, terms, etc. Estimated new financing programs Estimated debt service costs The reserve study preparer should be able to rapidly consider various alternatives to create a unique funding plan, one that is flexible. We recommend updating the reserve study annually to keep the funding plan as consistent as possible. Improving the value of the reserve study The replacement cost is not just the material cost of the new component, but also the cost to have the new component installed, which may include demolition and removal of the old component. When an outside contractor is employed for major repairs or replacements, the estimated cost is a single contract amount. When using internal staff, the cost consists of material, labor, overhead, delivery, and sales tax costs.

3 Consider variables, alternatives, or substitutes, for each component. For instance, maintenance procedures may help prolong the life of the certain components, or there may be alternate or substitute products that are available at a lower cost or that would have a longer life. We inform you of any maintenance suggestions or safety issues that we observe as part of our site visit. This information can help reduce future costs. In addition to funding plan assumptions on inflation rate and interest, a further question is whether interest income is retained in the reserve fund or transferred to the operating fund. Funding method assumptions include funding goals. As an example, funding could be held on a level basis for a 30 year period, or could assume a 3-5 % annual increase in funding to help offset the impact of inflation. Loans or special assessments could be used to keep monthly assessments lower to help maintain property values. We can help with these decisions. Many associations just want to perform the minimum reserve study to comply with the civil code. We can do that, but, we really shine when we are facing tough reserve studies from the most demanding of our clients. When you have unique maintenance issues, a tough financing plan, or the desire to leverage your reserve study into a full asset management tool, we can deliver for you. Our Facilities 7 software gives us the ability to even track components related to every individual unit within a project. Levels of Service - Facilities Advisors, Inc. offers three levels of reserve study services in accordance with CAI s and APRA s National Reserve Study Standards. Level 1 - Full Reserve Study - We perform a complete site visit, identifying and quantifying common area components. This also includes our component condition assessment and photo inventory of most components. Level 2 - Update of Reserve Study with Site Visit - The level 2 site visit is less comprehensive than a level 1 site visit in that the identification and quantification of components is assumed to be the same as determined in a prior level 1 site visit, unless it appears that there have been changes. The level 2 site visit focuses on the component condition assessment and updates the photo inventory where necessary. Level 3 - Update of Reserve Study without Site Visit - An annual update to the reserve study is simply good planning. This allows you to "refresh" the funding plan and account for minor variations from the original funding plan. We inquire about expenditures made, changes in pricing of replacement costs, and variations in funding from the original plan, but do not perform a site visit. This is a valuable planning tool at a very reasonable cost, generally no more than 25% of the cost of a full study. No matter what level of service we perform, we then compile the information obtained into our easy-to-understand report.

4 INDUSTRIES SERVED Facilities Advisors, Inc. provides reserve study and facilities consulting services to several industries, including those listed below. While the basic processes of gathering and compiling data are the same, the reporting terminology and formats may be different for certain industries. The common term used in most industries is "reserve study." However, some industries will refer to this same process as a "capital expenditure budget, long-term capital replacement plan," or "infrastructure funding plan." We will generally refer to the generic term; "reserve study." Condominium and homeowners associations Timeshare associations Condo-hotels Country Clubs Governmental entities Hospitality industry Nonprofit organizations Churches Schools There are many types of associations within the community association industry. High rise condominium projects have completely different types of components than will be encountered in the far more common low rise, garden style condominium projects. High rise projects involve far more complex engineering and mechanical systems than will their low rise counterparts. And, there are even several different types of elevator systems to contend with. Air moving systems are critical to the high rise project. There are normally common water heating systems, and new codes require sophisticated fire control systems. Geographic location plays an important part in determining building products used and maintenance of the buildings. This Colorado condominium project is located at an elevation of almost 9,000 feet above sea level, and experiences heavy snow loads annually. The constant snow melt refreeze cycle takes a heavy toll on the buildings and parking areas. Developments located in the desert offer their own unique set of problems. The general lack of rain and many days of sunshine place their own stress on buildings, and different types of construction material are used than in other areas of the country. The landscaping is also quite different. We have also worked with a number of large-scale associations that have their own unique characteristics, from gated entries to major amenities such as golf courses, lakes, dams, marinas, equestrian centers, campgrounds, and even shooting ranges and airports. And, almost all of these associations also maintain miles of roads.

5 Timeshare and other shared ownership associations present the requirement to include unit inventory in the reserve study. Our Facilities 7 software allows us to compile individual unit inventory for each unit, yet summarize it in such a manner that the reports are still very easy to read. Because we work with so many different types of associations, we have developed component templates to help make sure we are able to create an accurate component inventory. We compile our inventory by location, and let the computer juggle it by category. Using templates acts as a checklist to make sure we list all components normally found in such a location. It also provides us with the normal expected useful life and cost information. That makes us more efficient, and helps us keep our fees competitive while still providing a very professional product. REPORTING No matter how good the underlying site evaluation and compilation of component lists, that s not much help if it can t be translated into reports that are easy to understand. We constantly receive feedback from our clients that our reports are much easier to understand than any others they have seen. The key lies in understanding how people comprehend reports. Because reserve study reports typically contain a 30- year financial projection and a large number of components, the data can be overwhelming. These are financial reports, and many people simply tune out because the data is confusing. We know that, so we make sure the data is presented in a manner that is easy to understand by following several key concepts.. The first key step is keeping all financial exhibits limited to a single page because that s what the human mind can easily grasp. We do that by presenting data at a category, rather than a component level. Our official reserve study report is presented at a category level, and is typically limited to pages.

6 The second key step is including totals on all reports (most of our competitors reports do not include this simple step) so that a reader can see that the totals of data presented at the category level are the same as those presented at the component level and that reports agree to each other. The third key step is to present all component level reports as supplemental exhibits, not part of the official reserve study report. Except for the detail component inventory required by National Reserve Study Standards to be included in the reserve study report, all other component level detail reports are reported separately as Supplemental Schedules. Those individuals that want just an overview are satisfied by the summary level report. Those individuals requiring more detailed data, particularly staff, will have access to the component level detail reports. The fourth key step is presenting the component inventory in several formats by category so that it matches to the summary level reports, and by location so you can easily review to see that all data for a particular location is included. Expenditures are also presented in several formats so they can be viewed by category, by component, or by year. The fifth key step is to present charts to provide visual images of the data. This helps the reader understand relationships of data much better. Please view the sample report on our website at The sixth key step is to present unique reports to help the reader understand the data, reports that nobody else has. Our reserve study comparison exhibit compares, on a category and component level, our report to the prior report. The reader can instantly identify significant variations from the prior report.

7 Five Reasons to Choose FAI for Your Next Reserve Study 1.Experience - Facilities Advisors, Inc. has been providing reserve studies for Homeowners Associations and Timeshare Resorts since We developed the original reporting formats and software calculations that most of our competitors later adopted. 2.Quality Service Facilities Advisors, Inc. has prepared hundreds of reserve studies for associations, and we are repeatedly asked back for updates. Our customers trust us to deliver accurate, timely reports, and do the job right. 3.Competitive fees - Using our custom developed internet-based software and templates, we are able to deliver high quality reserve studies and reports at very competitive prices. 4.Easy-To-Read Reports Our reports are easy-to-read and understandable. No one can match our reports. Our California Disclosure Summary can simply be attached to your budget to meet your disclosure requirements, saving your valuable time. 5.Quick turnaround Most reports delivered within two weeks Who we are Facilities Advisors is your preferred Provider for Reserve Study Services. We have a unique combination of experience, construction knowledge, financial projection and reporting expertise, and the most powerful software in the industry. Put our unique team to work for you Gary A. Porter, PRA, RS, RSS President of Facilities Advisors, Inc. has provided financial services to condominium and homeowners associations since He has authored five books and more than 200 articles on association financial matters. He is considered to be one of the foremost financial experts for associations, and has been quoted or published in the Wall Street Journal, Kiplinger s Personal Finance, Common Ground, The Ledger Quarterly, and The Practical Accountant. He has been performing reserve studies since 1982, and is also a registered reserve specialist in Nevada. Pierre Del Rosario, PRA, RSS has provided financial services to our condominium and homeowners associations clients since He has worked with most of our clients in performing their reserve studies, and is also a registered reserve specialist in Nevada. 60 E. Rio Salado Parkway, Suite 900 Tempe, Arizona (480) Goodyear Ave., Suite 614 Ventura, California (805) (877) Fax (805) info@reservestudyusa.com 201 South Biscayne Blvd. 28 th Floor Miami, Florida (877) South 1300 East, Suite 500 Salt Lake City, Utah (801)

8 Internet-Based Reserve Study Software Contact Percipient Software, Inc. Gary Porter (877)

9 Facilities 7 integrated facilities maintenance management system Facilities 7 software was developed for the specific purpose of moving associations to the next level of reserve study management. Current best practices recommend a paper based reserve study every three to five years. That s simply not adequate for any association to manage reserves and the maintenance process. First, it s not dynamic, and can t be updated as transactions occur. Secondly, most reserve studies are prepared at the wrong level of detail meaning, too summarized to effectively use as a management tool. Facilities 7 is an internet-based software system that allows the association to enter transactions as they occur, keeping you current at all times. The reserve module allows you to modify your funding plan as necessary based on current transactions and new information as it occurs, not just once every three to five years. Reserve studies are currently used as a budget tool based on a paper-based report updated every few years. Reserve studies SHOULD BE a dynamic process providing management with information to make informed, knowledgeable decisions based on current information. The goal of the reserve study should NOT be a paper report, but the creation of a tool for management to build a knowledge base of information about the association s common area components. In order to be an effective management tool, the reserve study must be constructed at the same level of detail at which you spend money; you can t lump components together when you replace them on an individual basis. Most traditional, paper-based reserve studies can t provide the proper level of detail, as the software used was never intended as a management tool, but simply as a means for the reserve preparer to generate a paper report. Most of these software products are built on what we call a flat database containing one category level and one component level. Given those limitations, they can t give you much detail, as it would overwhelm the user with large, unreadable reports. Facilities 7 gives you three category levels and two component levels, so you can organize more detailed data into comprehensible information. However, there is also a point of diminishing returns. Too much detail, while it can be easily handled by the software, bogs down the human users so much that they don t want to deal with it. We understand how data should be used, and can guide you to creating your component database at the appropriate level. While you can import data from existing reserve studies, that often will still result in component data at the wrong level. Importing old reserve studies can work reasonably well for smaller associations, but generally does not work for larger associations. There is a fundamental difference between current practice and what we recognize as best practice. Current practice is the once every few years paper based reserve study report. What we recognize as best practice for reserves is a dynamic component database updated as transactions occur. Facilities 7 is the software application specifically designed to meet the needs of the community association industry. Facilities 7 was designed by the reserve and maintenance professionals at Facilities Advisors, Inc. (FAI), and is used by FAI to prepare all association reserve studies. Facilities 7 is the dynamic component database.

10 The Facilities 7 reserve module is available now to provide a dynamic reserve management plan. Facilities 7 software is growing into an integrated facilities maintenance management system consisting of seven modules representing the seven basic functions any organization should / must perform related to its physical facilities. Why is this important? Because Facilities 7 uses a single database to make sure that the diverse functions related to facilities are coordinated (integrated) to assure the highest degree of accuracy. The seven modules are: 1. Reserves 2. Capital Improvements 3. Operations Maintenance (work orders) 4. Asset Tracking 5. Insurance Tracking 6. Depreciation 7. Project Management to the needs of specific roles, but not to the overall needs of the organization. Maintenance of the physical common area facilities is typically one of the largest expenses for most associations, yet it is the ONLY area of association operations for which specialized software has never been developed. The reason for this is that the roles played by the various participants each touch only a portion of the overall activities, with no one person generally seeing the entire picture. Consequently, various software programs have evolved that respond As an example, there are a number of reserve study (only) software products available, as well as accounting software, asset tracking software, depreciation software, CMMS (Computerized Maintenance Management Software), and project management software. But, because none of these products are integrated, there are huge disconnects in data management, which translates to bad information. These disconnects are why too many associations have been placed in the awkward position of having had regular reserve study updates, but are still faced with special assessments because of inadequate funding. One significant reason reserve studies often fail to accurately predict the timing and amount of future costs is because of limitations of the underlying reserve study software. It has become the industry standard that reserve studies are generated on a static basis at the major component level only. Most reserve study software cannot generated data at a minor component level and still produce meaningful reports, as the level of detail is too great, and the database design is too flat. Consequently, reserve studies tend to group data at a level much higher than where actual expenditures occur, and they are produced as a static, paper report, once every few years. That means the reserve study cannot track actual expenditures. Imagine if the accounting process operated in the same manner. As an example, you would only record checks in excess of a certain dollar amount, and organize them into only a dozen or so major groups, and only record them every few years. Then you would produce a paper report that purports to represent the accounting transactions. That obviously doesn t work. Reserve studies prepared at too high a level on a static basis are subject to similar inaccuracies. Only by investing the minor effort required to create a dynamic, ongoing system of reserve revenues and expenditures can you gain accurate information. Static reserve study software is not capable of creating such a system. There is a fundamental difference between a functional facilities maintenance management system and the current state of the industry with respect to Benefits to the association are: reserve studies. Facilities 7 software is a true Creates a reserve management system relational database, which allows the user to Reduces maintenance costs track data at the most granular level, where expenditures actually occur, yet still summarize Builds knowledge base data into meaningful, understandable reports. Allows continual update This is accomplished by creating multiple levels Provides immediate answers of categories and major and minor component Allows unlimited what if scenarios levels so data can be summarized easily.

11 The example screen at left demonstrates how the three category levels Equipment / Irrigation / Controllers allow the association to filter data so that all equipment can be grouped together, or just irrigation equipment, or just irrigation controllers. Further, by using the Multi Items feature, the primary component list shows only a single line for Irrigation Control Stations. When you select and open that component is when the full detail of all five control stations are viewed. The most common objection we hear is I don t want to deal with that much detail. Three issues here: 1) The primary goal of a reserve study is to predict future expenditures based on data obtained from historical transactions. If you don t have the details of the historical transactions because you tracked your component list at the wrong level of detail, you cannot reasonably forecast future events; you re just engaging in speculation. YOU CAN T MANAGE WHAT YOU CAN T SEE. Facilities 7 gives you the proper level of detail. 2) With a properly designed software system, it s actually easier to deal with the detail than to attempt to summarize it. The computer does the heavy lifting so you don t have to. Also, with properly designed category levels, you can avoid looking at details if you want to. Facilities 7 multiple category and component levels allow you to manage the detail. 3) Because of the high level of turnover in maintenance staff, managers, and volunteer members, and the lack of a software management system specifically designed to capture maintenance history, associations are rarely ever able to develop an institutional memory. When the staff or volunteer members leave, their knowledge goes with them because there was no system in place to capture the maintenance information. Facilities 7 was designed to allow the association to capture this information. Facilities 7 becomes your institutional memory. Facilities 7 software is capable of identifying ALL reserve components within an association. Facilities 7 can identify all items, and let you decide which items belong in the reserve study (replacement budget) and which items belong in the operating budget. Because Facilities 7 has powerful location identification capability for each component, you can also determine replacement costs by location, by building, or by room within a building. This also means that you can view or print a component inventory by location, and review it to make sure that all components are included. You won t ever have to ask the question Is X included in this report? If you know where it is located on the property, you can simply look it up by location to see if it has been included. Facilities 7 is designed to put you in charge of your property maintenance. (Note Reserve module only available at this time; additional modules coming soon)

12 Using Facilities 7 Login to Facilities 7 Facilities 7 Work Area

13 Facilities 7 Percent Funded View Facilities 7 Reports

14 Facilities 7 Component Edit Screen