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1 DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate and current information, UBC, their affiliates, authors, editors and staff (collectively, the "UBC Group") makes no claims, representations, or warranties as to accuracy, completeness, usefulness or adequacy of any of the information contained herein. Under no circumstances shall the UBC Group be liable for any losses or damages whatsoever, whether in contract, tort or otherwise, from the use of, or reliance on, the information contained herein. Further, the general principles and conclusions presented in this text are subject to local, provincial, and federal laws and regulations, court cases, and any revisions of the same. This publication is sold for educational purposes only and is not intended to provide, and does not constitute, legal, accounting, or other professional advice. Professional advice should be consulted regarding every specific circumstance before acting on the information presented in these materials. Copyright: 2014 by the UBC Real Estate Division, Sauder School of Business, The University of British Columbia. Printed in Canada. ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced, transcribed, modified, distributed, republished, or used in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, web distribution, or used in any information storage and retrieval system without the prior written permission of the publisher.

2 LESSON 4 Cost Analysis Learning Objectives After completing this lesson, the student should be able to: 1. Discuss cost estimating strategies for condominium/strata reserve fund studies 2. Outline various options for cost estimating, including contractors estimates and cost services such as Marshall & Swift or RSMeans 3. Describe the specific considerations in estimating costs, in particular the need to consider full costs comprehensively, including removal, disposal, any additional costs due to retrofitting versus new construction, and overhead and taxes 4. Estimate the replacement cost of common elements, including removal, using Marshall & Swift and/or RSMeans

3 ASSIGNED READING 1. UBC Real Estate Division CPD 891 Course Workbook: Fundamentals of Reserve Fund Studies. Vancouver: UBC Real Estate Division Lesson 4: Cost Analysis RECOMMENDED READING 1. Marshall Valuation Service. Marshall & Swift RSMeans Building Construction Cost Data. rsmeans.reedconstructiondata.com 3. Whitestone Research. (Updated Annually). Facility Maintenance & Repair Cost Reference. Forecasts of inhouse and contract maintenance costs for major US and Canadian metropolitan areas Access selected readings in Online Readings on your Course Resources webpage. Please note that recommended readings are not tested on the exam, but are provided for further research into these topics.

4 Lesson 4: Cost Analysis INSTRUCTOR S COMMENTS Lesson 1 outlined the rationale and methodology for reserve fund studies, summarized in the six-step process. Lessons 2 and 3 explored the first three steps in this model: problem identification, common property element identification and quantification/evaluation of both land and building, and estimating the lifecycle of each element. This lesson will continue on to Step 4, estimating current replacement costs for these common elements. STEP 4: COST ANALYSIS ESTIMATE CURRENT REPLACEMENT COST (CRC) OF RESERVE COMPONENTS After the list of elements and their effective ages has been compiled, the estimated cost of replacement of each element must be determined. Current replacement cost (CRC) is the estimated cost to replace the reserve fund component in today s dollars, as of the effective date that the Reserve Fund Study is being completed. Reserve fund estimates of replacement costs are based on the assumption that quality materials will be used. In the case of older developments, newer materials may be required under current building code regulations. Installation costs are assumed to be at contractors prices, using union labour and current construction techniques, and including contractors overhead and profit. Additional costs for removal and disposal must also be factored in. Sources of cost estimates include: costing manuals, such as Marshall & Swift or RSMeans, in both printed and online formats observations of actual costs for construction of comparable projects in the marketplace quotes from contractors in the related trades 1 The costing manual sources are generally recognized as an objective measure of the current cost of building elements. However, these estimates are ideally cross-checked with local contractor prices. In markets with rising construction costs, manuals can become quickly outdated and, as a result, local contractor estimates may be more reliable in the short term. In cases such as this, it is also important to review the timing of the element s replacement, as current short-term market forces may no longer influence pricing at the time of future replacement. Furthermore, consider that the cost manual estimates are for replacement of elements, but assuming it is new construction. The cost manual does not consider removal cost for each element. Due to this, an estimated cost of removal and installation preparation must be included in the cost of replacement. In the case of paint or carpet, these costs may be minimal, but in the case of replacement of the boiler, windows, or the roof membrane, these additional costs may be substantial. In some cases, there is a premium that must be added for retrofitting versus new construction. For example, VIDEO: Lesson 4 Overview Find it on the Online Readings webpage Problem Identification Property Identification and Evaluation Lifecycle Analysis Cost Analysis For each common element estimate: replacement or repair cost, including cost of removal/disposal Financial Analysis Communicating Results Current Repair or Replacement Cost The estimated cost of replacing or providing major repairs to a Reserve Component at current prices including factors such as demolition, disposal, material, labour and contractor s overhead and profit. 1 Contractors quotes may not be objective as these are preliminary estimates that are either intended to solicit current work or to establish a relationship with the property or group in question if there is no up-front payment for the quote. If there is a payment for the quote, then the estimate may still be subject to some degree of conflict of interest due to the potential for soliciting future work. If relying on these estimates, there should ideally be more than one contractor estimate to ensure objectivity. Many times the quotes may not include other additional costs that accrue to a particular job after the repairs have started. 4.1

5 CPD 891: Fundamentals of Reserve Fund Planning if a replacement enterphone/intercom in an apartment building is smaller than the old unit, this will require additional repairs to drywall and finishing. Alternatively, other components may be calculated as a percentage of replacement cost, as full replacement is not expected to occur. For example, elevator upgrades can often reflect about 80% of the current cost new. The source of cost estimates is not particularly important regardless of whether the consultant uses a costing manual or local contractor estimates. Ultimately what is important is that the chosen method is supportable and reasonable. As noted above, whatever costing method is used, the outcome must account for the full cost of removal and replacement. Failure to consider full costs will understate the costs and result in inadequate funding. The goal of a reserve fund is to have adequate funds available so that special assessments will not have to be levied for the replacement of building elements. Marshall & Swift has provided commercial and residential real estate building cost data for more than 75 years. The company began as a modest family operation in 1932 when E.P. Marshall published the first edition of the Marshall Valuation Service. Today the company features a comprehensive product suite of traditional cost manuals, specialty publications and software solutions, and serves nearly 100,000 customers a diverse range of professionals that includes commercial, residential, high-value, agricultural and review appraisers, as well as lending institutions. Source: marshallswift.com Marshall & Swift Cost Estimator Service Marshall & Swift (M&S) is one of the most common cost estimating services. M&S compiles cost indices for all construction types and provided these in printed workbooks, digital PDFs, and through an online estimating website. The M&S information is presented in three primary formats: 1. the calculator method 2. a more detailed calculator method that separates building shell from the interior fit-out 3. the segregated method. Calculator Method The calculator method uses an estimated cost per square foot, square metre, or cubic metre to estimate the total cost of a complete building. This approach lacks the segregated details on each individual element and is not appropriate for reserve fund studies. Detailed Calculator Method This approach is similar to the calculator method but the cost estimate is expanded to separately show the cost of the building shell and the interior. This can allow costing for structures that have dissimilar interior and exterior construction. This approach does not provide the detail required for reserve fund studies and is not generally used. Segregated Cost Method The segregated cost method requires all building elements to be individually estimated and then these costs are summed to find the cost of new construction for the building. The benefit of this approach is it provides individual installed costs for most of the building elements required in the reserve fund study analysis. This allows the consultant to estimate costs more precisely than using the more general calculator method. These costs consider typical local wages as well as contractor s profits and appropriate local taxes, either GST or HST. Keep in mind these costs do not include the cost of removal and disposal of the old elements. This cost may constitute a small proportion of the overall costing exercise and these removal costs may be more easily relied upon than contractors estimates that can be added to the Marshall & Swift costs. 4.2

6 Lesson 4: Cost Analysis Building Quality The M&S building cost indices are divided into quality categories for all building types. These range from Low Cost to High Quality. In the online Marshall Valuation Service (MVS), the categories are divided into numeric ranges from a low of 1 to a high of 4. The M&S book and PDF formats also provide numerous photos of representative buildings to help ensure that the building to be estimated represents the standard building in the costing manual. These photos help assess the relative building quality of each particular element. The charts for each building type also summarize the quality of included elements. In most cases, the quality level of individual components will correspond to the overall quality of a building. Once the building quality is evaluated, then this can be applied for each individual element in the segregated cost sections. The segregated cost section allows the individual cost of each building element to be estimated based on the appropriate quantity of the unit. The cost manual provides the cost per unit from lowest to highest cost for each building element. For example, the cost for a window or door is based on the area of the unit, in either square feet or square metres of window or door area. The low range might relate to the Low Cost (or category 1) quality level, while the high range may relate to the High Quality (or category 4). As a general rule-of-thumb, adding ⅓ of the range from lowest to highest might be considered Average (category 2), while adding ⅔ of the range might be Good Quality (category 3). For an aluminum sash window, with a high-low range of $17.00 to $28.00, these quality 2 and 3 values would be $20.77 and $24.33 (based on the $11.00 range divided by 3). Marshall Valuation Service Commercial Cost Explorer CD Note: Marshall & Swift also offer a pared down Residential Cost Handbook that covers townhomes, duplexes, low-rise multi-family buildings, and row houses, but not high-rise residential. Regional and Local Multipliers The M&S cost estimates are based on a stabilized costing algorithm, centralized for one location and at a specific point in time. Multipliers are then used to account for regional variations in cost and cost changes over time, since the estimates were published. For accurate results, it is important that all costs taken from the M&S book or PDFs are carefully indexed with the appropriate multipliers. The first adjustment is the Regional Multiplier index. This index published costs to the current value based on both the regional area (east, central, or west) and for the construction type (A, B, C, D, S). For example, the cost of exterior walls may have been last updated in printed format in December, 2011, but to make that cost relevant for the current market in June 2013, the standardized cost must be indexed. 4.3

7 CPD 891: Fundamentals of Reserve Fund Planning Consider an example of a property located in Toronto (this is the building in the 55 Summer Lane case study in Lessons 2 and 3). It is located in the Eastern Region for a current cost multiplier. The building is Class D wood frame. The current cost multiplier is selected based on the section of the book being referenced. The chart and table below shows some of the multipliers in this case. For reference, the regional multiplier for roofing, Section 57, is noted to be 1.04 from Section 99, page 3, Current and Local Cost Multipliers, of the M&S book. This means the cost calculated for this element must be multiplied by 1.04 to account for cost variations in this region. The second adjustment is a local multiplier for the city (or region) and construction type. This local multiplier is based on individual city indexes for each province in Canada and state in the USA. As well there are local 4.4

8 Lesson 4: Cost Analysis indexes for other international locations. The local multiplier 2 makes adjustment for not just the relative cost of materials and labour in a given location but also for exchange rate and tax rate fluctuations. These local cost indexes are presented on pages 5 to 12 of Section 99 of the M&S book. In the case of the Toronto property, the local multiplier for Class D construction is 1.34 as of January, 2013 as noted below in Section 99, Page 5. This means the cost calculated for this element must also be multiplied by 1.34 to account for cost variations in this specific location. Where a city/town is not included, the standard practice is to use the next closest community and base the multiplier on that and cross reference with local contractors. For small communities with no local contractors, the cost will likely have to include travel expenses this would be added via a contingency factor. Costs for HVAC systems may require a further adjustment for climate, as Canada is classified as extreme climate in Marshall & Swift. For example, consider the excerpt below from the costing for Combined Heating and Cooling Engineered Systems, found in the Marshall & Swift manual Section 53, page 5. As noted in the explanation, the high cost range accounts for the significant variance from hot to cold weather in Canada. Without this adjustment, costs in Canada may be underestimated. 2 Cost multipliers are updated on a monthly basis, while local multipliers are updated on a quarterly basis. This is the reason for the different dates for the cost and local multipliers. 4.5

9 CPD 891: Fundamentals of Reserve Fund Planning Example: Marshall & Swift Costing, Asphalt Shingles In this example, the cost of the asphalt roofing shingles for a wood frame townhouse development in Toronto will be analyzed. This will require determination of unit cost and the application of the appropriate multipliers. As well, the cost of removal and disposal of the old asphalt shingles must be estimated. The Marshall & Swift costing manual provides the cost of installing asphalt shingles. This is found in Section 57, Roofs and Components, Page 4, under the category of Roof Cover. The installed price for Composition Shingle, light to 235lb, is quoted as $1.23 to $2.12 per square foot of roof area. This price will also include allowances for off-cuts and some loss of materials due to construction needs. The regional and location multipliers must then be determined. As noted earlier, Ontario is located in the Eastern region in the M&S map and the construction type is Class D wood frame. The Eastern Regional Multiplier for Class D Construction is The local multiplier for Toronto for Class D construction is Thus, the calculated range for the cost of shingling a roof on an adjusted basis ranges from: Low $1.23 per ft = $1.71 per ft 2 High $2.12 per ft = $2.95 per ft 2 This provides an average of $2.33 per ft 2 perhaps this would indicate cost for a category 2.5. The range from low to high is 1.24 per ft 2. Dividing this into thirds gives $ , say $0.41. By adding this to the low price range, it indicates a category 2 cost of $2.12 per ft 2 ($ $0.413). Subtracting this from the high price range gives a category 3 cost of $2.54 ($ $0.413). Adding this $0.41 to the $2.33 average gives an estimated cost of $2.74 for category 3.5 (very good quality). Local contractors indicate that removal and disposal of the old shingles costs $0.75 per ft 2. Adding this to the $2.74 cost estimate provides an estimated cost of $3.49 per ft 2, say $3.50 per ft 2. If the roof area is 10,000 ft 2, then the current replacement cost of the asphalt shingle roof, including removal and disposal, is: Unit Cost = $3.50 per ft 2 Roof Area = 10,000 ft 2 10,000 square feet $3.50 per ft 2 = $35,

10 Lesson 4: Cost Analysis If comparing this to contractors estimates for this roofing job, keep in mind their quotations will be all-inclusive of both removal and replacement. The building manual cost estimates do not include removal of the old roofing material. As well, if there are issues with replacement or retrofitting that lead to costs above that of new installation, these will also not be considered in the costing manual. For example, if the roofing material to be replaced was the waterproofing membrane over a parkade, and replacing this membrane requires removal and replacement of the green area and patio plaza above the parking garage, then this would also not be included in the roofing membrane cost in the costing manual. Further Costing Scenarios Other components in a reserve fund study may be more complex to cost. For example, the following are challenges a practitioner will face when estimating component costs: 1. Components that service both the common property and the individual units, making it difficult to separate the two; 2. Building code changes when replacing items; 3. Dealing with damage to other components when replacing a main component The following examples will illustrate each of these scenarios. Example: Marshall & Swift Costing, Electrical Panel & Distribution An example of a component that services both common area and individual units is the electrical panel and distribution component. Electrical panels and the associated distribution system are considered base-building items and, as such, have a projected life expectancy of 35 to 40 years; they are normally only replaced when the system is upgraded or there is a major problem or malfunction with the system. This item is a contingency item, and if problems are not encountered, this component will often not be a required replacement. As such, a practitioner may decide that the full replacement cost may be unnecessary and only a portion of the cost may be estimated in the Reserve Fund estimates. Including this or excluding it can both cause problems: if it does need replacement and there are no allowances for it, then the Reserve Fund is underfunded; if it does not need to be replaced and an allowance is accounted for, the Reserve Fund may be over-funded. The Marshall & Swift Costing Manual provides the cost of installing electrical costs under the segregated section. There are two ways to cost electrical components under the segregated section: 1. use the electrical cost for typical occupancies found in Sections 41 to 48 (e.g., Apartments, Hotels, Row Houses, etc). 2. use Section 54 to break out the individual electrical components. 4.7

11 CPD 891: Fundamentals of Reserve Fund Planning Most reserve fund analysts are not electricians and do not have the in-depth knowledge to adequately break out the individual electrical components. Unless the practitioner has this specialized knowledge, it would be recommended that Sections 41 to 48 be used instead. For this example, we will use Section 41 of the Marshall & Swift Costing Manual. Assume the building is a Class C, excellent quality, and is located in Calgary, Alberta. On Page 4 of Section 41, the suggested cost per square foot for a high quality Class C building (level 4) is $ The current cost multiplier and local multiplier must also be determined and applied to the cost numbers. These multipliers are found in Section 99 of the Marshall & Swift Costing Manual. For the current cost multiplier, found on page 3 of Section 99, this building is in the Central region, is in Class C, and the 48 column applies (costs as of 3/13). Therefore, the current cost multiplier is The local cost multiplier is found on page 5 of Section 99 is For a Class C building in Calgary, the local cost multiplier is Therefore, the current cost per square foot is estimated as: $12.70 per ft = $15.62 Multiplying the building s square footage by $15.62 would give an estimate of replacement cost new for the entire building s electrical components. However, the reserve fund does not consider replacement costs for individual units, but only for common areas. So, in this example, if the common area makes up 800 square feet, then the total replacement cost for electrical components would be: $15.62 per ft ft 2 = $12,497 Admittedly, this is at best a rough approximation of future replacement cost of electrical components in common areas. For example, this does not include removal and disposal costs. However, it probably meets the needs in a reserve fund study, in finding the middle ground where the reserve is not over-funded or under-funded. Alternatively, if a practitioner uses Section 54 instead, then the replacement cost of each separate component must be calculated. Once again, the total cost figure will include replacement cost for both the individual units and the common area. Same as above, the total cost must be apportioned between these uses, so as not to overstate the reserve cost. This apportionment is typically done on the basis of common area as a percentage of total area. For example, if the common area comprises 10% of the building area and 50 KVA electrical transformer needs to be replaced at a cost of $4,920, then the current cost estimate is as follows: 3 $4, = $492 3 The Unit-In-Place section shows the cost of a 50 KVA transformer to be in the range of $3,925 to $4,600 (Section 54, Page 2) before adjustments for current and local cost multipliers. We will assume a cost of $4, = $4,

12 Lesson 4: Cost Analysis Including this amount in the reserve fund allows for a contingency factor for this transformer. In reality, if the whole transformer goes, the reserve fund will likely have to cover the whole $4,920 cost. However, the likelihood of this happening is rare, so including $4,920 in the reserve fund would likely lead to over-funding. Another way some practitioners may deal with this issue in larger projects where a building could have ten transformers, is to only estimate and include the cost for one transformer. In effect, this amounts to planning a contingency fund, rather than projecting direct anticipated replacement cost. Functional Obsolescence in Reserve Fund Studies As a general rule, the reserve fund study considers only replacement of the current elements, it does not consider upgrades simply due to consumer demand or changing tastes or preferences. An issue arises in replacing elements with current systems when they are clearly obsolete. For example, a property may have single-paned windows in a very cold climate. In a situation like this, the condominium/strata corporation may well consider going beyond repairing or replacing the existing system, but updating to the newer, more efficient system. Furthermore, in this example the corporation may not be able to feasibly purchase single-pane windows because they are no longer commonly manufactured. In this case it is common to utilize the next most similar building component such as double-glazed units (though an upgrade to triple-glazed windows would not be an unreasonable assumption). This forward-looking consideration also ties into highest and best use considerations, for items that are not worth fixing economically given the age, quality, and condition of the structure. Where the reserve fund requires going beyond basic replacement or in situations where replacement may not be warranted, it is very important that the practitioner discuss these matters with the client and seek direction. And, most important of all, where you diverge from the standard, ensure you make this clear in your report, stating your assumptions and the reasons for them. Example: Marshall & Swift Costing, Plumbing An example of building code issues arising in replacement is the replacement of plumbing in a building. Let s say that the showers located in the common recreation room of an apartment building were installed in the 1960s. The condominium association is planning a replacement of these showers, but they no longer meet building code requirements. At the time the showers were installed, they conformed to the then current building standards. Since that time, the building code has changed to requiring larger plumbing lines. This replacement will involve additional renovation costs in order to bring the showers up to code. Therefore, it is important for the practitioner to understand the implications the replacement has on the costing of the components and their relationship to building codes. In this case, it would be incorrect to just simply do a unit cost replacement. The analysis must also account for the cost of removal and the increased cost of installation to allow for the new larger pipes. A reserve fund study is not a building code audit, but if a replacement is required it may have to be replaced to the current building code standard. As such, where this is an issue, it is important for the practitioner to make sure the current building code requirements are met when estimating replacement cost of an item. A practitioner with extensive knowledge of contemporary construction practices might look up the specific building code item in the locally applicable building code to determine the requirements for replacement (this may be the National Building Code, a provincial code, or a municipal code, depending on the local jurisdiction). However, this likely extends beyond the expertise of most reserve fund practitioners, especially for current design requirements for fire suppression, electrical, and mechanical systems. 4.9

13 CPD 891: Fundamentals of Reserve Fund Planning Where the practitioner knows or suspects that a certain component may be obsolete or require updating, then an interview with an experienced contractor(s) familiar with the component in question can be a wealth of knowledge on failure rates and life expectancy, including repair and replacement options currently being done in the subject market. Care should be exercised when using replacement costs from other regions or provinces, due to varying construction methodologies and availability of products. The steps to estimating replacement cost for this kind of item can be summarized as follows: 1. Determine the cost of removal. 2. Confirm the requirements for replacement, either directly from locally applicable building codes or indirectly through consultation with building professionals. 3. Cost the item and apply the appropriate multipliers. 4. Determine the cost of any additional repairs as the result of removal and installation of the new item. 5. Sum together all the costs to arrive at a total replacement cost of the item. The example discussed above is a more extreme case involving significant cost, whereas the replacement of other items may be more straightforward. For example, a replacement of an older staircase railing may just be a matter of replacing the railing to a different height with little additional modification to the building above the normal replacement cost estimate. Considering Repair/Replacement Alternatives As a reserve fund planner, be aware that simply relying on Marshall & Swift or RSMeans unit replacement for a component may produce an inaccurate result in some circumstances. Practitioners are strongly recommended to consult with contractors for the respective components with which they are unfamiliar. Consider an example of circulation lines for hot water heating in an apartment style building. Because the lines circulate very hot water continually for years, they can start to leak after 30, 40, or 50 years. No one (including the practitioner) will be able to estimate if and when, but it might be prudent to have a contingency to account for this. In speaking with a couple of experienced plumbing contractors in the area about this replacement, it became apparent that cutting into and removing the drywall down the entire hallway on three floors wasn t the only option. It is possible that the old system could be abandoned and a new recirculating line installed in the upper corner of the hallway, then framed and drywalled, at far less cost than tearing into existing walls, removing lines, replacing lines, then re-drywalling and finishing. The key point is that only a tradesperson or designer of these systems with the technical knowledge of the requirements could possibly cost this option and know the building code requirements. Example: Marshall & Swift Costing, Intercom An example of an item s replacement causing damage could be drywall damage when replacing the intercom system in an apartment building. In this example, a practitioner may only consider the replacement cost of the system itself, along with removal and the installation of the new item. However, a comprehensive costing must also consider ancillary cost of damage in the installation. Rarely do new items fit exactly in the space where the old item was installed. In this case, the new item will require some drywall repairs around the wall where the old item was (as well as potential replacement of wiring within the walls). If the drywall repairs are overlooked, the cost will be understated and the reserve underfunded. The steps a practitioner follows under this example are as follows: 1. Determine the removal cost of the item. 2. Cost the intercom system and apply the appropriate multipliers. 3. Cost the drywall repairs and apply the appropriate multipliers. 4. Sum the costs for a total current cost. 4.10

14 Lesson 4: Cost Analysis Licensing and Liability The M&S books and tools are licensed for individual use and the use of these resources by persons not specifically licensed may be considered breach of contract. Firms may obtain a blanket or concurrent user licensing whereby any employee may use these resources. Without some form of license, a consultant may be unable to rely on these estimates because of a potential breach. In these cases, the use of the Marshall Valuation Service (MVS) may be a preferable option. The MVS is a web-based tool that M&S provides on a per use basis. The consultant must establish an online account with M&S first and then every time that the consultant needs to use estimates they can start a new account. The cost of using the segregated approach of the MVS is $20.00 (USD, as of 2013). In this approach, the consultant can select the building elements that are required and include the relative qualities of each. The values provided can then be used in the reserve fund analysis and there is no breach of contract as the MVS is valid for each instance of use. This is particularly useful for smaller firms because the cost of the M&S tools can be substantial on an annual basis. The other benefit of using the online MVS system is that there is no need to adjust the resulting figures for location or current cost multipliers. These are automatically calculated in the system. RSMeans Cost Estimating Service RSMeans offers an alternative construction costing service to Marshall & Swift. RSMeans produces a series of costing manuals and online services that allow practitioners to determine reliable cost estimates for all facets of buildings and components. The RSMeans costing information is available for a wide range of categories of new construction and maintenance and repair, including: commercial new construction residential new construction facilities and commercial renovation facilities maintenance and repair facilities preventative maintenance specialized manuals for categories such as electrical, concrete & masonry, mechanical, plumbing and site work Similar to Marshall & Swift, RSMeans provides costs at the square foot and assembly (segregated) level. RSMeans also provides unit costs. There are a number of differences in how costing information is provided in RSMeans versus Marshall & Swift: 1. Costing information is broken down into three components: material, labour, and equipment. 2. Unit costs and assembly costs are grouped into categories that differ from the Marshall & Swift categories. These cost categories follow formats commonly used in building specifications and by cost estimators in the construction industry, but are not commonly used by real estate appraisers. RSMeans provides accurate and up-to-date cost information that helps owners, developers, architects, engineers, contractors and others to carefully and precisely project and control the cost of both new building construction and renovation projects. RSMeans produces annually updated construction cost data books plus construction estimating and facilities management seminars, electronic cost databases and software, reference books, and consulting services. rsmeans.reedconstructiondata.com 4.11

15 CPD 891: Fundamentals of Reserve Fund Planning 3. Overhead and profit for the installing contractor only are built into the costs; overhead and profit for general contractors are not built into costs estimates. 4. Sales taxes are not built into cost estimates. 5. An extensive compilation of reference information is provided with each of the main costs categories. RSMeans costing information is available in a number of different media formats: 1. Traditional Method: Cost Data Books, ebooks, and CD-ROMs 2. Online Method: RSMeansOnline.com offers a web-based application with all costing data and user generated reports are stored in the cloud. For completing reserve fund studies, the Commercial Renovation Cost Data Book or corresponding online dataset is typically the most useful source of information. This book and accompanying online application provides cost data at the unit, assembly, and square foot levels. The Online Readings webpage provides a link to the Fact Sheet for this book. top-level categories for MasterFormat and Uniformat as shown when logged into RSMeans online RSMeans Organization Working with the RSMeans manuals requires some study to learn how to find and use the proper information. However, consultants will find that climbing this learning curve is worthwhile in terms of providing a very detailed and comprehensive costing tool. RSMeans provides three levels of costing information: 1. Unit Prices are the basic level of unit costs. The unit costs are organized into 50 Divisions under the MasterFormat codes. These MasterFormat Codes are the organization of the RSMeans book, with narrowing down of detail. The MasterFormat is broken down by number, with 1 being General Requirements, 2 Existing Conditions, 3 Concrete, 4 Masonry, etc. For example, roofs come under MasterFormat section 07 Thermal & Moisture Protection. The code for asphalt roof shingles is where 31 is Shingles and Shakes, 13 is Asphalt,.10 is Roof. 2. Assemblies are a grouping of units that contribute to a built functional element. These are organized on the Uniformat II classification system. The costs are composed of the unit prices that make up the assembly. Uniformat is more intuitive, with letters A, B, C, etc., representing Substructure, Shell, and Interiors respectively. 3. Square Foot Estimator: based on building type, these are not as detailed as unit cost and assembly calculations. These are not typically used by reserve fund planners as the costs are not specific to typical repair or replacement components. These are useful for appraisers for replacement cost estimates or validating new construction costs. MasterFormat and Uniformat codes have been developed by the construction industry to standardize the descriptions and specifications for construction activities. See csinet.org for more information. A list of MasterFormat codes is provided on the Online Readings webpage. 4.12

16 Lesson 4: Cost Analysis Commercial Renovation Cost Data Book The following excerpts illustrate the format of the RSMeans Commercial Renovation Cost Data Book. The first example shows a variety of types of asphalt shingles. The RSMeans book is organized by MasterFormat codes, in this case is asphalt roof shingles. The page excerpt shows a variety of options for shingle types, how they are installed, and a breakdown of material, labour, and equipment costs. Note the excerpt below is based on 2011 data. The costs are provided per square which in roofing installation means 100 square feet of materials. A second example is Exterior Painting, Siding, Stucco MasterFormat Code The Total Including O&P accounts for the overhead and profit for an installing contractor, including employee taxes, worker s compensation fees, business overhead, etc. This does not include general contractor s overhead, for jobs complex enough that sub-contractors would be involved this overhead and profit would have to be added separately. 4.13

17 CPD 891: Fundamentals of Reserve Fund Planning Facilities Maintenance & Repair Cost Data Book An additional reference source useful for reserve fund planners is the Facilities Maintenance & Repair Cost Data Book. This set of cost data is more specific to maintenance and repair, rather than new construction. Cost data is given at the assembly level, providing costs for material, labour, and equipment, but also giving information on the frequency of maintenance and repairs (analogous to the expected life). The following excerpts outline assembly costs for: asphalt roof replacement (Uniformat Code B ); repair stucco wall (2% of walls) and refinishing stucco walls (Uniformat Code C ); and repair, maintenance, and replacement of fire alarm control panel (Uniformat Code D ). Note the assembly costs are shown with two types of total costs, Total In-house and Total O&P : In-house means overhead and profit for the installing contractor only; Total O&P add the extra for a general contractor, where sub-contractors must be managed. 4.14

18 Lesson 4: Cost Analysis The consultant has to decide which one to use based on their judgment, knowledge, and experience. For a complex job that likely involves multiple trades, the extra O&P would be advisable. A relatively simple job that can be managed by the strata and/or management firm and completed by a single contractor, would probably not include this. Estimating Costs with RSMeans The cost estimates from RSMeans: provide a breakdown of labour and materials; assume labour costs and overhead for the contractor completing the work; exclude project overhead or profit where management of subcontractors is required (though the Facilities Maintenance book specifies this additional option as noted above; the RSMeans online version allows the user to set this as a % of total costs); and exclude sales taxes Therefore, in costing a project with the RSMeans manual or RSMeans online, the following steps are required. 1. Identify the component that requires a cost estimate and decide which cost manual data to use. 2. Price the component from the manual. 3. Estimate any necessary additional project overhead and apply any necessary contingency fees. 4. Apply the region s appropriate location factor (if using printed books or ebooks; online estimator applies this automatically). 5. Apply the appropriate sales tax for your region. VIDEO: Using RSMeans Costing for RFP Step 1: Identify the component and decide which cost manual and data to use The consultant must decide whether to use a unit or assembly cost and whether to use new construction costs or repair and maintenance costs. As previously mentioned, the Commercial Renovation Cost Data is generally the most useful book or online data option. Step 2: Cost the component The RSMeans books provide unit costs based on the MasterFormat and assembly costs based on the UniFormat methods. Tools are available to help find components, such as the book s index and table of contents, or the search function in the online version. It is important to note that at the front/beginning of each main MasterFormat section number, there is useful information provided in particular, demolition and removal costs. For example, for Section 07 Thermal and Moisture Protection, there is a subsection 05 (0705) that outlines common activities required in a project in this section. Subsection 05 (070505) lists the costs of labour and equipment for demolition. For example, item states that the cost for removing of one layer of asphalt shingles is $0.65 per square foot for one layer or $1.30 per square foot for two layers. 4.15

19 CPD 891: Fundamentals of Reserve Fund Planning The RSMeans costing data is generally more detailed than Marshall & Swift, so care must be taken to ensure correct products and quality levels. As well, the installation is broken down into more detailed categories, including materials, labour, and equipment. For example, see the previous screen shot Shingles & Shakes section Step 3: Estimate additional project overhead and apply any necessary contingency fees The overhead and profit is built into the estimates for simple projects, where the installing contractor is completing the work. Where a general contractor is involved, the overhead/profit need to be added, to account for the management activity. Contractor s markups will typically range from 5% to 15% of the subcontractor s fee. The amount will depend on the scope of the project and local practices. Step 4: Apply the region s appropriate location Similar to M&S, RSMeans provides a series of multipliers to account for local and regional variations in building cost, in comparison to a standardized location. There are two methods of calculating location adjustments: City Cost Indexes: specific adjustments for each Masterformat division, broken down with factors for both labour and materials. Location factor: one weighted adjustment for material, installation, and total cost, per major city; based on a weighted average of City Cost Indexes for representative divisions. In the 2013 book, page 764 lists Cities in Canada, divided by province, and provides a location multiplier for each. The following excerpt from the RSMeans cost book shows the detailed City Cost Index breakdown for Victoria and Whitehorse, as well at the Location Factor weighted average at the bottom of the table. This example shows that total costs are 5% higher than average in Victoria and 2.8% below average in Whitehorse. 4.16

20 Lesson 4: Cost Analysis For the purposes of consultants working on reserve fund studies, the weighted average City material/labour location factors are generally precise enough. Unlike Marshall & Swift, RSMeans does not distribute costs updates periodically by paper. New books are issued annually. The online version has built-in cost updates quarterly. If necessary, consultants who have purchased Cost Books can lookup interim cost changes online. Note that the online version calculates these automatically. Step 5: Apply the appropriate sales tax for your region This is another category of expense that is built into M&S automatically (accounted for in the local multiplier), but must be accounted for separately in RSMeans. Provincial tax policies need to be taken into consideration; for example, now that BC has the PST again. GST is applied to both goods and labour and PST is generally not applied to labour. In many other provinces, the HST is applicable to labour and goods. Example: RSMeans Costing, Asphalt Shingles A simplified example of using the RSMeans Cost manual is presented below. The previous asphalt shingle roofing example that was costed using the Marshall & Swift service will be revisited here with the RSMeans commercial renovation cost data. The cost information for asphalt shingles is found in section in the RSMeans Commercial Renovation Cost Data Book (page 175 in the 2013 edition). An excerpt from the 2011 book follows: 1. The cost for the asphalt shingles is listed as follows: $176 per square (100 square feet) or $1.76 per ft 2 + $0.65 per ft 2 for removal (Masterformat ) = $2.41 per ft 2 total 2. Project overhead/contingency: the $176 includes O&P for the installing contractor. At the discretion of the consultant, contingencies or additional O&P may need to be built in depending on the complexity of the job and who is managing it. Here we will assume this project management accounts for 10% of direct costs. Add 10% = $2.65 per ft 2 3. Sales tax (HST in Ontario) Add 13% = $2.99 per ft 2 4. Apply locational factor page 764 Toronto s weighted average total is Add 13.4% = $3.39 per ft

21 CPD 891: Fundamentals of Reserve Fund Planning If used correctly, Marshall & Swift and RSMeans should result in similar cost estimates. However, where there are differences between these, or differences in comparison to standard construction practices in your area, then you should consider this a warning sign that you need to do more research and investigation to verify costs. In the example above, the RSMeans book estimated the replacement cost of shingles to be $3.39 per square foot or $33,900 for 1,000 square foot. The Marshall & Swift Manual estimated them at $35,000; a very similar result. Determining which manual is preferred depends upon a number of factors. Both manuals are internationally recognized and provide a good guide for estimating costs. Practitioners may choose their preferred manual based upon its ease of use, the cost of the manual, and how well it reflects the local costs in the area of practice. Ultimately, the manual is a tool for the practitioner s use and the brand of tool chosen is not important in itself as long as it can provide the necessary function accurately estimating costs. Accuracy of the costing tool is of course a concern, but the most pressing issue is the capability to use it correctly. Estimating Overhead and Profit RSMeans provides more options to users, which requires more judgment to be applied and results in more permutations and combinations than costing with M&S. In particular, the choice of overhead and profit may significantly influence the costing conclusions. However, keep in mind that condominiums/stratas without reserve fund studies tend towards substantial underfunding in their reserve fund one practitioner suggests this underfunding may be by a factor of 2 to 5 times. So, if the reserve fund study costs are off by 10% on a component s cost estimate, but the study improves funding by a factor of four, then this 10% isn t such a big factor in the overall reserve fund budget. RSMeansOnline Costing The RSMeansOnline web service offers an easy to use costing tool. Below is the first screen normally shown after logging in: Clicking on the blue Square Foot Estimator tab leads to the input screen for the square foot estimator option. This is the simpler input option for RSMeans, as compared to the assembly or unit cost estimates. The square foot estimator requests the following inputs: 1. Labour Type: you may select Union Shop or Open Shop Labour 2. Release: you may select either the current year s cost data or more specifically by quarter 4.18

22 Lesson 4: Cost Analysis 3. Location: allows you select the major location within the province. For example, in BC there are four options: Vancouver, Kamloops, Prince George and Victoria. These roughly reflect the different regions in BC. 4. Step 1 allows you to select a range of building types along with framing type 5. Step 2 allows you to enter building parameters, such as building size and typical components. 6. Step 3 allows you to add additional components such as elevators and appliances 7. The last step is to calculate the building cost. Cost reports can be exported to Excel. Based on a three-storey brick veneer/wood frame apartment in Vancouver, 10 foot ceilings, 22,500 square feet total, and no basement, the building cost per square foot is estimated at $ This would be useful if appraising a property based on the cost approach. However, keep in mind this does not consider all costs such as site preparation, development cost charges, or sales tax. As well, contractor s overhead and profit and architectural fees are calculated automatically, but they can also be adjusted online as a % of the project fees. 4.19

23 CPD 891: Fundamentals of Reserve Fund Planning RSMeans Unit Cost (MasterFormat) Cost Estimate RSMeans can be used to illustrate a unit cost (MasterFormat) based estimate for asphalt shingle replacement. To begin, click on the Manage Estimates tab, then click on Create New Estimate and specify the Header and Cost Data preferences for the new estimate. RSMeans online allows users to setup cost data preference that are then applied for each new estimate automatically. The following excerpt shows the list of options available in the Cost Data pull-down menu. In this case, Commercial Renovation cost data is set as the default, using Year 2013 cost data for Vancouver. 4.20

24 Lesson 4: Cost Analysis Once the Header and Cost Data preference are complete, Save & Continue will move you to the next screen: a list of MasterFormat high level codes on the left with unit costs to the right. To navigate, you can click on any of the MasterFormat codes on the left and drill down further. Alternatively, and perhaps easier, you can enter a search item in the search box, such as Asphalt Shingles. The search results are captured on the following screen. 4.21

25 CPD 891: Fundamentals of Reserve Fund Planning Select the type of shingle, in this case: Asphalt Shingles, standard strip shingles, inorganic, Class A lb/sq. pneumatic nailed. Then click Add to estimate. In the resulting list at the bottom of the window, enter the quantity in this case, if you specify 1, meaning 100 square feet of asphalt shingles is added to the cost estimate. This shows this kind of asphalt shingles in Vancouver cost $1.88 per square foot to install. This estimate includes labour, materials, and the installer s overhead and profit, but does not include materials removal, general contractor s profit, or sales tax. You would also have to apply the Vancouver location multiplier. RSMeans Assembly (Uniformat) Cost Estimate To illustrate the usefulness of the assembly (Uniformat) categories, we will create a new estimate using Facilities Maintenance and Repair from the Cost Data pull-down menu and under Type select Assemblies. 4.22

26 Lesson 4: Cost Analysis The Assembly section provides numerous useful assemblies that group together various individual (Unit) activities required for repairs and maintenance. For example, type Replace in the search box, and the results include the following assemblies. If you were looking for the cost for replacing wood siding, select Replace & finish wood clapboards, 1 st floor this is Assembly B , with the second floor assembly instead ending in Cost data for this assembly is shown as C.S.F, which is per 100 square feet. The frequency of 25 indicates the expected frequency to complete this assembly is every 25 years. Assume you are looking to cost the replacement of finished wood (clapboard) siding for a building in Vancouver. The table below shows the cost per 100 square feet (Quantity 1 in CSF). Quantity Assembly Number Description Frequency Crew Unit Labor Hours The table shows that the in-house to replace 100 square feet of clapboard wood siding in Vancouver on the first floor of a building is $1, or $10.45 per square foot, without project management overhead and profit. With O&P included, the cost is $1, or $12.05 per square foot. Costs for the second floor are significantly higher at $14.27 per square foot in-house and $16.31 with O&P. The table also shows a frequency of 25, including the projected lifecycle of this component. Note that the table above has been taken directly from Microsoft Excel; RSMeans has an export function so that each saved estimate can be exported to Excel for further formatting or calculations. RSMeans Costing Summary It is important that the practitioner take the required training necessary to fully understand the cost manual they are using, so that the cost estimates are accurately calculated and applied in the reserve fund study. Keep in mind that both data sources provide point in time estimates based on historical records of estimated costs. For the forecasting exercise of the Material Labor Equip. Total Total In-house 1 B Replace & finish wood clapboards, 1st floor 25 1 Carp C.S.F $ $ $- $ $1, $1, B Replace & finish wood clapboards, 2nd floor 25 1 Carp C.S.F $ $ $- $1, $1, $1, Total O&P 4.23

27 CPD 891: Fundamentals of Reserve Fund Planning reserve study, these current costs are inflated to provide an estimated future cost. In all cases, the accuracy of current costs inflated for future periods is suspect, however, there are no better sources than taking current costs and inflating them. When the reserve report is updated the estimates will be changed based on new information available at that time. As the timing for actual replacement of a building element draws near, the accuracy of the estimates are expected to improve, since the forecasting period is shorter. Although time forecasting generic cost data may be suspect, time forecasting historical costs that have actually been incurred for a condominium or strata project are less suspect. The actual costs take into consideration the specific neighbourhood s labour and material cost conditions as well as the actual costs to complete a repair or maintenance project specific to conditions of the condominium/strata development. This data can also be applied to verify costs for similar projects in similar areas. Relying on Contractor Cost Data The best sources of cost information are historical data for the subject development and contractor s quotes for the subject property. However, in many cases this data is not available, therefore estimates from costing services and comparative actual costs for similar projects in the neighbourhood can provide the consultant with repair and replacement cost data. The accuracy of estimates from cost services is highly dependent on the consultant s knowledge of how to use the costing services and knowledge of local labour and materials conditions. For example, consider specialty trades such as stucco repairs: in a small community, these trades may not be available locally and therefore tradespeople will have to travel some distance each day. The same applies for an elevator refurbishment. Unless the consultant builds in these extra costs into the Marshall & Swift or RSMeans costs estimates, these costs will be underestimated. Inflating an actual cost that was incurred say five years ago for stucco repair may be more accurate than using a stucco repair cost estimate that is not adjusted upwards for the local conditions not captured in the location multiplier. The easiest source of accurate costing may be to call the former contractor who replaced the siding, roof, etc., 4 or 10 years ago and ask him or her what prices have done since they did the job. Previous contractor quotes and actual invoices are good indicators of cost, but consultants must be diligent about comparing the same scope of work. Actual invoiced costs should still be checked against current rates, unless the quote was recent. Costs can change dramatically in very short periods of time depending on the market. One experienced planner noted that during a robust market with a lot of construction ongoing, combined with high demand for steel prices, contractors indicated their quotes were changing by the month in response to increases in their materials. The result was significant unit price differences over a 6 month period. Another consideration when using historical costs incurred by the corporation is the fact that the contractor may have underbid the job at the time and was 10% lower than competing bids. The same contractor may no longer be in business or with more experience the quote is no longer realistic. In this situation, if the component appears to have failed or deteriorated prematurely, the low bid price may indicate lower quality material and poor installation that might explain the reduced economic life. In such a case it would be prudent for the reserve planner to include replacement costs commensurate with an industry average, rather than adjusting a previously accepted low bid. 4.24

28 Lesson 4: Cost Analysis CASE STUDY 55 SUMMER LANE The following are excerpts from the 55 Summer Lane case study posted on the Online Readings webpage. This case study was introduced in Lessons 2 and 3, where excerpts were provided on cataloguing and inspecting common elements, and estimating their lifecycle. The excerpts in this lesson focus on estimating the replacement cost for each element. The costs are estimated using the Marshall & Swift costing service, including identification of applicable multipliers. Review of Building Elements In analyzing the many elements that are to be presented in this case example the elements will be divided into a series of groups. These are: Structural Elements & Building Envelope; Building Finishes & Decoration; Mechanical & Electrical Systems; Chattels; Non Capital Assets; and Site Improvements. All of the identified building elements fall into one of these categories. To summarize the items to be dealt with in this case study, the following list of elements is provided, sub-categorized by group. Structural Elements and Building Envelope 1. Roof replacement 2. Window replacement 3. Vinyl siding replacement 4. Building entrance roof replacement 5. Replace entrance doors Building Finishes and Decoration 1. Tile flooring replacement 2. Vinyl flooring replacement 3. Carpet replacement 4. Painting walls and ceilings Mechanical and Electrical Systems 1. Replace baseboard heating units 2. Security system replacement 3. Life safety system replacement Chattels 1. Coin operated washer and dryer replacement Non Capital Assets 1. Prepare future reserve reports (minimum of every 10 years) 2. Prepare reserve report updates (minimum of every 3 years) Site Improvements 1. Paving of parking lot 2. Replacement of sidewalks 3. Replacement of uni-stone walkway Case study prepared by Craig Hennigar, AACI, MRICS, CFA, MBA, MA, BCom, Appraisals (Fundy) Ltd., VIDEO: Case Study: Condo Conversion - 55 Summer Lane Find full case study details on the Online Readings webpage 4.25

29 CPD 891: Fundamentals of Reserve Fund Planning Regional and Local Multipliers For this analysis, each Marshall & Swift (M&S) value from the cost estimator book must be adjusted for the current cost multiplier and the local multiplier. This property is located in Toronto and is a Class D wood frame building. Toronto is located in the Eastern Region for a current cost multiplier. The current cost multiplier is selected based on the section of the book being referenced. The chart and table below shows some of the multipliers in this case. For reference, the regional multiplier for roofing, Section 57, is noted to be 1.04 from Section 99, page 3. 4 In the case of a property in Toronto, the local multiplier for Class D construction is 1.34 as of March, 2013, as noted in Section 99, Page 5. Structural Elements and Building Envelope Item Lifecycle and Cost Estimation Item: Roof Replacement Modified Bitumen Single Ply Item area: 6,603 ft 2 Replacement cost: $6.34 per ft 2 ($68.24 per m 2 ) Cost of replacement is estimated to be $6.34 per ft 2 ($68.24 per m 2 ). This is calculated based on an expected cost of $3.64 per ft 2 average of modified bitumen, single ply [$2.30+$6.80]/2, plus a 20% premium for removal and disposal. Total cost is estimated to be $4.55 per ft 2 before adjustments (based on the average of the cost range ([$2.30+$6.80]/2). Toronto and Eastern regional adjustments increase the cost to $6.34 per ft 2 ($4.55 * 1.04 Eastern Region * 1.34 Toronto Class D). 4 The full M&S charts for regional and local multipliers were provided earlier in this lesson in the Regional and Local Multipliers section. 4.26

30 Lesson 4: Cost Analysis Item: Roof Replacement Built-Up Tar & Gravel Item area: 4,829 ft 2 Replacement cost: $3.14 per ft 2 ($33.80 per m 2 ) Cost of replacement for a quality level of 12/3 (quality 1.67) is estimated to be $3.14 per ft 2 ($33.80 per m 2 ). This is calculated based on a $1.30 base cost for three-ply plus $0.25 base cost for gravel, or $1.55, plus a further $0.25 for the premium over base cost [($2.16-$1.30)/4+($0.40-$0.25)/4]. Finally, add a 25% premium for removal and disposal. Total cost is estimated to be $2.25 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $3.14 per ft 2 ($2.25 * 1.04 Eastern Region * 1.34 Toronto Class D). Item: Roof Replacement Asphalt Shingles Item areas: Spring Street Entrance Roof 94 ft 2 (8.70 m 2 ) Breezeway Entrance Roof 94 ft 2 (8.70 m 2 ) St. Paul Entrance Roof 107 ft 2 (9.92 m 2 ) Replacement cost: $2.92 per ft 2 ($31.41 per m 2 ) Cost of replacement is estimated to be $2.92 per ft 2 ($31.41 per m 2 ). This is calculated based on an expected cost of $1.68 per ft 2 average of composition shingle, light to 235lb [$1.23+$2.12]/2, plus a 25% premium for removal and disposal. Total cost is estimated to be $2.09 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $2.92 per ft 2 ($2.09 * 1.04 Eastern Region * 1.34 Toronto Class D) Section 57, Page 4). 4.27

31 CPD 891: Fundamentals of Reserve Fund Planning Item: Decking Access Stairs Item area: Breezeway Entrance Roof 94 ft 2 (8.70 m 2 ) Replacement cost: $32.85 per ft 2 ($ per m 2 ) Cost of replacement is estimated to be $32.85 per ft 2 ($ per m 2 ). This is calculated based on an expected cost of $20.30 per ft 2 average of softwood deck, railings, and steps costs plus a 15% premium for the 6 height of the platform, ($12.40+$14.00)+($2.33+$2.76)+($1.86+$1.96)/2]*1.15, plus a 10% premium for removal and disposal. Total cost is estimated to be $23.35 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $32.85 per ft 2 ($23.35 * 1.05 Eastern Region * 1.34 Toronto Class D) Section 66, Page 2). Item: Vinyl Siding Replacement Item area: 2,393 ft 2 Replacement cost: $5.43 per ft 2 ($58.42 per m 2 ) Cost of replacement is estimated to be $5.43 per ft 2 ($58.42 per m 2 ). This is calculated based on an expected cost of $3.65 per ft 2 average of siding, vinyl [$3.03+$4.26]/2, plus a 10% premium for removal and disposal. Total cost is estimated to be $4.01 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $5.43 per ft 2 ($4.01 * 1.01 Eastern Region * 1.34 Toronto Class D) Section 55, Page

32 Lesson 4: Cost Analysis Item: Window Replacement Selection of windows as follows: Windows replaced in 1998: 1. 2 Windows 0.70 m Windows 0.90 m Windows 1.00 m Windows 1.10 m Windows 1.15 m Windows 1.45 m 2 Windows to be replaced in 2013: 1. 5 Windows 1.66 m Windows 1.90 m Windows 2.10 m Windows 2.33 m Windows 3.00 m 2 Replacement cost: $41.51 per ft 2 depending on size Cost of replacement is estimated to be $41.51 per ft 2 ($ per m 2 ). This is calculated based on an expected cost of $16.90 per ft 2 average of double hung range [$13.40+$20.40]/2, plus a 37.5% premium for double glazing (average of 25% to 50%), 20% premium for vinyl sash, and a further 10% premium for removal and disposal. Total cost is estimated to be $30.67 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $41.51 per ft 2 ($30.67 * 1.01 (Eastern Section 55) * 1.34 (Toronto Class D) or $ per m 2 Section 55, Page Windows 0.70 m 2 $ each 2. Windows 0.90 m 2 $ each 3. Windows 1.00 m 2 $ each 4. Windows 1.10 m 2 $ each 5. Windows 1.15 m 2 $ each 6. Windows 1.45 m 2 $ each 7. 5 Windows 1.66 m 2 $ each 8. 1 Windows 1.90 m 2 $ each 9. 2 Windows 2.10 m 2 $ each Windows 2.33 m 2 $1, each Windows 3.00 m 2 $1, each 4.29

33 CPD 891: Fundamentals of Reserve Fund Planning Item: Exterior Door Replacement Item count: Replacement cost: m 2 Steel Fire Rated Security Exterior Doors with Windows $ per ft 2 or $4, per door Cost of replacement is estimated to be $ per ft 2 ($1, per m 2 ). This is calculated based on an expected cost of $106 per ft 2 average of doors, solid [$72.00+$140.00]/2, plus a 10% premium for removal and disposal. Total cost is estimated to be $ per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $ per ft 2 ($106.00* 1.10 * 1.01 Eastern Region * 1.34 Toronto Class D) Section 55, Page 6. Item: Interior Unit Door Replacement Item count: Replacement cost: m 2 Wood Solid Core Fire Rated Doors $27.47 per ft 2 or $ per door Cost of replacement is estimated to be $27.47 per ft 2 ($ per m 2 ). This is calculated based on an expected cost of $18.45 per ft 2 average of wood, hardboard, slab, solid core [$15.10+$21.80]/2, plus a 10% premium for removal and disposal. Total cost is estimated to be $20.30 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $27.47 per ft 2 ($18.45* 1.10 * 1.01 Eastern Region * 1.34 Toronto Class D) Section 55, Page

34 Lesson 4: Cost Analysis Item: Interior Fire Rated Stairwell Door Replacement Item count: Replacement cost: m 2 Metal Hollow Core Fire Rated Doors $36.33 per ft 2 or $ per door Cost of replacement is estimated to be $36.33 per ft 2 ($ per m 2 ). This is calculated based on an expected cost of $24.40 per ft 2 top of range for metal, hollow core $24.40, plus a 10% premium for removal and disposal. Total cost is estimated to be $26.84 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $36.33 per ft 2 ($24.40* 1.10 * 1.01 Eastern Region * 1.34 Toronto Class D) Section 55, Page 6. Item: Interior Mechanical and Storage Hollow Wood Door Replacement Item count: Replacement cost: m 2 Metal Hollow Core Fire Rated Doors $27.14 per ft 2 or $ per door Cost of replacement is estimated to be $27.14 per ft 2 ($ per m 2 ). This is calculated based on an expected cost of $18.23 per ft 2 minimum plus ¼ of the range indicated $13.80+[($ )/4], plus a 10% premium for removal and disposal. Total cost is estimated to be $20.05 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $27.14 per ft 2 ($18.23* 1.10 * 1.01 Eastern Region * 1.34 Toronto Class D) Section 55, Page

35 CPD 891: Fundamentals of Reserve Fund Planning Mechanical Systems Item Life Cycle and Cost Estimation Item: Electric 2,000 Watt Baseboard Heaters Item count: Replacement cost: 10 2,000 Watt 8 Long Electric Baseboard Heaters with Integrated Thermostats. All were installed in 2013 $ per unit Cost of replacement is estimated to be $ per unit. This is calculated based on an expected cost of $ per unit based on the minimum cost of a 2,000 watt unit $255, plus a 5% premium for removal. Total cost is estimated to be $ per unit before adjustments. Toronto and Eastern regional adjustments increase the cost to $ per unit ($267.75* 1.06 Eastern Region * 1.34 Toronto Class D) Section 53, Page 3 Item: Fire Protection and Life Safety System Item count: 4 Zones with Pull Stations and Smoke Detectors plus Main Monitoring System Replacement cost: $8, Cost of replacement is estimated to be $8, This is calculated based on: an expected cost of $1,195 for the control panel, based on the average of control panel at lobby [$1,060+$1,330]/2, plus four zones, each floor of the three storey portion of the building and a fourth zone in the two story building area, at an estimated cost of $1,165 per zone. This is based on the average cost of a zone [$215+$305]/2, plus the average cost of one pull station per zone [$300+$510]/2, and the average cost of one smoke detector per zone [$400+$600]/

36 Lesson 4: Cost Analysis The total cost is not adjusted for removal and disposal costs and is estimated to be $5,855 before adjustments. Toronto and Eastern regional adjustments increase the cost to $8, per unit: $5,855 * 1.05 Eastern Region * 1.34 Toronto Class D Section 53, Page 12. Item: Access System Item count: 24 Unit Remote Access System Replacement cost: 4, Cost of replacement is estimated to be $4, This is calculated based on an expected cost of $610 for the base system average of the 2 to 3 quality range [$530+$690]/2, plus 24 satellite access control units at an estimated cost of $119 per unit (average of the 2 to 3 quality range [$108+$130]/2). The total cost is not adjusted for removal and disposal costs and is estimated to be $3,466 before adjustments. Toronto and Eastern regional adjustments increase the cost to $4, per unit ($3,466 * 1.05 Eastern Region * 1.34 Toronto Class D) Section 42, Page 7. Building Finishes and Decoration Item Life Cycle and Cost Estimation Item: Tile Flooring Replacement 12 Ceramic Tile Item areas: 912 ft 2 (84.77 m 2 ) replaced in ,303 ft 2 ( m 2 ) to be replaced in 2013 Replacement cost: $17.45 per ft 2 ($ per m 2 ) Cost of replacement is estimated to be $17.45 per ft 2 ($ per m 2 ). This is calculated based on an expected cost of $10.31 per ft 2 tile, ceramic or quarry base cost of $8.31 per ft 2 for ceramic tile plus $2.00 per ft 2 for higher than average quality, as quarried stone tile is more expensive. A 25% premium for removal and disposal is added. Total cost is estimated to be $12.89 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $17.45 per ft 2 ($12.89 * 1.01 Eastern Region * 1.34 Toronto Class D) Section 52, Page

37 CPD 891: Fundamentals of Reserve Fund Planning Item: Tile Flooring Replacement 12 Vinyl Tile Item areas: 102 ft 2 (9.51 m 2 ) to be replaced in 2013 Laundry Room 560 ft 2 (51.98 m 2 ) replaced in 2000 Lower Floor Common Areas Replacement cost: $3.75 per ft 2 ($40.35 per m 2 ) Cost of replacement is estimated to be $3.75 per ft 2 ($40.35 per m 2 ). This is calculated based on an expected cost of $2.52 per ft 2 average of vinyl composition tile or sheet [$1.61+$3.42]/2, plus a 10% premium for removal and disposal. Total cost is estimated to be $2.77 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $3.75 per ft 2 ($2.77 * 1.01 Eastern Region * 1.34 Toronto Class D) Section 52, Page 2. Item: Carpet Stair Riser Flooring Replacement Item area: 347 ft 2 (32.20 m 2 ) to be replaced in 2013 Replacement cost: $3.14 per ft 2 ($33.75 per m 2 ) Cost of replacement for a quality level of 11/2 (quality 1.5) is estimated to be $3.14 per ft 2 ($33.75 per m 2 ). This is calculated based on a 1/6th premium above carpet base cost, or $1.30+[($3.33-$1.30)/6], plus a $0.36 per ft 2 premium for removal and disposal. Total cost is estimated to be $2.00 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $2.71 per ft 2 ($2.00 * 1.01 Eastern Region * 1.34 Toronto Class D) Section 52, Page

38 Lesson 4: Cost Analysis Item: Interior Paint, 2 Coats, Plus Primer Coat Item linear distance: 1,354 ft ( m) to be painted in 2013 Interior ceiling height: 8 ft (2.44 m) Total wall area: 10,831 ft 2 (1, m 2 ) Replacement cost: $1.49 per ft 2 ($16.02 per m 2 ) Cost of painting is estimated to be $1.49 per ft 2 ($16.02 per m 2 ). This is calculated based on an expected cost of $1.10 per ft 2 the average cost of paint, prime coat, or sealer, plus two additional coats ($0.32+$.60)/2+[($0.22+$0.42)/2*2] = $0.46 first coat + $ additional coats. There is no adjustment for removal and disposal. Total cost is estimated to be $1.10 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $1.49 per ft 2 ($1.10 * 1.01 Eastern Region * 1.34 Toronto Class D) Section 55, Page 5. Item: Ceiling Paint Total area: 3,224 ft 2 ( m 2 ) Replacement cost: $1.41 per ft 2 ($15.15 per m 2 ) Cost of painting is estimated to be $1.41 per ft 2 ($15.15 per m 2 ). This is calculated based on an expected cost of $1.04 per ft 2 average of paint only, on bottom of roof or floor structure [$0.52+$1.56]/2. There is no adjustment for removal and disposal. Total cost is estimated to be $1.04 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $1.41 per ft 2 ($1.04 * 1.01 Eastern Region * 1.34 Toronto Class D) Section 52, Page

39 CPD 891: Fundamentals of Reserve Fund Planning Non Capital Assets The cost of preparing the reserve fund, and future updating fees, are included as budgeted reserve fund expenditures! Item: Replacement Reserve Studies and Replacement Reserve Updates In this case the reserve fund report is considered an asset of the condominium/strata corporation and is included in the reserve funding analysis. The property requires a new reserve study to be completed on a routine basis. In addition, each study must also be updated within established timelines. In this case the maximum time period between full Replacement Reserve Studies is 10 years. The maximum time period between a new report and an update, or between updates, is three years. Taking this into account, a new full Replacement Reserve Study is budgeted for each nine years. This is to eliminate having to create a new update report at Year 9 of a cycle to then have to complete a new full report the following year. In the case of the budgeting for the new reports, the cost of a current report has been used. It is important to note that the cost of HST or GST, as the case may be, must be included in this estimate (the cost of these taxes is already reflected in the Marshall & Swift replacement cost estimates for other building elements). Update reports have been budgeted at 50% of the cost of a full report. Replacement Reserve Report Fee: $3,000 Update Replacement Reserve Report Fee: $1,500 Site Improvements and Social Facilities Item: Concrete Walkways Total area: 762 ft 2 (70.77 m 2 ) Replacement cost: $8.51 per ft 2 ($91.60 per m 2 ) Cost of replacement is estimated to be $8.51 per ft 2 ($91.60 per m 2 ). This is calculated based on an expected cost of $4.70 per ft 2 two-thirds of the range from the lowest to highest cost in the range for concrete sidewalk, 4 thick, $3.40+[($5.35-$3.40)*2/3], plus a 30% cost for removal and disposal. Total cost is estimated to be $6.11 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $8.51 per ft 2 ($6.11 * 1.04 Eastern Region * 1.34 Toronto Class D) Section 66, Page 1. Item: Uni-Stone Walkways Total area: 275 ft 2 (25.58 m 2 ) Replacement cost: $15.87 per ft 2 ($ per m 2 ) Cost of replacement is estimated to be $15.87 per ft 2 ($ per m 2 ). This is calculated based on an expected cost of $10.35 per ft 2 two-thirds of the range from the lowest to highest cost in the range for concrete pavers on concrete base, less the same adjustment for sand base in place of concrete, or $8.70+ [($14.40-$8.70) *2/3]-[$2.54+[($4.66-$2.54)* 2/3] plus a 10% cost for removal 4.36

40 Lesson 4: Cost Analysis and disposal. Total cost is estimated to be $11.39 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $15.87 per ft 2 ($11.39 * 1.04 Eastern Region * 1.34 Toronto Class D) Section 66, Page 2. Item: Asphalt Paving Total area: 14,720 ft 2 (1, m 2 ) Replacement cost: $4.52 per ft 2 ($48.60 per m 2 ) Cost of replacement is estimated to be $4.52 per ft 2 ($48.60 per m 2 ). This is calculated based on an expected cost of $2.70 per ft 2 average of 2 asphalt plus 1 extra to make 3 of asphalt [$1.80+$2.65] /2+[$0.42+$0.53]/2, plus a 20% cost for removal and disposal. Total cost is estimated to be $3.24 per ft 2 before adjustments. Toronto and Eastern regional adjustments increase the cost to $4.52 per ft 2 ($3.24 * 1.04 Eastern Region * 1.34 Toronto Class D) Section 66, Page 2. Conclusion: Costing Items This completes the review of the costing portions of this case study. As noted, we have covered these applicable excerpts in this lesson. In Lesson 5, we will examine the cash flow analysis for these noted building elements. To see the entire report, you may visit the Online Readings webpage, and click on Case Study: 55 Summer Lane. The case study details the lifecycle for each element, the future replacement cost, and the resulting cash flow analysis. FINAL THOUGHTS: FURTHER COST CONSIDERATIONS During the entire reserve fund analysis process, it is always important to keep the purpose of the exercise in mind assisting the condominium/ strata corporation in budgeting for the adequate funding of future building element replacement without having to resort to special assessments. Underestimating future costs can lead to shortfalls and, at worst, special assessments. Overestimating future costs can lead to an over-funded reserve, which means current owners are paying higher fees than is necessary or justified. In either case, the consultant s work may face scrutiny by the board or ownership at large. The consultant must be sensitive to current and future cost issues. Always be mindful that current local costs for work may not accurately reflect long-term future replacement cost. However, the fact that reserve reports are updated regularly gives the consultant some leeway in adjusting future estimates of effective ages and replacement costs. 4.37

41 CPD 891: Fundamentals of Reserve Fund Planning As well, during the costing process, the consultant may elect to re-visit the subject property to double-check and or verify facts and measurements. It is important to recognize that reserve fund study preparation is not a linear lock-step process but an iterative one at any point, if there s any uncertainty, the analyst may choose to return to a prior step, in carrying out more research or digging deeper in the inspection Problem Identification Property Identification and Evaluation Lifecycle Analysis Cost Analysis For each common element estimate: replacement or repair cost, including cost of removal/disposal 5 6 Financial Analysis (a) Project the future cost of replacement of reserve components (b) Project the future value of current reserve funds (c) Calculate the current reserve fund annual/monthly contributions required Communicating Results Conclusions and recommendations SUMMARY This lesson has covered the process for estimating current replacement cost for the common elements of a condominium/strata property. Several methods were outlined for gathering these estimates, including contractors estimates, cost services such as Marshall & Swift or RSMeans, and quantity surveying. The lesson outlined specific considerations in estimating costs, in particular the need to consider full costs comprehensively, including removal, disposal, and any additional costs due to retrofitting versus new construction. The reserve fund consultant now has all of the condominium/strata s common property catalogued, the expected timing of replacement noted, and the replacement costs estimated. Armed with this information the consultant can now move onto the financial analysis to estimate the required contribution to the fund to ensure that the condominium/strata corporation can meet its future capital replacement needs. The next lesson explores the two remaining steps to be covered in Lesson 5: Step 5. Financial Analysis: - project the future cost of replacement of reserve components at an appropriate compounded inflation rate; - project the value of current reserve funds compounded at a long term investment rate; and - calculate the current reserve fund annual/monthly contributions required and to be invested in interest-bearing securities. Step 6. Communicating Results: conclusions and recommendations; writing the report. 4.38