Urban Heights Condominium

Transcription

1 Condominium Capital , AssociationAnalysis, LLC

2 Condominium Prepared For: Table of Contents Condominium Association, Inc Maxwell Road Atlanta, GA October 19, 2010 INTRODUCTION INTRODUCTION STUDY METHODOLOGY RESERVE STUDY ANALYSIS BOARD SUMMARY COMPARISON OF RECOMMENDED PLAN TO CURRENT PLAN RECOMMENDED FUNDING METHOD YEARS 1 THROUGH 30 CURRENT PROPERTY FUNDING PLAN YEARS 1 THROUGH 30 IMMEDIATE COSTS COMPONENT INVENTORY & DESCRIPTION & DETAIL COMPARISON OF CASH FLOW METHOD TO COMPONENT METHOD COMPONENT FUNDING METHOD BREAKDOWN COMPARISON OF CASH FLOW, COMPONENT & FULL FUNDING METHODS APPENDIX FUNDING METHODS TERMS AND DEFINITIONS CREDENTIALS AND LIMITATIONS

3 INTRODUCTION On August 30, 2010 Rex Rouis of AssociationAnalysis, LLC conducted an on-site visit of Condominium (Property) and met with Ms. Sandra Mosley, Community Manager, with Condominium Management. Representational areas of all Common Elements and Limited Common Elements were observed. The purpose of the visit was to view the common areas for an analysis of capital reserve items. IMPROVEMENTS The Property is currently a high-rise residential condominium community consisting of 125 residential units, in one ten-story building. The Property was originally built as condominiums in 2005, and transitioned to Association control in Amenities include an exercise facility, swimming pool, and structured parking. The street entrance, condominium lobby, and exercise facility are all located on the Ground Floor. Dedicated condominium parking is provided on Parking Levels 1 and 2, and on a portion of the Ground Floor. Levels 1 through 9 contain all residential units. STUDY METHODOLOGY LEVEL OF SERVICE: This Study has been conducted as a Full ( 1st time ) (Study), and was prepared under the guidelines of the National Standards of the Community Associations Institute, and conforms to the Community Associations Institute Professional Reserve Specialist Code of Ethics. A is made up of two parts. The first part is the Physical Analysis, and includes an on-site observation, where each of the Property s pertinent components are evaluated to determine their useful lives, their remaining lives, and their replacement costs. These determinations are based on our observation of the component at the time of the inspection, our professional experience, industry standards, local sources, and estimating services such as RS Means and the Marshall & Swift Valuation Service. The second part is the Financial Analysis, where the Physical Analysis information is inserted into three commonly used Funding Methods to calculate the corresponding reserve funding levels. FUNDING METHODS: The three methods are the Component Method, the Cash Flow Method, and the Current Funding. Each method uses the exact same expenditure information, the only difference being the way in which each calculates the necessary funding contributions. The Component Method is a total of all the Fully Funded values for each component. The Cash Flow Method calculates the funding level necessary to maintain a specific reserve balance. Finally, the Current Funding inserts the Association s current funding plan into a calculation similar to the Cash Flow Method to determine a comparative future funding level. This funding level is then compared to Full Funding, and the result is expressed as a percentage. One of the three funding methods will be selected, and a recommended Funding Plan will be presented. While it is our goal that the Association would use this Study as an essential tool in planning their future property needs, there may be issues and/or requirements known only to the Association that could influence reserve decisions. Many associations tend to adopt the Cash Flow Method over the Component Method due to its lower annual contributions. However, only the Board of Directors of the Association, in consultation with their appropriate management, legal, and accounting professionals, can ultimately decide their own specific Funding Plan. Further information on funding methods and all terms and definitions can be found in the attached Appendix, found at the end of this report. Page 1 Atlanta, Georgia (770) efax (866)

4 1 Board Summary Property inspection Date 30-Aug-2010 Report Date 16-Oct-2010 First full year of contributions and expenditures - Reserve Analysis Start Year 2011 Substantial Completion Date - Property Construction Date 2005 Total Condominium Units 125 Calculated On All Expenditures - Assumed Inflation Rate 3.25% Earned on Reserve Balance After Taxes - Assumed Interest Rate 2.50% Number of Years in - Funding Horizon 30 Recommended Funding Plan Our findings are based on our on-site Physical Analysis, our estimates of the life expectancies and replacement costs for all components. The Recommended Funding Level utilizes the Cash Flow Method, and is designed to maintain a 5% Minimum Threshold balance. Current Funding The Current Reserve Contribution of $18,000 per year ($144 per unit average) is sufficient up to year Recommended Funding Begin 2011 with a Starting Reserve Contribution of $30,000 ($240 per unit average). Increase by 45% in 2014, and then increase by 45% every three years until No additional assessments are required or included. Comparison Of Recommended Funding To Current Funding RECOMMENDED FUNDING CURRENT FUNDING Notes: Total Immediate Costs $2,000 $2,000 Starting Reserve Balance $164,500 $164,500 Starting Annual Reserve Contribution $30,000 $18,000 See Note 1 - Starting Annual Reserve Contribution - Per Unit $ $ See Note 2 - Total of All Special Assessments None NA Special Assessment Years None NA All Special Assessments - Per Unit None NA See Note 3 - Minimum Threshold Funding Level $70,316 $70,316 Recommended Five Year Funding Schedule ANNUAL CONTRIBUTION PERCENT CHANGE Starting Annual Reserve Contribution - Year 2011 $30,000 NA Year 2012 $30, % Year 2013 $30, % Year 2014 $43, % Year 2015 $43, % 1. Average for all unit types - See condominium cocuments for actual proration breakdown 2. Values are in uninflated current dollars 3. 5 % of the total of all Start Year Replacement Costs, adjusted each year for inflation Example xls Page 2

5 Comparison Of Recommended Funding To Current Funding (Includes Beginning Balance and Balance Interest - Does not include Immediate Items) 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, Projected Capital Expenditures Current Funding Plan Recommended Funding Plan ` Example xls Page 3

6 Recommended Funding Plan Years 1 through 15 COMPONENT REPLACEMENT COSTS ROOFING SYSTEMS 5 Modified Bitumen Roofing 103,200 Repaint Metal Roofing 56,250 88,020 Replace Roof Area Sealant 25,000 33,339 Replace Conc Paver Supports 5,500 6,664 STRUCTURES & EXTERIORS 5 Balcony Coating - South & West 20,000 24,231 Balcony Coating - North & East 22,000 32,293 Sealant Replace Partial 45,000 60,010 Brick Mortar Joint Repair 75,000 Heightened Stucco Repair 50,000 EXTERIOR PAINTING 5 Exterior Paint 120, , ,777 Roof Steel Stair Paint 2,500 2,665 3,670 COMMON INTERIORS 5 Carpet Replace 34,800 51,081 Corridor Paint 7,200 8,183 11,267 Fitness Center Walcovering 5,500 8,073 Backhouse Paint 8,000 11,743 Amenity Finishes 25,000 34,422 Amenity Soft Goods 15,000 20,653 Exercise Equipment 31,500 38,164 FIRE PROTECTION SYSTEMS 5 Fire Pump Replace 50,000 HVAC SYSTEMS 5 Common HVAC 20,000 Package Chiller Unit 65,000 Chiller Pumps 20,000 29,357 Air Release Valves 8,000 8,260 Stair Pressurization 10,000 PLUMBING SYSTEMS 5 Domestic Water Pumps 10,500 14,002 Backflow Preventers 25,000 ELECTRICAL SYSTEMS 5 Refurbish Main Panels 120,000 Rebuild Emerg. Generator 25,000 ELEVATORS 5 Modernization 255,000 Refurbish Cab 30,000 46,944 SWIMMING POOL & HARDSCAPE 5 Pool Interior Finish 8,000 9,092 12,518 Pool & Spa Heaters 4,000 4,546 6,259 Pool Deck Recoat 14,100 18,803 Furniture 7,000 8,481 PAVEMENT & PARKING 5 Asphalt Re-seal & Repair 3,025 3,438 4,734 Sidewalk/Paver Repair 15,000 23,472 Re-stripe 1,500 1,705 2,347 Automatic Doors 36,000 48,008 SITE & LANDSCAPING 5 Metal Site Fencing 18,000 Masonry Retaining Walls Ongoing 9,750 13,002 ANNUAL CAPITAL EXPENDITURES 8, ,592 26,963 77, ,164 55, , ,339 ANNUAL SURPLUS / (DEFICIT) 186,240 (100,592) 30,000 16,537 43,500 (34,039) 63,075 63,075 (124,089) 36,383 91,459 (44,757) 132,615 (250,723) 132,615 YEAR END BALANCE (DEFICIT) 190,624 93, , , , , , , , , , , , , ,358 TOTAL ANNUAL UNIT CONTRIBUTION 30,000 30,000 30,000 43,500 43,500 43,500 63,075 63,075 63,075 91,459 91,459 91, , , ,615 AVERAGE PER UNIT CONTRIBUTION ,061 1,061 1,061 % CONTRIBUTION STEP INCREASE 45.00% 45.00% 45.00% 45.00% SPECIAL ASSESSMENT AVERAGE PER UNIT ASSESSMENT CASH FLOW METHOD Cash Flow Method determines reserve funding by projecting reserve expenditures and contributions offset over a specific timeframe (30-year shown, 60-year full calculation). Different reserve contribution combinations (Unit Contribution, Step Increase) are tested until a desired Funding Goal is achieved. Cash Flow Projection Graph Annual Expenditures Annual Surplus / Deficit Reserve Balance Example xls Page 4

7 COMPONENT REPLACEMENT COSTS ROOFING SYSTEMS 5 Modified Bitumen Roofing 103,200 Repaint Metal Roofing 56,250 Replace Roof Area Sealant 25,000 Replace Conc Paver Supports 5,500 STRUCTURES & EXTERIORS 5 Balcony Coating - South & West 20,000 Balcony Coating - North & East 22,000 Sealant Replace Partial 45,000 Brick Mortar Joint Repair 75,000 Heightened Stucco Repair 50,000 EXTERIOR PAINTING 5 Exterior Paint 120,000 Roof Steel Stair Paint 2,500 COMMON INTERIORS 5 Carpet Replace 34,800 Corridor Paint 7,200 Fitness Center Walcovering 5,500 Backhouse Paint 8,000 Amenity Finishes 25,000 Amenity Soft Goods 15,000 Exercise Equipment 31,500 FIRE PROTECTION SYSTEMS 5 Fire Pump Replace 50,000 HVAC SYSTEMS 5 Common HVAC 20,000 Package Chiller Unit 65,000 Chiller Pumps 20,000 Air Release Valves 8,000 Stair Pressurization 10,000 PLUMBING SYSTEMS 5 Domestic Water Pumps 10,500 Backflow Preventers 25,000 ELECTRICAL SYSTEMS 5 Refurbish Main Panels 120,000 Rebuild Emerg. Generator 25,000 ELEVATORS 5 Modernization 255,000 Refurbish Cab 30,000 SWIMMING POOL & HARDSCAPE 5 Pool Interior Finish 8,000 Pool & Spa Heaters 4,000 Pool Deck Recoat 14,100 Furniture 7,000 PAVEMENT & PARKING 5 Asphalt Re-seal & Repair 3,025 Sidewalk/Paver Repair 15,000 Re-stripe 1,500 Automatic Doors 36,000 SITE & LANDSCAPING 5 Metal Site Fencing 18,000 Masonry Retaining Walls Ongoing 9,750 ANNUAL CAPITAL EXPENDITURES ANNUAL SURPLUS / (DEFICIT) YEAR END BALANCE (DEFICIT) TOTAL ANNUAL UNIT CONTRIBUTION AVERAGE PER UNIT CONTRIBUTION % CONTRIBUTION STEP INCREASE SPECIAL ASSESSMENT AVERAGE PER UNIT ASSESSMENT CASH FLOW METHOD Cash Flow Method determines reserve funding by projecting reserve expenditures and contributions offset over a specific timeframe (30-year shown, 60-year full calculation). Different reserve contribution combinations (Unit Contribution, Step Increase) are tested until a desired Funding Goal is achieved. Recommended Funding Plan Years 16 through ,431 41, ,352 53,864 9,781 14,357 35,567 52,207 57,428 96, ,712 91,808 5,053 90,841 15,513 14,357 20,883 57,422 34,453 56,019 82,227 91,808 36,723 18,362 22,623 53, , ,416 17,237 8,618 30,379 12,449 18,273 40,043 21, , , ,413 5,053 1,437,693 40, , ,780 42, ,292 78,477 (184,121) 192, , , ,823 (1,158,870) 238,781 (88,680) 278, , ,823 (123,956) 374, , , , , ,161 1,222,408 1,535, , , , ,363 1,179,556 1,491,353 1,403, , , , , , , , , , , , , , , ,823 1,538 1,538 1,538 1,538 1,538 1,538 2,231 2,231 2,231 2,231 2,231 2,231 2,231 2,231 2, % 45.00% ,518 3,232 77,565 Cash Flow Projection Graph 275,628 52, Annual Expenditures Annual Surplus / Deficit Reserve Balance Example xls Page 5

8 Current Funding Plan Years 1 through 15 COMPONENT REPLACEMENT COSTS ROOFING SYSTEMS 5 Modified Bitumen Roofing 103,200 Repaint Metal Roofing 56,250 88,020 Replace Roof Area Sealant 25,000 33,339 Replace Conc Paver Supports 5,500 6,664 STRUCTURES & EXTERIORS 5 Balcony Coating - South & West 20,000 24,231 Balcony Coating - North & East 22,000 32,293 Sealant Replace Partial 45,000 60,010 Brick Mortar Joint Repair 75,000 Heightened Stucco Repair 50,000 EXTERIOR PAINTING 5 Exterior Paint 120, , ,777 Roof Steel Stair Paint 2,500 2,665 3,670 COMMON INTERIORS 5 Carpet Replace 34,800 51,081 Corridor Paint 7,200 8,183 11,267 Fitness Center Walcovering 5,500 8,073 Backhouse Paint 8,000 11,743 Amenity Finishes 25,000 34,422 Amenity Soft Goods 15,000 20,653 Exercise Equipment 31,500 38,164 FIRE PROTECTION SYSTEMS 5 Fire Pump Replace 50,000 HVAC SYSTEMS 5 Common HVAC 20,000 Package Chiller Unit 65,000 Chiller Pumps 20,000 29,357 Air Release Valves 8,000 8,260 Stair Pressurization 10,000 PLUMBING SYSTEMS 5 Domestic Water Pumps 10,500 14,002 Backflow Preventers 25,000 ELECTRICAL SYSTEMS 5 Refurbish Main Panels 120,000 Rebuild Emerg. Generator 25,000 ELEVATORS 5 Modernization 255,000 Refurbish Cab 30,000 46,944 SWIMMING POOL & HARDSCAPE 5 Pool Interior Finish 8,000 9,092 12,518 Pool & Spa Heaters 4,000 4,546 6,259 Pool Deck Recoat 14,100 18,803 Furniture 7,000 8,481 PAVEMENT & PARKING 5 Asphalt Re-seal & Repair 3,025 3,438 4,734 Sidewalk/Paver Repair 15,000 23,472 Re-stripe 1,500 1,705 2,347 Automatic Doors 36,000 48,008 SITE & LANDSCAPING 5 Metal Site Fencing 18,000 Masonry Retaining Walls Ongoing 9,750 13,002 ANNUAL CAPITAL EXPENDITURES 8, ,592 26,963 77, ,164 55, , ,339 ANNUAL SURPLUS / (DEFICIT) 174,240 (112,007) 19,189 (7,150) 20,457 (56,418) 21,808 22,517 (163,916) (31,072) 24,784 (110,627) 26,421 (356,059) 28,167 YEAR END BALANCE (DEFICIT) 178,474 69,529 90,696 85, ,579 54,171 77, ,344 (61,062) (92,134) (67,350) (177,977) (151,555) (507,614) (479,448) TOTAL ANNUAL UNIT CONTRIBUTION 18,000 18,585 19,189 19,813 20,457 21,121 21,808 22,517 23,248 24,004 24,784 25,590 26,421 27,280 28,167 AVERAGE PER UNIT CONTRIBUTION % CONTRIBUTION STEP INCREASE 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% SPECIAL ASSESSMENT AVERAGE PER UNIT ASSESSMENT CURRENT FUNDING METHOD Current Funding Method determines reserve funding by projecting reserve expenditures and contributions over a specific timeframe (30-year shown, 60-year full calculation). The Current reserve contribution plan (Unit Contribution, Step Increase) is utilized. Current Funding Projection Graph Annual Expenditures Annual Surplus / Deficit Reserve Balance Example xls Page 6

9 COMPONENT REPLACEMENT COSTS ROOFING SYSTEMS 5 Modified Bitumen Roofing 103,200 Repaint Metal Roofing 56,250 Replace Roof Area Sealant 25,000 Replace Conc Paver Supports 5,500 STRUCTURES & EXTERIORS 5 Balcony Coating - South & West 20,000 Balcony Coating - North & East 22,000 Sealant Replace Partial 45,000 Brick Mortar Joint Repair 75,000 Heightened Stucco Repair 50,000 EXTERIOR PAINTING 5 Exterior Paint 120,000 Roof Steel Stair Paint 2,500 COMMON INTERIORS 5 Carpet Replace 34,800 Corridor Paint 7,200 Fitness Center Walcovering 5,500 Backhouse Paint 8,000 Amenity Finishes 25,000 Amenity Soft Goods 15,000 Exercise Equipment 31,500 FIRE PROTECTION SYSTEMS 5 Fire Pump Replace 50,000 HVAC SYSTEMS 5 Common HVAC 20,000 Package Chiller Unit 65,000 Chiller Pumps 20,000 Air Release Valves 8,000 Stair Pressurization 10,000 PLUMBING SYSTEMS 5 Domestic Water Pumps 10,500 Backflow Preventers 25,000 ELECTRICAL SYSTEMS 5 Refurbish Main Panels 120,000 Rebuild Emerg. Generator 25,000 ELEVATORS 5 Modernization 255,000 Refurbish Cab 30,000 SWIMMING POOL & HARDSCAPE 5 Pool Interior Finish 8,000 Pool & Spa Heaters 4,000 Pool Deck Recoat 14,100 Furniture 7,000 PAVEMENT & PARKING 5 Asphalt Re-seal & Repair 3,025 Sidewalk/Paver Repair 15,000 Re-stripe 1,500 Automatic Doors 36,000 SITE & LANDSCAPING 5 Metal Site Fencing 18,000 Masonry Retaining Walls Ongoing 9,750 ANNUAL CAPITAL EXPENDITURES ANNUAL SURPLUS / (DEFICIT) YEAR END BALANCE (DEFICIT) TOTAL ANNUAL UNIT CONTRIBUTION AVERAGE PER UNIT CONTRIBUTION % CONTRIBUTION STEP INCREASE SPECIAL ASSESSMENT AVERAGE PER UNIT ASSESSMENT CURRENT FUNDING METHOD Current Funding Method determines reserve funding by projecting reserve expenditures and contributions over a specific timeframe (30-year shown, 60-year full calculation). The Current reserve contribution plan (Unit Contribution, Step Increase) is utilized. Current Funding Plan Years 16 through ,431 41, ,352 53,864 9,781 14,357 35,567 52,207 57,428 96, ,712 91,808 5,053 90,841 15,513 14,357 20,883 57,422 34,453 56,019 82,227 91,808 36,723 18,362 22,623 53, , ,416 17,237 8,618 30,379 12,449 18,273 40,043 21, , , ,413 5,053 1,437,693 40, , ,780 (121,054) 30,027 (82,812) (344,403) 33,051 34,125 30,181 36,379 (1,400,132) (1,260) (327,461) 41,344 42,688 44,075 (357,272) (600,501) (570,474) (653,286) (997,689) (964,638) (930,513) (900,332) (863,952) (2,264,084) (2,265,345) (2,592,806) (2,551,461) (2,508,774) (2,464,698) (2,821,971) 29,082 30,027 31,003 32,011 33,051 34,125 35,234 36,379 37,562 38,782 40,043 41,344 42,688 44,075 45, % 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25% ,518 3,232 77,565 Current Funding Projection Graph 275,628 52, Annual Expenditures Annual Surplus / Deficit Reserve Balance Example xls Page 7

10 1 Immediate Costs These are costs requiring implementation within a short timeframe (prior to a future budgeting cycle). Immediate items usually meet one or more of the following conditions: (1) items that have fully exceeded their useful lives, and if left undone, could cause future damage, (2) code or life safety issues, (3) unsafe conditions, (4) developer warranty items, or (5) construction defects. Immediate Costs are not included in the Funding Method calculations. COMPONENT IMMEDIATE COSTS CURRENT ASSOCIATION BUDGET IMMEDIATE COSTS (Minus Current Budget Amount) AVERAGE COST PER UNIT ROOFING SYSTEMS Replace Conc Paver Supports $2,000 $2,000 $16.00 $ STRUCTURES & EXTERIORS $ EXTERIOR PAINTING $ COMMON INTERIORS $ FIRE PROTECTION SYSTEMS $ HVAC SYSTEMS $ PLUMBING SYSTEMS $ ELECTRICAL SYSTEMS $ ELEVATORS $ SWIMMING POOL & HARDSCAPE $ PAVEMENT & PARKING $ SITE & LANDSCAPING TOTAL End of Immediate Costs $2,000 $2,000 $16 $2,000 Example xls Page 8

11 Component Inventory and Detail ROOFING SYSTEMS The flat roofs have a hot applied modified bitumen system. The roof has interior drains but does not appear to have overflow scuppers or drains. The metal roofs are of a sloped gabled design, consisting of metal standing seam roofing with metal drip flashing. Metal gutters and downspouts are utilized. Runoff from downspouts is typically piped to the paving and storm water system. All roofing is reportedly original and in good condition with no leaks reported. The roofs are new and therefore it is difficult to accurately predict aging patterns. We have assumed that the roofs will attain an industry standard age range of 40 to 50 years, but this estimated replacement cycle may be adjusted in future updates as more empirical evidence is developed as to their performance. Finishes typically carry a 20-year warranty. Our reserve value includes a system refurbishment (partial panel replacement, repair/repaint/refinish, and partial flashing replacement), and is not a full replacement cost. The high roofs are equipped with lightning protection. Note: The above visual observation was conducted from observing roof surfaces by walking on the roof, but did not include the removal or disturbance of any roof component, therefore the Report conclusion and description does not include the existence or adequacy of hidden subsurface items such as insulation, sheathing, flashings, and attachments. Proper maintenance is required to achieve the anticipated remaining life. Adopting an "on-going" annual preventive maintenance program with a qualified roofing contractor will help insure maximum life expectancy of the roofing materials/applications. A yearly condition and cost review is advisable. A yearly condition and cost review is advisable. In addition, yearly inspections are advisable for all components. The actual life expectancy and replacement costs may vary based on long-term performance variables. Some components may lend themselves to on-going repair and/or partial replacement, rather than full replacement at the end of their expected life cycle. When combined with input from qualified professionals, this type of approach can reduce capital outlay spikes and possibly reduce further component degradation. Component Component Replacement Cost Immediate Cost Modified Bitumen Roofing $103,200 Estimated Cost at Current Prices: $0 30 Years Estimated Useful Life 24 Years Estimated Remaining Life Repaint Metal Roofing 6,250 Estimated Cost at Current Prices: $0 20 Years Estimated Useful Life 14 Years Estimated Remaining Life Replace Roof Area Sealant $25,000 Estimated Cost at Current Prices: $0 15 Years Estimated Useful Life 9 Years Estimated Remaining Life Replace Conc Paver Supports,500 Estimated Cost at Current Prices: $2, Years Estimated Useful Life 6 Years Estimated Remaining Life $189,950 Total Estimated Cost at Current Prices $2,000 $12,012 Total Estimated Cost at Current Prices Per Year Example xls Page 9

12 Component Inventory and Detail STRUCTURES & EXTERIORS The structure is made of post-tensioned cast-in-place concrete. Exterior wall finishes consist of brick veneer on metal studs with drywall interior finish. In addition to the terrace level roofs there are cantilevered concrete balconies with metal railings throughout the building. The two sets of pressurized interior exit stairs in the building tower are constructed of poured concrete stringers and treads with steel handrails. Most Unit entry doors consist of fire-rated wood doors set in painted metal frames off the common corridors. Entry door hardware typically is lever style. Operable windows are a combination of double hung and fixed insulating glass in metal clad exterior frames and wood interior frames. Some Units have cantilevered concrete balconies with metal railings that step down from the Unit floors. Terraces are constructed with block perimeter parapet walls as rails. The balconies and terraces are accessed through swinging glass doors. Some of the exterior window caulking and other areas of caulk were exhibiting evidence of minor sealant failure. Note: The above observation includes: exterior finishes, visible flashing, trim, a representative number of doors, windows, decks, stoops, steps, stairs, porches, railings, eaves, soffits and fascias, and visible portions of the foundation and structural components. The observation does not include: flashings or components that are not visible or readily accessible from the ground, safety type glass, or the integrity of the window seals. The Report does not identify size, spacing, span, location or determine the adequacy of foundation bolting, or determine the adequacy of any structural system or component. A yearly condition and cost review is advisable. In addition, yearly inspections are advisable for all components. The actual life expectancy and replacement costs may vary based on long-term performance variables. Some components may lend themselves to on-going repair and/or partial replacement, rather than full replacement at the end of their expected life cycle. When combined with input from qualified professionals, this type of approach can reduce capital outlay spikes and possibly reduce further component degradation. Component Component Replacement Cost Immediate Cost Balcony Coating - South & West $20,000 Estimated Cost at Current Prices: $0 12 Years Estimated Useful Life 6 Years Estimated Remaining Life Balcony Coating - North & East $22,000 Estimated Cost at Current Prices: $0 18 Years Estimated Useful Life 12 Years Estimated Remaining Life Sealant Replace Partial $45,000 Estimated Cost at Current Prices: $0 15 Years Estimated Useful Life 9 Years Estimated Remaining Life Brick Mortar Joint Repair $75,000 Estimated Cost at Current Prices: $0 25 Years Estimated Useful Life 19 Years Estimated Remaining Life Heightened Stucco Repair 0,000 Estimated Cost at Current Prices: $0 25 Years Estimated Useful Life 19 Years Estimated Remaining Life $212,000 Total Estimated Cost at Current Prices $0 $16,746 Total Estimated Cost at Current Prices Per Year Example xls Page 10

13 Component Inventory and Detail EXTERIOR PAINTING Exterior surfaces of the apartment buildings and common area buildings are primarily finished with brick veneer and synthetic stucco. The interior of the parapet walls consist of painted masonry. The rear of the parking garage utilizes concrete block painted at the exterior. The exterior painted finishes were reportedly original, and will require repainting in Once repainted, it should require minor repairs and repainting every ten to twelve years. The metal railings located on the open balconies should require repainting approximately every other repainting of the tower. Metal fencing located throughout the site will require on-going painting and minor repair. Note: The exterior sealants should be inspected and replaced as needed. Minor sealant replacement is included in the exterior painting value. A yearly condition and cost review is advisable. In addition, yearly inspections are advisable for all components. The actual life expectancy and replacement costs may vary based on long-term performance variables. Some components may lend themselves to on-going repair and/or partial replacement, rather than full replacement at the end of their expected life cycle. When combined with input from qualified professionals, this type of approach can reduce capital outlay spikes and possibly reduce further component degradation. Component Component Replacement Cost Immediate Cost Exterior Paint $120,000 Estimated Cost at Current Prices: $0 12 Years Estimated Useful Life 10 Years Estimated Current Age 2 Years Estimated Remaining Life Roof Steel Stair Paint $2,500 Estimated Cost at Current Prices: $0 10 Years Estimated Useful Life 8 Years Estimated Current Age 2 Years Estimated Remaining Life $122,500 Total Estimated Cost at Current Prices $0 $61,250 Total Estimated Cost at Current Prices Per Year Example xls Page 11

14 Component Inventory and Detail COMMON INTERIORS Common areas include an entrance lobby, front desk, office, multipurpose room, fitness center, swimming pool, and men and women's restrooms. The residential floors have common area elevator lobbies and corridors. The fitness center has seven pieces of equipment, some free weights, and a TV. The interior finishes utilize average materials and finishes of carpeted floors and painted drywall walls. The fitness center has vinyl wall covering. The main lobby and a portion of the multipurpose room utilize stone tile flooring. Note: The reserve costs are only for the repair and replacement of components and finishes deemed to be Common Elements and Limited Common Elements. A yearly condition and cost review is advisable. In addition, yearly inspections are advisable for all components. The actual life expectancy and replacement costs may vary based on long-term performance variables. Some components may lend themselves to on-going repair and/or partial replacement, rather than full replacement at the end of their expected life cycle. When combined with input from qualified professionals, this type of approach can reduce capital outlay spikes and possibly reduce further component degradation. Component Component Replacement Cost Immediate Cost Carpet Replace $34,800 Estimated Cost at Current Prices: $0 18 Years Estimated Useful Life 12 Years Estimated Remaining Life Corridor Paint $7,200 Estimated Cost at Current Prices: $0 10 Years Estimated Useful Life 4 Years Estimated Remaining Life Fitness Center Walcovering,500 Estimated Cost at Current Prices: $0 18 Years Estimated Useful Life 12 Years Estimated Remaining Life Backhouse Paint $8,000 Estimated Cost at Current Prices: $0 18 Years Estimated Useful Life 12 Years Estimated Remaining Life Amenity Finishes $25,000 Estimated Cost at Current Prices: $0 16 Years Estimated Useful Life 10 Years Estimated Remaining Life Amenity Soft Goods $15,000 Estimated Cost at Current Prices: $0 16 Years Estimated Useful Life 10 Years Estimated Remaining Life Exercise Equipment $31,500 Estimated Cost at Current Prices: $0 12 Years Estimated Useful Life 6 Years Estimated Remaining Life $127,000 Total Estimated Cost at Current Prices $0 $15,075 Total Estimated Cost at Current Prices Per Year Example xls Page 12

15 Component Inventory and Detail FIRE PROTECTION SYSTEMS The fire and life safety systems at the subject consists of central monitored electronic notification systems which contains a main central control panel, pull stations, and hard-wired smoke detection equipment with battery back up. In addition, the residential and the common floors of the building contain a full automatic wet piped sprinkler system for fire protection/suppression. The sprinkler systems are equipped with tamper and flow switches. Additional fire suppression and protection is provided by freestanding street level fire hydrants and standpipes. Each residential Unit has its own smoke detectors, which are the responsibility of the Unit owners. Note: Component Costs are only for supporting common areas or components providing service to more than one unit. Each Unit owner is responsible for the maintenance and replacement of the equipment associated with their individual Unit and is not covered by this report. A yearly condition and cost review is advisable. In addition, yearly inspections are advisable for all components. The actual life expectancy and replacement costs may vary based on long-term performance variables. Some components may lend themselves to on-going repair and/or partial replacement, rather than full replacement at the end of their expected life cycle. When combined with input from qualified professionals, this type of approach can reduce capital outlay spikes and possibly reduce further component degradation. Component Component Replacement Cost Immediate Cost Fire Pump Replace 0,000 Estimated Cost at Current Prices: $0 25 Years Estimated Useful Life 19 Years Estimated Remaining Life 0,000 Total Estimated Cost at Current Prices $0 $2,632 Total Estimated Cost at Current Prices Per Year Example xls Page 13

16 Component Inventory and Detail HVAC SYSTEMS Unit heating and cooling is accomplished by individual fan coil units, with chilled fluid provided by one common reciprocating chiller, located on grade at the back of the site. Heat for each apartment is provided by electric heat strips within the individual fan coil units. The tonnage ranges vary depending on the size of the apartment. Common area heating and cooling is provided by similar fan coil units. Component Costs are only for common elements. Each Unit is responsible for the maintenance and replacement of their unit s equipment, and is not covered by this report. Note: The above observation includes a general review and observation of the Property s equipment. The observation did not include an inspection or test of each individual unit s systems and equipment. The Report does not attempt to determine or warrant the uniformity, temperature, flow, balance, distribution, or supply adequacy of the heating and cooling systems, or the compliance with local or state conservation or energy standards. A yearly condition and cost review is advisable. In addition, yearly inspections are advisable for all components. The actual life expectancy and replacement costs may vary based on long-term performance variables. Some components may lend themselves to on-going repair and/or partial replacement, rather than full replacement at the end of their expected life cycle. When combined with input from qualified professionals, this type of approach can reduce capital outlay spikes and possibly reduce further component degradation. Component Component Replacement Cost Immediate Cost Common HVAC $20,000 Estimated Cost at Current Prices: $0 25 Years Estimated Useful Life 19 Years Estimated Remaining Life Package Chiller Unit $65,000 Estimated Cost at Current Prices: $0 22 Years Estimated Useful Life 16 Years Estimated Remaining Life Chiller Pumps $20,000 Estimated Cost at Current Prices: $0 18 Years Estimated Useful Life 12 Years Estimated Remaining Life Air Release Valves $8,000 Estimated Cost at Current Prices: $0 56 Years Estimated Useful Life 55 Years Estimated Current Age 1 Years Estimated Remaining Life Stair Pressurization $10,000 Estimated Cost at Current Prices: $0 25 Years Estimated Useful Life 19 Years Estimated Remaining Life $123,000 Total Estimated Cost at Current Prices $0 $15,308 Total Estimated Cost at Current Prices Per Year Example xls Page 14

17 Component Inventory and Detail PLUMBING SYSTEMS Municipal water is provided to the site from subsurface water mains. Main supply lines and all risers are copper. All hot-water distribution is CPVC piping. All cold-water distribution is PVC, and all waste and vent is PVC. Sewer service is provided to all Units via gravity flow offsite to the municipal sewer system. There are three domestic water pumps located in the pump room of the garage. Plumbing systems will require minimum maintenance over the life of the Property, and should not require material replacement within the 30-year Funding Horizon. Component Costs are only for systems supporting common areas or components providing service to more than one Unit. Each Unit owner is responsible for the maintenance and replacement of the equipment associated with their individual Unit and is not covered by this report. Note: The above observation includes a general review and observation of the Property s systems and equipment. The observation did not include an inspection or test of each individual unit s system. The Report does not attempt to determine or warrant the exact flow rate, volume, pressure, temperature, or adequacy of the water supply, or the compliance with local or state conservation or energy standards. A yearly condition and cost review is advisable. In addition, yearly inspections are advisable for all components. The actual life expectancy and replacement costs may vary based on long-term performance variables. Some components may lend themselves to on-going repair and/or partial replacement, rather than full replacement at the end of their expected life cycle. When combined with input from qualified professionals, this type of approach can reduce capital outlay spikes and possibly reduce further component degradation. Component Component Replacement Cost Immediate Cost Domestic Water Pumps $10,500 Estimated Cost at Current Prices: $0 15 Years Estimated Useful Life 9 Years Estimated Remaining Life Backflow Preventers $25,000 Estimated Cost at Current Prices: $0 30 Years Estimated Useful Life 24 Years Estimated Remaining Life $35,500 Total Estimated Cost at Current Prices $0 $2,208 Total Estimated Cost at Current Prices Per Year Example xls Page 15

18 Component Inventory and Detail ELECTRICAL SYSTEMS Underground electrical service is provided by the local utility company to on-site transformers. Each Unit is separately metered through panels located in building electrical rooms. The common area usage is also measured by electrical meters. The branch wiring was reported to be copper, with aluminum used only for main service. Circuit breakers provide overload protection in the units. The corridors are equipped with ceiling lights and the building has limited exterior lighting. The project was not observed at night. The electrical systems will require minimum maintenance over the life of the Property, and should not require material replacement within the 30-year Funding Horizon. Component Costs are only for common elements. Each Unit is responsible for the maintenance and replacement of their unit s equipment, and is not covered by this report. Note: The above observation includes a general review and observation of the Property s systems and equipment. The observation did not include an inspection or test of each individual unit s system. The Report does not attempt to determine or warrant the service adequacy, or the compliance with local or state conservation or energy standards. A yearly condition and cost review is advisable. In addition, yearly inspections are advisable for all components. The actual life expectancy and replacement costs may vary based on long-term performance variables. Some components may lend themselves to on-going repair and/or partial replacement, rather than full replacement at the end of their expected life cycle. When combined with input from qualified professionals, this type of approach can reduce capital outlay spikes and possibly reduce further component degradation. Component Component Replacement Cost Immediate Cost Refurbish Main Panels $120,000 Estimated Cost at Current Prices: $0 30 Years Estimated Useful Life 24 Years Estimated Remaining Life Rebuild Emerg. Generator $25,000 Estimated Cost at Current Prices: $0 22 Years Estimated Useful Life 16 Years Estimated Remaining Life ELEVATORS $145,000 Total Estimated Cost at Current Prices $0 $6,563 Total Estimated Cost at Current Prices Per Year The Property is equipped with three Otis Gen2 Machine-Roomless elevators. All elevators are in excellent condition. A comprehensive elevator maintenance service contract is in place to minimize future repairs. Note: A yearly condition and cost review is advisable. In addition, yearly inspections are advisable for all components. The actual life expectancy and replacement costs may vary based on long-term performance variables. Some components may lend themselves to on-going repair and/or partial replacement, rather than full replacement at the end of their expected life cycle. When combined with input from qualified professionals, this type of approach can reduce capital outlay spikes and possibly reduce further component degradation. Component Component Replacement Cost Immediate Cost Modernization $255,000 Estimated Cost at Current Prices: $0 30 Years Estimated Useful Life 24 Years Estimated Remaining Life Refurbish Cab $30,000 Estimated Cost at Current Prices: $0 20 Years Estimated Useful Life 14 Years Estimated Remaining Life $285,000 Total Estimated Cost at Current Prices $0 $12,768 Total Estimated Cost at Current Prices Per Year Example xls Page 16

19 Component Inventory and Detail SWIMMING POOL & HARDSCAPE The Property has an in-ground heated pool with concrete deck. The pool deck is a non-slip concrete coating that will require periodic recoating. Note: The above observation includes a general review and observation of the Property s pool and spa systems and equipment. The observation did not include an inspection or test of each individual system. The Report does not attempt to determine or warrant the exact flow rate, volume, pressure, temperature, or adequacy of the water supply, or the compliance with local or state standards. A yearly condition and cost review is advisable. In addition, yearly inspections are advisable for all components. The actual life expectancy and replacement costs may vary based on long-term performance variables. Some components may lend themselves to on-going repair and/or partial replacement, rather than full replacement at the end of their expected life cycle. When combined with input from qualified professionals, this type of approach can reduce capital outlay spikes and possibly reduce further component degradation. Component Component Replacement Cost Immediate Cost Pool Interior Finish $8,000 Estimated Cost at Current Prices: $0 10 Years Estimated Useful Life 4 Years Estimated Remaining Life Pool & Spa Heaters $4,000 Estimated Cost at Current Prices: $0 10 Years Estimated Useful Life 4 Years Estimated Remaining Life Pool Deck Recoat $14,100 Estimated Cost at Current Prices: $0 15 Years Estimated Useful Life 9 Years Estimated Remaining Life Furniture $7,000 Estimated Cost at Current Prices: $0 12 Years Estimated Useful Life 6 Years Estimated Remaining Life $33,100 Total Estimated Cost at Current Prices $0,733 Total Estimated Cost at Current Prices Per Year Example xls Page 17

20 Component Inventory and Detail PAVEMENT & PARKING Access and egress are provided for entry and exit from the parking garage. The security gates consist of tubular metal rolling type gates. The parking garage floors are presently uncoated poured concrete. There was no apparent evidence of water damage to the steel reinforcing in the concrete. Asphaltic paving, concrete sidewalks, and stone paving are located around the building. Note: The reserve cost shown is only for resealing and/or restriping and ongoing partial repair/replacement of paving and concrete garage. A yearly condition and cost review is advisable. In addition, yearly inspections are advisable for all components. The actual life expectancy and replacement costs may vary based on long-term performance variables. Some components may lend themselves to on-going repair and/or partial replacement, rather than full replacement at the end of their expected life cycle. When combined with input from qualified professionals, this type of approach can reduce capital outlay spikes and possibly reduce further component degradation. Component Component Replacement Cost Immediate Cost Asphalt Re-seal & Repair $3,025 Estimated Cost at Current Prices: $0 10 Years Estimated Useful Life 4 Years Estimated Remaining Life Sidewalk/Paver Repair $15,000 Estimated Cost at Current Prices: $0 20 Years Estimated Useful Life 14 Years Estimated Remaining Life Re-stripe $1,500 Estimated Cost at Current Prices: $0 10 Years Estimated Useful Life 4 Years Estimated Remaining Life Automatic Doors $36,000 Estimated Cost at Current Prices: $0 15 Years Estimated Useful Life 9 Years Estimated Remaining Life 5,525 Total Estimated Cost at Current Prices $0 $6,203 Total Estimated Cost at Current Prices Per Year Example xls Page 18

21 Component Inventory and Detail SITE & LANDSCAPING Site drainage is accomplished by surface sheet flow over paved and landscaped areas into drop inlets located in the drives and that discharge to the municipal storm water system. The site has only a small amount of landscaped and irrigated area. The Property is fenced at the perimeter with metal fencing on the north and west sides. There are stacked block retaining walls in several locations. Note: A yearly condition and cost review is advisable. In addition, yearly inspections are advisable for all components. The actual life expectancy and replacement costs may vary based on long-term performance variables. Some components may lend themselves to on-going repair and/or partial replacement, rather than full replacement at the end of their expected life cycle. When combined with input from qualified professionals, this type of approach can reduce capital outlay spikes and possibly reduce further component degradation. Component Component Replacement Cost Immediate Cost Metal Site Fencing $18,000 Estimated Cost at Current Prices: $0 30 Years Estimated Useful Life 5 Years Estimated Current Age 25 Years Estimated Remaining Life Masonry Retaining Walls Ongoing $9,750 Estimated Cost at Current Prices: $0 15 Years Estimated Useful Life 9 Years Estimated Remaining Life $27,750 Total Estimated Cost at Current Prices $0 End of Component Inventory $1,803 Total Estimated Cost at Current Prices Per Year Example xls Page 19

22 Comparison of Cash Flow Method to Component Method This Section provides comparisons of the Cash Flow Funding Method and the Current Funding Method with the Component Funding Method and the Full Funding Method, as required by the National Standards, and adopted by the Community Associations Institute (CAI). (Commencing on January 1, 2011 and Expiring on December 31 of 2040) (Includes Beginning Balance and Balance Interest on all Funding Methods - Does not include Immediate Items) 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, Projected Capital Expenditures Component Funding Method Current Funding Plan Recommended Funding Plan ` Example xls Page 20

23 Component Funding Method Breakdown (Commencing on January 1st and Expiring on December 31st of that same Calendar Year - Does not include Immediate Items) COMPONENT ESTIMATED USEFUL LIFE (Years) ESTIMATED REMAINING USEFUL LIFE (Years) CURRENT COMPONENT REPLACEMENT COST FUTURE COMPONENT REPLACEMENT COST (With Inflation Shown At First Occurance) FIRST OCCUR. YEAR AMOUNT TO BE FUNDED ANNUALLY (To First) AMOUNT TO BE FUNDED MONTHLY ROOFING SYSTEMS Modified Bitumen Roofing $103,200 $222, $9,265 $ Repaint Metal Roofing ,250 $88, $6, Replace Roof Area Sealant 15 9 $25,000 $33, $3,704 $ Replace Conc Paver Supports 12 6,500 $6, $1,111 $92.55 STRUCTURES & EXTERIORS Balcony Coating - South & West 12 6 $20,000 $24, $4,038 $ Balcony Coating - North & East $22,000 $32, $2,691 $ Sealant Replace Partial 15 9 $45,000 $60, $6, Brick Mortar Joint Repair $75,000 $137, $7,248 $ Heightened Stucco Repair ,000 $91, $4,832 $ EXTERIOR PAINTING Exterior Paint 12 2 $120,000 $127, $63,963, Roof Steel Stair Paint 10 2 $2,500 $2, $1,333 $ COMMON INTERIORS Carpet Replace $34,800 1, $4,257 $ Corridor Paint 10 4 $7,200 $8, $2,046 $ Fitness Center Walcovering 18 12,500 $8, $ Backhouse Paint $8,000 $11, $979 $81.55 Amenity Finishes $25,000 $34, $3,442 $ Amenity Soft Goods $15,000 $20, $2,065 $ Exercise Equipment 12 6 $31,500 $38, $6, FIRE PROTECTION SYSTEMS Fire Pump Replace ,000 $91, $4,832 $ HVAC SYSTEMS Common HVAC $20,000 $36, $1,933 $ Package Chiller Unit $65,000 $108, $6, Chiller Pumps $20,000 $29, $2,446 $ Air Release Valves 56 1 $8,000 $8, $8,260 $ Stair Pressurization $10,000 $18, $966 $80.53 PLUMBING SYSTEMS Domestic Water Pumps 15 9 $10,500 $14, $1,556 $ Backflow Preventers $25,000 3, $2,244 $ ELECTRICAL SYSTEMS Refurbish Main Panels $120,000 $258, $10,773 $ Rebuild Emerg. Generator $25,000 $41, $2,607 $ ELEVATORS Modernization $255,000 49, $22,892 $1, Refurbish Cab $30,000 $46, $3,353 $ SWIMMING POOL & HARDSCAPE Pool Interior Finish 10 4 $8,000 $9, $2,273 $ Pool & Spa Heaters 10 4 $4,000 $4, $1,136 $94.71 Pool Deck Recoat 15 9 $14,100 $18, $2,089 $ Furniture 12 6 $7,000 $8, $1,413 $ Example xls Page 21

24 Component Funding Method Breakdown (Commencing on January 1st and Expiring on December 31st of that same Calendar Year - Does not include Immediate Items) COMPONENT ESTIMATED USEFUL LIFE (Years) ESTIMATED REMAINING USEFUL LIFE (Years) CURRENT COMPONENT REPLACEMENT COST FUTURE COMPONENT REPLACEMENT COST (With Inflation Shown At First Occurance) FIRST OCCUR. YEAR AMOUNT TO BE FUNDED ANNUALLY (To First) AMOUNT TO BE FUNDED MONTHLY PAVEMENT & PARKING Asphalt Re-seal & Repair 10 4 $3,025 $3, $859 $71.62 Sidewalk/Paver Repair $15,000 $23, $1,677 $ Re-stripe 10 4 $1,500 $1, $426 $35.51 Automatic Doors 15 9 $36,000 $48, ,334 $ SITE & LANDSCAPING Metal Site Fencing $18,000 $40, $1,602 $ Masonry Retaining Walls Ongoing 15 9 $9,750 $13, $1,445 $ TOTAL Component Replacement Cost Breakdown $1,406,325 $2,427,351 $217,857 $18, Cost Breakdown Total Reserves Cost Breakdown Reserves Per Year ROOFING SYSTEMS STRUCTURES & EXTERIORS EXTERIOR PAINTING COMMON INTERIORS FIRE PROTECTION SYSTEMS HVAC SYSTEMS PLUMBING SYSTEMS ELECTRICAL SYSTEMS ELEVATORS SWIMMING POOL & HARDSCAPE PAVEMENT & PARKING SITE & LANDSCAPING Average Per Unit Contribution Per Year YEAR AVERAGE PER UNIT YEAR AVERAGE PER UNIT YEAR AVERAGE PER UNIT Component Method Per Year The Average Per Unit Contribution changes each year depending on the actual combination of Component ages, current funding status, and costs of each Component. Year one can sometimes be significantly higher then the following years because it corrects for previous un-funded years for each individual Component. For further detail see the attached Appendix End of Component Funding Method , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,813 Example xls Page 22

25 Comparison of Cash Flow, Component & Full Funding Methods (In Inflated Dollars) Year Fully Funded Beginning Balance Component Method Beginning Balance Percent Funded Cash Flow Method Beginning Balance Percent Funded Current Funding Level Beginning Balance Percent Funded , $217, % $198, % $186, % 2012 $635, $419, % $224, % $200, % , $444, % $126, % $90, % 2014 $697, $600, % $173, % $112, % 2015 $773, $727, % $193, % $108, % 2016 $883, $881, % $241, % $131, % 2017 $919, $953, % $232, % $77, % 2018 $1,039, $1,103, % $301, % $102, % 2019 $1,165, $1,256, % $370, % $126, % 2020 $1,106, $1,214, % $280, % -$37, % 2021 $1,184, $1,306, % $323, % -$67, % 2022 $1,325, $1,456, % $422, % -$41, % 2023 $1,333, $1,469, % $427, % -$151, % 2024 $1,485, $1,621, % 67, % -$124, % 2025 $1,250, $1,384, % $323, % -$479, % 2026 $1,407, $1,535, % 24, % -$450, % 2027 $1,418, $1,538, % 78, % -70, % 2028 $1,588, $1,696, % $785, % -39, % 2029 $1,650, $1,743, % $878, % -$621, % 2030 $1,447, $1,528, % $709, % -$964, % 2031 $1,631, $1,696, % $922, % -$930, % 2032 $1,825, $1,872, % $1,227, % -$895, % 2033 $2,024, $2,050, % $1,535, % -$863, % 2034 $2,240, $2,241, % $1,837, % -$826, % 2035 $984, $984, % $692, % -$2,225, % 2036 $1,134, $1,134, % $946, % -$2,225, % 2037 $957, $957, % $875, % -$2,551, % 2038 $1,159, $1,159, % $1,179, % -$2,508, % 2039 $1,373, $1,373, % $1,491, % -$2,464, % 2040 $1,599, $1,599, % $1,805, % -$2,419, % Beginning Balance Comparison Per Year 3,000,000 2,000,000 1,000,000 0 (1,000,000) (2,000,000) (3,000,000) Fully Funded Balance Current Funding Balance End of Report Component Funding Balance Cash Flow Funding Balance Example xls Page 23

26 Appendix FUNDING METHODS The three commonly used calculation methods to calculate the Reserve Funding Plan are the Component Method, the Cash Flow Method, and the Current Funding Method. Each method uses the exact same expenditure information, the only difference being the way in which each calculates the necessary contributions. The Component Method sets the Component Replacement Cost value for each separate component. The Cash Flow Method calculates the funding level necessary to maintain a specific reserve balance. Finally, the Current Funding Method analyzes the current funding level. COMPONENT METHOD: Component Method determines reserve funding by dividing the inflated Component Replacement Cost by the useful life for each component, then summing all Component Replacement Costs for an annual total over the full analysis period. Funds for each component are considered separate (non-pooled) accounts, each funding 100% of the component s expenditure when it is due. The Component Method calculation is similar to that of the Full Funding Method, except that the first year is not calculated to offset the full used up portion of the Component Replacement Cost. The Component Method yearly balance is compared to the Fully Funded Balance, and the result is expressed as a percentage. CASH FLOW METHOD: A method of developing a Funding Plan where contributions to the Reserve fund are designed to offset the variable annual expenditures from the Reserve fund. This analysis calculates the future Component Replacement Cost for reserve components when they are due, and recognizes increases in construction costs, as well as interest income on reserve balances. Previous balances and new contributions for all components are pooled, and a yearly contribution rate calculated to provide positive cash flow and a reserve balance above a minimum Threshold Funding amount. Different contribution combinations (Unit Contributions, Step Increases, and/or Special Assessments) are tested until a funding plan is achieved, one that adequately funds the expenditures throughout the analysis period (Funding Horizon). (State of Florida Regulatory Note - Prior to December 23, 2002, Florida Statute mandated that condominiums, cooperatives, and timeshare condominiums calculate reserves via the Component Funding Method, on an annual basis. Funding at less than 100% of the fully funded estimate, based on the Component Funding Method, could occur only after a vote of the association membership. As of December 23, 2002, changes to the Florida Administrative Code recognized the Cash Flow Method as an approved methodology for the calculation of reserve funding. If Associations wish to change to the Cash Flow Method, they are encouraged to seek appropriate professional assistance.) Unlike the Component Method, the Cash Flow Method does not require separate 100% funding of each component to meet projected expenditures. This results in a contribution rate that is normally less than that determined by the Component Method. Although the Cash Flow Method may fund reserves at less than 100% Percent Funding during all or portions of the analysis period, a positive cash flow is achieved that ensures that each component will have sufficient funds available when it is due. The Cash Flow Method yearly balance is compared to the Fully Funded Balance, and the result is expressed as a percentage. CURRENT FUNDING METHOD: The Current Funding Method takes the Association s current funding values and inserts them into a Cash Flow Method calculation to determine if the resulting reserve balance stays above the minimum Threshold Funding amount. The Current Funding yearly balance is compared to the Fully Funded Balance, and the result is expressed as a percentage. FUNDING PLAN: One of the three funding methods will be selected, and a recommended Funding Plan will be presented. This recommendation is based on limited information, for there may be issues and/or requirements known only to the Association that could influence reserve decisions. Only the Board of Directors of the Association, in consultation with their appropriate management, legal, and accounting professionals, can ultimately decide their own specific Funding Plan. Page I Atlanta, Georgia (770) efax (866)

27 Appendix TERMS AND DEFINITIONS BEGINNING BALANCE: The current balance in the reserve budget at the beginning of the Funding Horizon Start Year. The Beginning Balance is the same for all Funding Methods, and combined with the particular Funding Method Start Year Contribution gives the total Start Year balance. COMPONENT: See Reserve Component COMPONENT REPLACEMENT COST: The cost of replacing, repairing, or restoring a Reserve Component to its original functional condition during a particular year. The Current Component Replacement Cost would be the cost to replace, repair, or restore the component at the current cost at the time of the Start Year. The Component Replacement Cost is sometimes referred to as Replacement Cost or Component Cost. For estimating purposes, a Replacement Cost must assume an underlying repair and/or replacement methodology. Any recommendations, stated or assumed, are given for the sole purpose of communicating estimated budget values, and are not meant as actual remedy recommendations. All final property remedies and/or repairs are the responsibility of the Association. The actual life expectancy and replacement costs of various components, particularly those with a longer life expectancy, may vary based on long-term performance variables. Some components may lend themselves to on-going repair and/or partial replacement, rather than full replacement at the end of their expected life cycle. When combined with input from qualified professionals, this type of approach can reduce capital outlay spikes and possibly reduce further component degradation. EXCLUDED COMPONENTS: We have excluded components that are too small to be considered a capital expense, and that are typically included in an operational budget. Items such as these usually have an estimated cost of less than,000 on small properties and approximately $10,000 on larger properties. This minimum cost amount does not pertain to Immediate Cost items, which include life safety issues, code issues, or a condition, if left undone, that could cause significant future property damage. We have also excluded components, which are deemed to have an extremely long useful life, one that may equal or exceed the useful life of the property itself, if properly maintained. Excluded components typically include the building structure, the exterior wall system, electrical system wiring, and plumbing system piping. COMPONENT LIFE EXPECTANCY AND REPLACEMENT COSTS: The actual life expectancy and replacement costs of various components, particularly those with a longer life expectancy, may vary based on long-term performance variables. Some components may lend themselves to on-going repair and/or partial replacement, rather than full replacement at the end of their expected life cycle. When combined with input from qualified professionals, this type of approach can reduce capital outlay spikes and possibly reduce further component degradation. COMPONENT INVENTORY: The task of selecting and quantifying the Reserve Components. This task can be accomplished through on-site visual observations, the review of Association design and organizational documents, a review of established Association precedents, and a discussion with the appropriate representative(s) of the Association or Cooperative. CONDITION ASSESSMENT: The task of evaluating the current condition of the component based on observed or reported characteristics. CONTRIBUTIONS: The monetary additions to the Reserve Balance from the unit owners. Contributions can be annual or single. CURRENT COMPONENT REPLACEMENT COST: See Component Replacement Cost Page II Atlanta, Georgia (770) efax (866)

28 Appendix DEFICIT: An actual (or projected) Reserve Balance less than the specified Threshold Funding Amount. Any value above the Threshold Funding Amount would be considered a Surplus. EFFECTIVE AGE: The adjusted difference between Useful Life and Remaining Useful Life. Effective Age is not always equivalent to chronological age, since some components age irregularly. Many times the actual chronological age is adjusted for issues such as maintenance, initial quality, and environment. It is used primarily in computations. EXPENDITURES: The outlay expense for each component or the aggregate expense for all Component Replacement Costs. FINANCIAL ANALYSIS: That portion of a where the current status of the Reserves (measured as cash or Percent Funded) and a recommended Reserve contribution rate (Reserve Funding Plan) is derived, and the projected Reserve income and expense over time is presented. The Financial Analysis is one of the two parts of a. FULL FUNDING METHOD: The funding method calculation needed to create the Fully Funded Balance. FULLY FUNDED: 100% Funded. When the actual (or projected) Reserve balance is equal to the Fully Funded Balance. FULLY FUNDED BALANCE (FFB): Total Accrued Depreciation. An indicator against which actual (or projected) Reserve balance can be compared. The Reserve balance that is in direct proportion to the fraction of life used up of the current Repair or Component Replacement Cost. This number is calculated for each component, and then is summed together for an Association total. Two formulae can be utilized, depending on the provider s sensitivity to interest and inflation effects. Note: Both yield identical results when interest and inflation are equivalent. FFB = Current Cost X Effective Age / Useful Life or FFB = (Current Cost X Effective Age / Useful Life) + [(Current Cost X Effective Age / Useful Life) / (1 + Interest Rate) ^ Remaining Life] - [(Current Cost X Effective Age / Useful Life) / (1 + Inflation Rate) ^ Remaining Life] FUNDING GOALS: Independent of methodology utilized, the following represent the basic categories of Funding Plan goals: Baseline Funding: Establishing a Funding Plan based on keeping the Reserve cash balance above zero. Full Funding: Setting a Funding Plan based on attaining and maintaining Reserves at or near 100% funded. Statutory Funding: Establishing a Funding Plan based on only setting aside the specific minimum amount of Reserves required by local statutes. Threshold Funding: Establishing a Funding Plan based on keeping the Reserve balance above a specified dollar or Percent Funded amount. Depending on the threshold, this may be more or less conservative than Fully Funding. FUNDING HORIZON: The duration in years represented in the Funding Plan. The Funding Horizon in this study is 30-years, using calculations based on a 60-year period. FUNDING PLAN: An Association s plan to provide income to a Reserve fund to offset anticipated expenditures from that fund. Page III Atlanta, Georgia (770) efax (866)

29 Appendix FUNDING PRINCIPLES: Sufficient Funds When Required Stable Contribution Rate over the Years Evenly Distributed Contributions over the Years Fiscally Responsible IMMEDIATE COSTS: A cost requiring implementation within a short timeframe (prior to a future budgeting cycle). Immediate items usually meet one or more of the following conditions: (1) items that have fully exceeded their useful lives, and if left undone, could cause future damage, (2) code or life safety issues, (3) unsafe conditions, (4) developer warranty items, or (5) construction defects. Immediate Costs are not included in any Funding Method calculations. INTEREST, INFLATION AND TAXES: This Study utilizes an after tax interest rate for the reserve balance on deposit. The Study also applies a specific inflation rate to all projected expenditures. LIFE AND VALUATION ESTIMATES: The task of estimating Useful Life, Remaining Useful Life, and Repair or Component Replacement Costs for the Reserve Components. PERCENT FUNDED: The ratio of yearly balances of a specific Funding Plan to the Fully Funded Balance, expressed as a percentage. PHYSICAL ANALYSIS: The portion of the where the Component Inventory, Condition Assessment, and Life and Valuation Estimate tasks are performed. This represents one of the two parts of the Reserve Study. RESERVE ANALYSIS START YEAR: The first full year of contributions and expenditures, and the start of the Funding Horizon. REMAINING USEFUL LIFE (RUL): The estimated time, in years, that a reserve component can be expected to continue to serve its intended function. Component replacements anticipated to occur in the initial year are considered to have a zero Remaining Useful Life. Items may not last as long as projected or may exceed their estimated lives. Influences such as weather, catastrophe, improper maintenance, physical abuse, or abnormal use can affect these lives and/or Component Replacement Costs. When such occurrences happen, another inspection should be made and a new revised study prepared. Also known as Remaining Life (RL). RESERVE BALANCE: Actual or projected funds as of a particular point in time that the association has identified for use to defray the future repair or replacement of those components which the Association is obligated to maintain. Also known as Reserves, Reserve Accounts, and Cash Reserves. RESERVE COMPONENT: The individual line items in the developed or updated in the Physical Analysis. These elements form the building blocks for the. Reserve Components typically are: 1) common elements with Association responsibility, 2) with limited Useful Life expectancies, 3) predictable Remaining Useful Life expectancies, 4) above a minimum threshold cost, and 5) required by local codes. Also known as Component. RESERVE PROVIDER: An individual that prepares Reserve Studies. RESERVE STUDY: A budget planning tool which identifies the current status of the Reserve fund and a stable and equitable Funding Plan to offset the anticipated future major common area expenditures. The Reserve Study consists of two parts: the Physical Analysis and the Financial Analysis. Page IV Atlanta, Georgia (770) efax (866)

30 Appendix RESERVE STUDY UPDATES: The Cash Flow Method allows for a smaller ongoing reserve balance than the Component Method, and has less ability to respond to unforeseen cost/income fluctuations, or unanticipated replacement cost escalations. The Cash Flow Method values should be reviewed annually against actual current contributions and expenditures, and should be fully updated every three to five years with an Update, With- Site-Visit/On-Site Review. With this update, the components are re-evaluated and new replacement costs, useful lives, and remaining lives are estimated. A financial analysis similar to this study is then conducted. SPECIAL ASSESSMENT: A Contribution levied on the members of an Association in addition to the regular annual Contributions. Special Assessments are often regulated by governing documents or local statutes. The year that the Assessment occurs is called the Assessment Year. STEP INCREASE: The percent increase, from one year to the next, of the Unit Contribution (Annual and monthly). Allowing contributions to rise at a rate independent of inflation, serves to offset the impact of inflation, and allows flexibility for contributions to increase with the age of a property, and thus may lower the initial contribution rate. SURPLUS: An actual (or projected) Reserve Balance greater than the Fully Funded Balance. See Deficit. THRESHOLD FUNDING AMOUNT: The minimum allowable reserve balance (starting at year two and adjusted for inflation), expressed as a percentage of the total accumulated reserve expenditures (years one through 30 only). This value is used in the Cash Flow Funding Method. UNIT CONTRIBUTION: The total, annual, or monthly contribution by a Unit owner to the collective reserve balance. USEFUL LIFE (UL): Total Useful Life or Depreciable Life. The estimated time, in years, that a Reserve Component can be expected to serve its intended function if properly constructed in its present application or installation. CREDENTIALS Rex Rouis is a principal in the firm of AssociationAnalysis, LLC. Rex has over thirty years of experience in the practice of architecture, assisting developers with all phases of the real estate development process, fourteen years of which supporting institutional property ownership. He has been involved in all aspects of the real estate process, including equity acquisition, debt placement, transaction due diligence, project development, property management, and capital budget review, on properties and portfolios ranging from million to 00 million. Rex was a member of the American Institute of Architects (AIA) for many years, and has served in various capacities, including Chapter President. Mr. Rouis resides in Atlanta, Georgia. Mr. Rouis has provided reserve analysis, consulting, and due-diligence services on residential and commercial condominium properties, totaling over 38,000 condominium units. Page V Atlanta, Georgia (770) efax (866)

31 Appendix LIMITATIONS This Full, is prepared to adhere to the guidelines of the National Standards of the Community Associations Institute, and conforms to the Community Associations Institute Professional Reserve Specialist Code of Ethics. The following warranty is in lieu of all other warranties, either expressed or implied. While AssociationAnalysis, LLC has made every reasonable effort to properly evaluate the Property conditions within the contracted scope of services, it should be recognized that this investigation is limited in several important respects including, but not limited to the following issues. Our findings and conclusions are based on an observation of the visible and apparent condition of the structure and its components on the date of the inspection. An observation of this nature will not reveal every concern that exists, or could ever exist, but only those items observed as of that date. Some of our conclusions were based on information provided by others including representatives of the Client, the Association, the Property manager, on-site employees, contractors servicing the Property, and local municipal officials. For the purposes of this report, we have assumed this information to be complete and correct unless otherwise noted. AssociationAnalysis, LLC assumes no liability for incorrect information provided by others. Information regarding financial, physical, quantity or historical issues is assumed to be correct and accurate, and no attempt was made to audit the information or to verify compliance with condominium covenants. The observations include only those areas that were readily accessible without opening or dismantling any secured components or areas. The scope did not include invasive investigation, component sampling, laboratory analysis, or engineering evaluations of the structural system, mechanical systems, electrical systems, or other systems. The observation did not include the review or confirmation of design assumptions, nor does it include the determination of compliance to any code, governmental or local. The observation did not include the testing for the presence or absence of radon, safety glass, lead paint, termites or any hazardous substance, including but not limited to toxins, carcinogens, noise, contaminants in soil, water, and air, and does not offer an opinion on the manufacture s specifications for any component or system. Our cost estimates represent a preliminary opinion only and are neither a quote nor a warranty or representation as to the actual costs that may be incurred. These estimates are based on typical cost data that may not fully characterize the scope of the underlying Property conditions, and are further limited by maintenance practices, cost fluctuations, future changes in technology, and future regulatory actions. These estimates do not address the cost impact of the possible presence of asbestos-containing materials (ACM) on renovation or demolition activities. AssociationAnalysis, LLC shall not be liable to the Client nor any other party for any costs or expenses that may be incurred in the excess of these estimates, for any losses that may be incurred as a result of these estimates being different from the actual costs, nor for any damages whatsoever in connection with these estimates. END OF APPENDIX 2010, AssociationAnalysis, LLC Rex Rouis Principal - AssociationAnalysis, LLC Page VI Atlanta, Georgia (770) efax (866)