Depreciation Report. Prepared for the Board of Directors for Strata Plan NW Falcon Drive, Coquitlam, British Columbia V3E 2L1 File No.

Transcription

1 Depreciation Report Prepared for the Board of Directors for Strata Plan NW Falcon Drive, Coquitlam, British Columbia V3E 2L1 File No Prepared by Suncorp Valuations

2 July 28, 2014 Strata Plan NW 2548 Falcon Terrace c/o FirstService Residential - Hornby Branch Hornby Street Vancouver, BC V6Z 1S4 Dear Sir / Madam: Depreciation Report Strata Plan NW Falcon Drive, Coquitlam, British Columbia V3E 2L1 File No Pursuant to your request for a depreciation report of the within described project, I have prepared the attached report for the consideration of the Board of Directors of Strata Plan NW 2548, Falcon Terrace. This Depreciation Report describes the depreciation report reserve fund concepts and major reserve fund items. It provides current and future replacement reserve estimates and recommends reserve fund actions. A Depreciation Report is a financial planning tool and should be viewed as such. The Depreciation Report cannot be relied on as a technical audit of the components at any time. Our review is based on a cursory (non-invasive) visual inspection of the components and the assumption that these have been installed and maintained with good workmanship, materials, and appropriate design. Our reporting does not, and is not intended to be construed as a replacement for a structural or technical audit. The Depreciation Report should be reviewed in detail annually and updated, at a minimum, every three years. Unexpected events can have a significant impact on the appropriateness of this type of plan - should such events occur, updates in an even shorter span of time may be appropriate. In my opinion the current reserve fund position of Strata Plan NW 2548, Falcon Terrace is deficient. This deficiency should be eliminated over the next 15 years by making reserve fund contributions of 155,367 per year, as outlined in the report that follows, and ensuring that an average rate of return of 2.50% is achieved on the reserve funds held on account. It is recommended that a reserve fund plan be adopted in accordance with the recommendations in this Depreciation Report. Suncorp Valuations would be pleased to provide you with a complete review and updating services for the reserve fund requirements of Strata Plan NW 2548, Falcon Terrace, as required in the future. We appreciate the opportunity of performing this report for you. If you have any questions, please do not hesitate to contact the undersigned. On Behalf of, SUNCORP VALUATIONS Maximino Laguerta, ASA st Avenue North Saskatoon, SK S7K 1X2 Ph Fx Toll Free info@suncorpvaluations.com Website: E d m o n t o n. S a s k a t o o n. T o r o n t o. V a n c o u v e r. A t l a n t a. M i l w a u k e e. P h i l a d e l p h i a. S e a t t l e

3 Table of Contents Executive Summary of Facts and Conclusions 1 Certification 3 Limiting Conditions 4 Part I - General Information Purpose of Depreciation Report Intended Use and Intended Users Property and Boundaries Scope of Investigation Depreciation Report - Principles Depreciation Report Projection Factors Part II - Descriptions General Description Basic Construction Components Building Observed Condition and Maintenance History Part III - Reserve Items - Description and Estimates Reserve Items - Definitions and Concepts Reserve Fund - Item Descriptions Schedule A - Benchmark Analysis Schedule B - 30 Year Cash Flow Projections Reserve Fund Analysis Recommendations Part IV - Appendix Condominium Plans Scenario One Scenario Two

4 Executive Summary of Facts and Conclusions This executive summary has been prepared as a quick reference of pertinent facts and estimates of this Depreciation Report, and it is provided as convenience only. Readers are advised to refer to the full text of this report for detailed information. Client: Strata Plan NW c/o FirstService Residential - Hornby Branch Vancouver, British Columbia Date of Study: April 23, 2014 Property: Reserve Fund Items: Strata Plan NW 2548, Falcon Terrace 1190 Falcon Drive, Coquitlam, British Columbia V3E 2L1 Building - Structural / Architectural Substructure Superstructure - Balconies and Decks Exterior Wall - Vinyl Siding Exterior Wall - Painting Windows and Doors - Windows Windows and Doors - Patio and Balcony Doors Windows and Doors - Garage Doors Windows and Doors - Exterior Doors Roof Assembly - Eavestroughs and Downspouts Roof Assembly - Soffits and Fascia Roof Assembly - Asphalt Shingles Electrical Systems 12 Access Controls / Communication - Main Entry Gate Intercom 13 Access Controls / Communication - Security Gate Hardware & Motor Site Improvements Sewer and Water Systems Fencing - Wood - Fences and Retaining Walls Fencing - Wood - Fences and Retaining Walls - Poor condition Asphalt Paving and Concrete Work Asphalt Paving and Concrete Work - Sealant Underground Electrical Other Site Improvement - Main Entrance Gate Structure Miscellaneous 21 Reserve Fund Studies - Depreciation Report 1

5 Reserve Fund Estimates Current Replacement Costs The estimated costs of replacing reserve components at current prices. 1,799,925 Future Replacement Costs The estimated costs of replacing reserve components at future prices. 3,920,945 Current Reserve Fund Requirements Reserve funds required today, considering the estimated effective age of the components or improvements. 1,209,846 Future Reserve Fund Accumulation The current reserve requirements invested at the projected interest rate over the relevant time period. 1,444,249 Future Reserve Fund Requirements The shortfall between the future replacement cost estimate and the future reserve fund accumulation. 2,476,696 Annual Reserve Fund Assessments Annual amount required to be paid into the reserve fund and to be invested at the projected interest rate to fund the future reserve requirements. 78,867 Annual Reserve Fund Makeup Contribution Annual makeup contribution required to fund the shortfall of the reserve fund requirements, to be paid into the reserve fund and to be invested at the projected interest rate to fund the future reserve requirements. 76,500 Total Annual Reserve Contribution 155,367 2

6 Certification A personal inspection of the subject property was conducted on April 23, 2014, by Maximino Laguerta, ASA. Data collection and report preparation was completed by Maximino Laguerta, ASA. The report has been made in conformance with and is subject to the requirements for a consulting assignment of The Standards of the American Society of Appraisers and the Appraisal Institute of Canada, as applicable. In accordance with those standards, it is hereby certified that: To the best of my knowledge and belief, the statements of fact contained in this report are true and correct and verified where possible; All pertinent factors affecting this reserve study were considered to the extent felt necessary in rendering reliable recommendations; There is no past, present, or contemplated personal interest in the property, nor any personal interest or bias with respect to the parties involved. Neither the employment to prepare this Depreciation Report nor the compensation is contingent on the amount of reserve fund estimates reported; The requirements of the American Society of Appraiser's mandatory reaccreditation program and Appraisal Institute of Canada s mandatory recertification program, as applicable, have been fulfilled for the current recertification period; I have the competence to complete this assignment and the opinions expressed herein are unbiased professional opinions; The report is subject only to the assumptions and limiting conditions listed in the report, and the report identifies all of the limiting conditions including terms of the assignment imposed by the appraiser; Depreciation Reports wholly prepared by members of the Appraisal Institute of Canada (AIC) are covered by the Professional Liability Insurance program of the AIC. Depreciation Reports authored by or prepared with professional assistance of staff who are not members of the AIC are covered by a general errors and omissions policy carried by Suncorp Valuations; No significant professional assistance was provided except for those individuals identified herein. Suncorp Valuations, the above named appraiser(s), and/or the reviewer of this report have appraised this property within the last three years. Respectfully submitted, SUNCORP VALUATIONS Maximino Laguerta, ASA July 28, 2014 Date Prepared 3

7 This Report is Subject to the Following Limiting Conditions: A Depreciation Report is a financial planning tool and should be viewed as such. The Depreciation Report cannot be relied on as a technical audit of the components at any time. Our review is based on a cursory (non-invasive) visual inspection of the components and the assumption that these have been installed and maintained with good workmanship, materials, and appropriate design. Our reporting is not, and is not intended to be construed as, a replacement for a structural or technical audit. The legal and survey descriptions of the property as stated herein are those that are recorded by the Registrar of the requisite Land Titles (Registry) Office and are assumed to be correct. The architectural, structural, mechanical, electrical and other plans and specifications of the building or buildings and improvements are assumed to be correct. All buildings and improvements are deemed to have been constructed and finished in accordance with such plans and specifications, unless otherwise noted. Sketches, drawings, diagrams, photographs, if any, presented in this report, are included for the sole purpose of illustration. No legal survey, soil tests or environmental impact studies, engineering investigations, detailed quantity survey compilations, nor exhaustive physical examinations or destructive testing have been made. Accordingly, no responsibility is assumed concerning these matters, or other technical and engineering techniques that would be required to discover any inherent or hidden condition of the property. The report assumes that the Corporation desires to maintain the building and grounds in a condition consistent with their original condition over the expected economic life span. In order to arrive at supportable replacement cost estimates, it was found necessary to utilize both documented and other cost data. A concerted effort has been put forth to verify the accuracy of the information contained herein. Accordingly, the information is believed to be reliable and correct, and has been gathered to standard professional procedures, but no guarantee as to the accuracy of the data is implied. The client to whom this report is addressed may use it in deliberations affecting the subject property only, and in so doing, the report must not be extracted, but must be used in its entirety. Possession of this report, or any copy thereof, does not carry with it the right of publication nor may it be used for any purpose by anyone but the client without the written consent of the author, and in any event, only with the proper qualifications. The agreed compensation for services rendered in preparing this report does not include fees for consultations and/or arbitration, if any. Should personal appearances be required in connection with this report, additional fees will have to be negotiated. Unless otherwise noted, all estimates are expressed in Canadian currency. 4

8 Part I - General Information Purpose of Depreciation Report The purpose of this Depreciation Report is to identify and estimate the replacement cost of the various reserve items and prepare reserve fund schedules and reserve requirements, as of April 23, This Depreciation Report, which includes an analysis of the required reserve funding, complies with the reserve fund provisions of the Province of British Columbia Strata Property Act, SBC 1998, Strata Property Amendment Act, 2009 (current as of June 20, 2012) and the Strata Property Regulation, B.C. (including amendments up to B.C. Reg. 238/2011, March 1, 2012). The pertinent sections of the Legislation are quoted as follows: Strata Property Act (SBC 1998) Chapter 43 - Part 6 - Finances: Contingency Reserve Fund 92 (b) To meet its expenses the strata corporation must establish, and the owners must contribute, by means of strata fees, to a contingency reserve fund for common expenses that usually occur less often than once a year or that do not usually occur. Minimum and Maximum Contributions to Contingency Reserve Fund 93 Subject to the requirements set out in the regulations, the strata corporation must determine the amount of the annual contribution to the contingency reserve fund. Depreciation Report 94(2) Subject to subsection (3), a strata corporation must obtain from a qualified person, on or before the following dates, a depreciation report estimating the repair and replacement costs for major items in the strata corporation and the expected life of those items. Management of Contingency Reserve Fund 95(1) The strata corporation must account for money in the contingency reserve fund separately from other money of the strata corporation. 95(2) The strata corporation must invest all of the money in the contingency reserve fund in one or the other or a combination of the following: (a) those investments permitted by the regulations; (b) insured accounts with savings institutions of British Columbia. 95(3) Any interest or income earned on the money in the contingency reserve fund becomes part of the fund. 95(4) Despite subsection (2), the strata corporation may lend money in the contingency reserve fund to the operating fund as permitted in the regulations. 5

9 Strata Property Act - Strata Property Regulation (including amendments up to B.C. Reg 238/3011, March 1,2012) Part 6 - Finances: Depreciation Report 6.2(1) For the purposes of section 94 of the Act, a depreciation report must include all of the following: (a) a physical component inventory and evaluation that complies with subsection (2); (b) a summary of repairs and maintenance work for common expenses respecting the items listed in subsection (2) (b) that usually occur less often than once a year or that do not usually occur; 6.2(2) For the purposes of subsection (1) (a) and (b) of this section, the physical component inventory and evaluation must: (a) be based on an on-site visual inspection of the site and, where applicable, of items listed in paragraph (b) conducted by the person preparing the depreciation report, (b) include a description and estimated service life over 30 years of those items that comprise the common property, the common assets and those parts of a strata lot or limited common property, or both, that the corporation is responsible to maintain or repair under the Act, the strata corporations' bylaws or an agreement with an owner, including, but are not limited to, the following items: i. the building's structure; ii. the building's exterior, including roofs, roof decks, doors, windows and skylights; iii. the building's systems, including the electrical, heating, plumbing, fire protection and security systems; iv. common amenities and facilities; v. parking facilities and roadways; vi. landscaping, including paths, sidewalks, fencing and irrigation; vii. interior finishes, including floor covering and furnishings; viii. green building components; ix. balconies and patios. Bylaws of this Corporation Only those parts of the Bylaws that are definitive to the establishment of a reserve fund are included here, for reference purposes. Strata bylaws extend responsibility of the strata to certain external components, if located within the strata lot - See Section 11.1 (d) Intended Use and Intended Users This report has been prepared for the Board of Directors and the property manager for the subject complex. As such, only those two parties are recognized as intended users of this report, for the intended use of establishing a reserve fund plan. Liability for unintended uses of this document or to unintended users is expressly denied. Property and Boundaries Description Strata Plan NW 2548, Falcon Terrace is located in the City of Coquitlam, and is known by the civic address of 1190 Falcon Drive, Coquitlam, British Columbia. 6

10 Boundary Description Unit boundaries, as illustrated in the strata plan, are assumed to comply with the provincial act as no bylaws amending these boundaries were presented by the client. Scope of Investigation The subject property was inspected on April 23, It is important to note that the Depreciation Report is a financial planning tool and should be viewed as such. The Depreciation Report cannot be relied on as a technical audit of the components at any time. Our review is based on a cursory (non-invasive) visual inspection of the components and the assumption that these have been installed and maintained with good workmanship, materials, and appropriate design. Our reporting is not, and is not intended to be construed as, a replacement for a structural or technical audit. The registered strata plans, as well as architectural plans, were relied upon for details of the construction, improvements and other relevant data. Documentation was provided by the client or property manager regarding recent history of contributions to and transfers from the reserve fund as applicable, as well as various documents including: The Strata Plan NW 2548, Falcon Terrace Architectural Plans. The Strata Plan NW 2548, Falcon Terrace Bylaws dated December 21, 2011, from Property Manager. The Strata Plan NW 2548, Falcon Terrace Financial Statements for years ending Sept , 2012, 2013 and Monthend financial statements for March 31, The Strata Plan NW 2548, Falcon Terrace Operating Budget for years ending September 30, 2011, through The Strata Plan NW 2548, Falcon Terrace Registered Strata Plans. Depreciation Report Estimates and Cost Data Cost data have been investigated using construction cost services, modified as to time, location and quality of construction. Where such data was incomplete, contractors were interviewed with respect to local conditions and costs on similar repair projects. Replacement reserve estimates are classified in terms of building groups, common element facilities and site improvements. Reserve fund estimates include not only replacement components but also repairs to building and equipment. Reserve fund estimates apply to structures, improvements and equipment, which comprise common elements. Any additions or improvements made by unit owners to their respective premises are not included in these estimates. Owners should be advised by the Board to adopt maintenance programs for their respective units and any limited common property or exclusive use property under their control. Reserve fund estimates include provisions for demolition and disposal costs, dumping fees, as required, as well as applicable taxes such as the Provincial Sales Tax, Goods and Services Tax ("GST") or Harmonized Sales Tax ( HST ). Conditions and Assumptions In estimating various reserve items, certain assumptions are made in respect to structural and non-structural repairs and replacements. For example, reserves for exterior walls, most structural repairs, replacements of mechanical and electrical components are difficult to predict and quantify, particularly the exact timing that such repairs or replacements will be required. The only reasonable approach is to provide an approximate time frame and in some cases contingency estimates, where replacement of an entire system is not likely to be required. The underlying assumptions and quantification of contingency reserves should be reviewed from time to time, 7

11 particularly, in the context of repair experience and problem investigations, such as water damage, cracks in walls and concrete structures, noticeable deterioration, etc. Reserve fund estimates are subjective and based on an understanding of the life cycle of building components and experience gained from observing buildings for over 25 years. It must be appreciated that reserve fund budgeting and projections are not exact sciences. They are, at best, prudent provisions for most contingencies, if, as and when they arise. Reserve fund requirements are subject to change and must be reviewed and modified over time, not less than every three years. In essence, the corporation should adopt a long-term policy regarding reserve fund allocations that must be flexible to accommodate changes in reserve fund requirements in the future. 8

12 Depreciation Report - Principles A Depreciation Report is a financial document, and as such should be viewed as a guide to planning budgets and maintenance programs, and unlike a technical audit, it does not deal with detailed technical matters. Rather, this document takes a business approach to reserve fund management. This Depreciation Report comprises the following elements: (1) identifies the reserve components, their quality, normal life span and present condition; (2) provides a current replacement cost estimate including the cost of removing worn out items and special safety provisions; (3) projects the useful life of components that will require replacement in terms of remaining serviceable years; (4) projects future replacement costs at an appropriate and compounded inflation rate; (5) projects the value of current reserve funds compounded at a long term interest rate; (6) calculates current reserve fund contributions required and to be invested in interest bearing securities. The salient estimates and conclusions of this Depreciation Report are contained in the various schedules that follow. Any recommendations are for guidance to management and the board of directors. In estimating replacement reserves, the component method of valuation is used. Reserve items consist of building or site components, such as roof systems, exterior walls, pavement and sidewalks, each of which has a limited life span, therefore, must be repaired, replaced or periodically upgraded to maintain the property in suitable condition. Replacement cost estimates are based on the assumption of using quality materials, as specified or built, or in the case of older developments, as required under current building code regulations, at contractor s prices, using union labour and current construction techniques, and including contractor s overhead and profit. No allowance is made for premiums related to overtime, labour shortages or work stopages during repair projects that may affect costs. In estimating the life span of the various components, physical deterioration, functional obsolescence and environmental factors are considered. In measuring the reserve requirements, depreciation tables and normal life span experience records are combined with personal experience and observation, reference to cost guides and discussions with contractors to formulate the most likely scenario for component replacement. Examination of plans allows accurate calculation of many of the building areas and these calculations affect the estimate for reserve fund. It should be kept in mind, however, that the quantities referred to for any particular reserve item represent an estimate which could vary for any number of reasons. Demolition and Disposal Costs The estimates include provisions for demolition and disposal costs including dumping fees, where applicable. These costs have been rising in recent years. Particularly, dumping of certain materials has become problematic and very costly. It appears that certain codes and environmental regulations will become more stringent in future years, all of which will further increase disposal costs. 9

13 Structural Deficiencies Significant events causing a structural deficiency may require a special assessment to be levied that would generally be outside the scope of this type of study. Generally, these are unforeseen. However, the existing reserve account, at the time of such a failure, may respond to part or all of the cost for such repairs. It is particularly important, if such unforeseen events occur, that the reserve fund be re-visited to ensure the soundness of the fund following the repair of these types of problems. 10

14 Depreciation Report Projection Factors Historically, building costs have been rising at various rates from year to year, depending on business cycles, economic conditions, interest rates, etc. In boom periods, cost increases were fairly pronounced, whereas in recessionary times, cost increases were only nominal or costs even declined. Analyzing long term cost increases, construction cost indices were examined rather than consumer price indices, since reserve cost estimates are related to building activities rather than consumer goods and service pricing. The most recently available data is from a well respected construction cost guide, the Marshall and Swift Cost Manual, for the relevant Canadian region and is sumarized as follows: All Building Classes (January 2014 Base) 2.7% for the past year 2.9% per year for the past 3 years 1.2% per year for the past 5 years 4.4% per year for the past 10 years Class D (Wood Frame) (January 2014 Base) 3.7% for the past year 3.5% per year for the past 3 years 2.3% per year for the past 5 years 4.1% per year for the past 10 years Construction costs in all building classes have increased over the past year. The three, five and ten year average increases are impacted by a drop in construction costs in 2009 as a result of a downturn in the global and national economies. Construction costs peaked in 2008 when the economy was booming and there was a very high demand in the construction of new single family homes and in the renovation market. The construction costs have not yet returned to the peak of 2008, but are trending in an upward manner. Also reviewed was the Canadian Inflation Rate, published by Statistics Canada, which measures the general rise in prices measured against a standard level of purchasing power. This rate is all encompassing and, although it includes construction costs as part of the calculation, it also includes a wide variety of other consumer products and services. The overall Canadian Inflation Rate has ranged between 0.30% and 2.90% over the past five years. Long term cost increases are not expected to be impacted by extreme inflationary pressures; therefore, the long term average cost factor should level out at about 2.50%. Interest rates have fluctuated from period to period, and they have been impacted by the high rates of inflation as well as government policies. The recent trend in interest rates is down to near record low rates, but rates are expected to creep upward over the next few years. A cogent benchmark is GIC rates which, depending on the selected maturity, generate a range in rates from 1.75% to 3.00% for terms of one to five years. Maintaining a relatively conservative long term strategy, a rate of 2.50% should be achievable. Hence, in projecting replacement cost estimates and reserve fund requirements, the following factors were used: Inflation Rate 2.50% Interest Rate 2.50% RESERVE FUND PROJECTIONS SHOULD BE REGULARLY REVIEWED TO ADJUST FOR CHANGES IN INFLATIONARY TRENDS AND INVESTMENT RETURNS, AS THEY SIGNIFICANTLY IMPACT LONG-TERM RESERVE FUND REQUIREMENTS. 11

15 Part II - Descriptions Strata Plan NW 2548, Falcon Terrace - General Description The subject property was designed and constructed in The property is a 44-unit townhouse complex that includes a total of 4 three-level and 3 two-level residential buildings with an attached garage and surface parking for each unit. Site improvements include private roadways and main entrance arch and signage. The overall construction, materials and workmanship are of good quality for the period, and the property is in good overall condition. Basic Construction Components Site Plan Site plans have been placed in the Addenda, as compiled from BConline (British Columbia Land Titles). Excavation and Foundations Excavation and reinforced concrete footings, drainage system installations, building service connections, slab on grade for lowest level. Building Structure/Exterior Walls Wood frame structure finished with vinyl siding, building paper, sheathing, vapor barrier and insulation. Windows and Doors Metal clad entry doors, wood frame metal clad exterior doors and aluminum framed windows. Roof Construction Wood roof structure with asphalt shingle roof cover. Interior Construction Painted smooth drywall partitions, textured ceilings, carpet, and wood laminate flooring. Mechanical Some units have hot water baseboard heat and some units have forced air furnace, each system is located within the individual units. Standard residential plumbing system. Electrical Standard residential electrical system with individual meters. Elevator Not Applicable Parking Area In addition to visitor parking, each unit has its own parking area, including attached garages. 12

16 Balconies Balconies are wood structures with waterproof membrane flooring, prefinished aluminum and glass railings. Decks/Patios Concrete patios on lowest level. Five units have decks with waterproof membrane finish. Patio wood steps and landings are excluded from consideration as it is part of general maintenance items. Landscaping Asphalt roadways and sidewalks, concrete driveways and patios, and main entrance arch and signage. Soft landscaping has been excluded from consideration as it is part of general maintenance items. Quality of Construction The project was constructed in 1987 in accordance with applicable building codes and then current construction practices. The quality of construction, materials and workmanship are considered to be good for its date of construction, consistent with local condominium construction. Structural Deficiencies There were no significant structural deficiencies noted at the time of inspection or brought to our attention by on-site personnel. Building Observed Condition and Maintenance History Management Policy The management has taken steps to secure regular maintenance contractors. Information provided by the client indicates that reserve fund contributions of 13,000 per annum are currently being collected and the reserve fund balance as of March 31, 2014, was reported to be 184,571. The reserve balance excludes amounts borrowed from reserve for operations. Historical Reserve Fund Operation The Strata has made some major replacements such as balconies and decks resurfacing with waterproof membrane, including aluminum and glass railings [2013], asphalt shingle roofing [2004], repainting of fascia boards and garage doors [2013], eavestroughs and downspouts [2010]. 13

17 Part III - Reserve Items - Description and Estimates Reserve Items - Definitions and Concepts Definitions In estimating reserves required for maintaining the building components and improvements at desired standards, the various reserve components, estimated replacement costs and project cost estimates are made in accordance with anticipated life spans. Therefore, it is essential that the terminology and methodology are clearly understood. Reserve Item: Identification and description of the building component or improvement. Replacement Cost: cost of demolition and The estimated cost of repairing or replacing an item at current prices including the disposal. Expected or Normal Life Span: normal conditions. The estimated life expectancy of an item in terms of years under Actual Age: The chronological age of the project or reserve item expressed in years. Estimated Effective Age: age, expressed in years. An observed condition estimate of improvements not necessarily the actual Remaining Life Span: The difference between the expected or normal life span and the estimated effective age of a reserve item. Projected Inflation: An estimated long-term inflation factor used in projecting cost estimates. Projected Interest Rate: An estimated long-term inflation factor used in projecting cost estimates. Current Replacement Reserves: The estimated cost of replacing a reserve item at current prices. Future Replacement Reserves: reserve accumulation. Current Reserve Requirements: age of the improvements. Future Reserve Accumulation: over the relevant time period. Future Reserve Requirements: reserve accumulation. The shortfall between the future replacement reserves and the future Reserve fund levels required today considering the estimated effective The current reserve requirements invested at the projected interest rate The shortfall between the future replacement reserves and the future Annual Reserve Assessment: Annual amount required to be paid into the reserve fund and to be invested at the projected interest rate to fund the future reserve requirements. 14

18 Sufficiency/Deficiency Analysis Once the requirements for existing and anticipated future repairs and replacements are formulated, an analysis is made of the current reserve account. The stated policy/strategy that the Board is following with respect to annual contributions to the reserve fund account is also examined. This analysis essentially matches the recent operations to the long-term requirement to set aside sufficient funds in order to meet all future obligations. The estimated current reserve fund requirement is calculated by taking into account the current replacement cost of an item, as well as its effective age and overall life expectancy. For example, if the life cycle of asphalt shingles is 20 years and they are 10 years old (effective age), then the Corporation should have on hand 50% (10/20) of the current replacement cost. There are certain assumptions required in order to formulate the future reserve requirements, especially in those areas where it is difficult to forecast, with certainty, when some items will require repair or replacement. In those cases, a contingency allowance has been made. There are also certain items that may require attention more than once over the 30 year forecast period. For example, scheduled replacement of common area floor coverings may be required more than once over the period that this report covers. Accordingly, the cost to complete this replacement must be included twice over the cash flow horizon, at a suitable cost to complete the replacement when it is expected to occur. In other words, if the carpet is replaced next year, and again in 12 years, the cost for the latter replacement will be at then-current prices. Therefore, the amount of funds set aside for carpet replacement must respond to two events for the same item, and the second one will be at a 12 year inflated cost. Furthermore, certain components may not require replacement over the forecast period; however, they will require replacement at some point beyond that time frame. The fund must be sufficient to also respond to those replacements while maintaining a relatively level annual contribution. For example, the sewer system may have a service life that is beyond the cash flow forecast period. However, if this life span is 40 years, and the forecast covers a 25 year period, the sewer will only have a life expectancy of 15 years at the end of the study period. There must be sufficient funds in the reserve account to respond to such a replacement. Therefore, the commentary that follows covers all items that will normally be expected to be replaced or refurbished before the full life expectancy of the overall project is reached. The fund is a combination of event-driven contingencies, plus an allowance for partially depleted building components. 15

19 Reserve Fund - Item Descriptions Reserve Component: (1) Substructure This reserve component includes the concrete basement walls, as well as foundations or supports. The concrete basement walls appear to be in good condition. Accordingly, only patching of these surfaces is allowed for, since the basic components will last the life of the building. Cost of this repair is calculated based on a lump sum cost per building. Replacement Cost Estimate: 14,000 Life Span Estimates: Estimated Life Span Effective 40 Estimated Effective Age 27 Remaining Life Span 13 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 14,000 19,299 9,450 13,027 6, Deficiency Analysis No defects were noted. An allowance for patching has been allocated in

20 Reserve Component: (2) Superstructure - Balconies and Decks This reserve component includes the structural wood frame, wood floors and such like. The basic structural components should last the life of the structure; therefore, no allowance is necessary. The metal and glass railings are in good condition and are expected to last the life of the structure. This category also includes the balconies and decks, as they are part of the floor structure, but are prone to additional deterioration due to their exposure to the elements. The waterproof membrane, including metal and glass railings, were replaced in The condition of the balconies was good at the time of inspection. The cost represents an overall estimate for the application of a new surface membrane in accordance with life expectancy. Replacement Cost Estimate: 40,000 Life Span Estimates: Estimated Life Span Effective 20 Estimated Effective Age 1 Remaining Life Span 19 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 40,000 63,946 2,000 3,197 60,749 2,503 Deficiency Analysis No defects were noted. An allowance to resurface the balconies and roof decks with waterproof membrane has been allocated in 2033, including removal costs. 17

21 Reserve Component: (3) Exterior Wall - Vinyl Siding This reserve component includes the vinyl siding exterior wall cover throughout the property. This component was in good condition and no defects were noted at the time of inspection. Vinyl siding will require attention in the future due to weathering and fading. The replacement of the vinyl siding exterior wall cover has been accounted for, including removal costs. Replacement Cost Estimate: 363,012 Life Span Estimates: Estimated Life Span Effective 35 Estimated Effective Age 27 Remaining Life Span 8 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 363, , , , ,096 8,052 Deficiency Analysis No defects were noted. The exterior vinyl siding rates in good condition and will not require replacement until

22 Reserve Component: (4) Exterior Wall - Painting This reserve component includes the painted exterior wood trims and garage doors. These items were repainted in Exterior wood trims were in good condition and no defects were noted at the time of inspection. Under ordinary conditions, the wood trims should last the life of the building; therefore, no allowance is made for replacement. It is anticipated, however, that the trims and garage doors finish will require attention (painting and/or repair) in the future due to weathering. Replacement Cost Estimate: 50,400 Life Span Estimates: Estimated Life Span Effective 10 Estimated Effective Age 1 Remaining Life Span 9 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 50, ,654 5,040 6, ,360 7,339 Deficiency Analysis No defects were noted. Allowances for re-painting of the exterior wood trims and garage doors have been allocated in 2023, 2033 and

23 Reserve Component: (5) Windows and Doors - Windows This reserve component includes all exterior windows throughout the property. These components were in good condition and no defects were noted at the time of inspection. The allowance provides for the replacement of all exterior windows. Replacement Cost Estimate: 296,300 Life Span Estimates: Estimated Life Span Effective 25 Estimated Effective Age 20 Remaining Life Span 5 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 296, , , , ,556 14,005 Deficiency Analysis No defects were noted. Allowances for window replacement have been allocated in 2019 and

24 Reserve Component: (6) Windows and Doors - Patio and Balcony Doors This reserve component includes the aluminum patio and balcony doors. The doors were found to be in average to good condition at the time of inspection. Screen doors are not included, as they are done by unit owners. The cost includes an allowance for the replacement of all balcony and patio doors, including removal. Replacement Cost Estimate: 162,500 Life Span Estimates: Estimated Life Span Effective 25 Estimated Effective Age 20 Remaining Life Span 5 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 162, , , , ,626 7,681 Deficiency Analysis No defects were noted. Allowances for replacement have been allocated in 2019 and

25 Reserve Component: (7) Windows and Doors - Garage Doors This reserve component includes the single and double garage doors. These items were in good condition and no defects were noted at the time of inspection. The cost includes the replacement of all the garage doors, including removal. Replacement Cost Estimate: 88,928 Life Span Estimates: Estimated Life Span Effective 20 Estimated Effective Age 15 Remaining Life Span 5 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 88, ,482 66,696 75, ,022 5,196 Deficiency Analysis No defects were noted. Allowances for garage door replacements have been allocated in 2019 and

26 Reserve Component: (8) Windows and Doors - Exterior Doors This reserve component includes all metal exterior doors throughout the property, including unit entry doors and electrical room doors. These components were in good condition and no defects were noted at the time of inspection. Screen doors are not included, as they are done by unit owners. The allowance provides for the replacement of all exterior doors. Replacement Cost Estimate: 72,000 Life Span Estimates: Estimated Life Span Effective 40 Estimated Effective Age 27 Remaining Life Span 13 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 72,000 99,253 48,600 66,996 32,257 1,473 Deficiency Analysis No defects were noted. An allowance for the replacement of the exterior doors has been allocated in

27 Reserve Component: (9) Roof Assembly - Eavestroughs and Downspouts This reserve component includes the downspouts and eavestroughs of all the buildings throughout the property. Eavestroughs and downspouts were replaced in These components were in good condition and no defects were noted at the time of inspection. These components will require replacement due to expected useful life. Cost to replace includes removal costs. Replacement Cost Estimate: 49,977 Life Span Estimates: Estimated Life Span Effective 30 Estimated Effective Age 4 Remaining Life Span 26 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 49,977 94,971 6,664 12,664 82,307 2,163 Deficiency Analysis No defects were noted. An allowance for the replacement of the eavestroughs and downspouts has been allocated in

28 Reserve Component: (10) Roof Assembly - Soffits and Fascia This reserve component includes the soffits and fascia of all the buildings throughout the property. These components were in average to good condition and no defects were noted at the time of inspection. These components will require replacement due to expected useful life. Cost to replace includes removal costs. Replacement Cost Estimate: 79,209 Life Span Estimates: Estimated Life Span Effective 30 Estimated Effective Age 27 Remaining Life Span 3 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 79,209 85,299 71,288 76,769 8,530 1,943 Deficiency Analysis No defects were noted. An allowance for the replacement of the soffits and fascia has been allocated in

29 Reserve Component: (11) Roof Assembly - Asphalt Shingles This reserve component includes the asphalt shingle roof cover, including the wood structure throughout the property. The asphalt shingle roof cover was replaced in There was no evidence of leaks and the structure was in good condition at the time of inspection. The roof structure will last the life of the building. The replacement of the asphalt shingle roof cover has been accounted for, including removal costs. Replacement Cost Estimate: 271,538 Life Span Estimates: Estimated Life Span Effective 25 Estimated Effective Age 10 Remaining Life Span 15 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 271, , , , ,961 11,513 Deficiency Analysis No defects were noted. Periodic roof inspections are recommended. Based on life expectancy, an allowance has been allocated in

30 Reserve Component: (12) Access Controls / Communication - Main Entry Gate Intercom This reserve component includes the central portion of the main entry gate intercom security access system. In-unit components of the system are the responsibility of the individual owner; thus, they are not covered by the reserve. The system was in fair condition at the time of inspection. The central portion of the intercom system will have to be replaced due to their expected useful life. Replacement Cost Estimate: 5,000 Life Span Estimates: Estimated Life Span Effective 20 Estimated Effective Age 18 Remaining Life Span 2 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 5,000 13,861 4,500 4,728 9, Deficiency Analysis Based on life expectancy, allowances to replace the main entry gate intercom security system have been allocated in 2016 and

31 Reserve Component: (13) Access Controls / Communication - Security Gate Hardware & Motor This reserve component includes the security gate's hardware and motor. These items were observed to be in good condition during the inspection. The motor for the security gate was replaced in The security gate is expected to last the life of the complex; only an allowance to replace the hardware and motor has been accounted for. Replacement Cost Estimate: 5,000 Life Span Estimates: Estimated Life Span Effective 20 Estimated Effective Age 2 Remaining Life Span 18 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 5,000 7, , Deficiency Analysis No defects were noted. Based on life expectancy, an allowance to replace the security gates motor and hardware has been allocated in

32 Reserve Component: (14) Sewer and Water Systems This reserve component includes the water and sewer lines, and the on-site fire hydrants. The water and sewer lines are underground and, therefore, out of view for inspection. Normally, the components (valves, pipes, etc.) will last the life of the structure without requiring repair. However, if repairs are required, they will be costly as the work requires excavation to access the sewer or water lines and may include the replacement / retrofit of the on-site fire hydrants. It is impossible to predict the magnitude of repairs and, therefore, the associated financial requirements. An allowance figure is used. Depending on the specific repair, the balance in the reserve fund may cover the expense. However, if there is a shortage of funds, a special assessment would be required. Replacement Cost Estimate: 22,500 Life Span Estimates: Estimated Life Span Effective 30 Estimated Effective Age 27 Remaining Life Span 3 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 22,500 24,230 20,250 21,807 2, Deficiency Analysis No defects were noted. Based on life expectancy, an allowance for unforeseen issues has been allocated in

33 Reserve Component: (15) Fencing - Wood - Fences and Retaining Walls This reserve component includes the cedar perimeter fence, lattice privacy fences and planters retaining walls throughout the property. These items were in fair condition at the time of inspection. The cost includes an allowance for the removal and replacement of the fences and planters retaining walls. Replacement Cost Estimate: 78,789 Life Span Estimates: Estimated Life Span Effective 20 Estimated Effective Age 16 Remaining Life Span 4 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 78, ,476 63,031 69, ,902 4,492 Deficiency Analysis Allowances to replace the wood fencing and planters retaining walls have been allocated in 2018 and Painting/staining and any minor repairs to the fence is considered general maintenance and has not been accounted for as part of the reserve fund. 30

34 Reserve Component: (16) Fencing - Wood - Fences and Retaining Walls - Poor condition This reserve component includes the wood perimeter retaining walls (along Units and Unit 16 portions) and perimeter fence (along Units 7-16 portion). The retaining walls were in poor condition at time of inspection and need immediate attention. The wood fence was in fair condition, although the site contact indicated the planned replacement is in The cost includes an allowance for the removal and replacement of the wood fence and retaining walls. Replacement Cost Estimate: 39,810 Life Span Estimates: Estimated Life Span Effective 20 Estimated Effective Age 20 Remaining Life Span 0 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 39, ,043 39,810 39,810 65,233 2,056 Deficiency Analysis Allowances to replace the wood fencing and perimeter retaining walls have been allocated in 2014 and Painting/staining and any minor repairs to the fence is considered general maintenance and has not been accounted for as part of the reserve fund. 31

35 Reserve Component: (17) Asphalt Paving and Concrete Work This reserve component includes the asphalt roadways, concrete driveways and patios. These components were in fair to average condition at the time of inspection. The concrete driveways and patio components should last the life of the structures. This cost is based on the replacement of the asphalt roadways based on useful life. Replacement Cost Estimate: 103,013 Life Span Estimates: Estimated Life Span Effective 30 Estimated Effective Age 22 Remaining Life Span 8 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 103, ,511 75,543 92,042 33,469 2,859 Deficiency Analysis Based on life expectancy, an allowance for the asphalt replacement has been allocated to

36 Reserve Component: (18) Asphalt Paving and Concrete Work - Sealant This reserve component includes the application of a slurry sealant coat to the asphalt roadways throughout the property. The asphalt paving was in fair to average condition at the time of inspection. Replacement Cost Estimate: 9,989 Life Span Estimates: Estimated Life Span Effective 5 Estimated Effective Age 3 Remaining Life Span 2 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 9,989 87,656 5,993 6,296 81,360 2,779 Deficiency Analysis Allowances for the application of a slurry sealant coat have been allocated in 2016, 2021, 2026, 2031, 2036 and

37 Reserve Component: (19) Underground Electrical The reserve component includes the exterior sites lighting and the underground electrical grid. The site electrical services are underground, running from the various transformers to the buildings. The power is provided via the City, and the transformers on site were supplied and installed by the local utility (the maintenance and repair of the power source/transformer is the responsibility of the City). The strata corporation is required to maintain and repair their own underground electrical distribution system (from the transformer to the units). The condition of these components at the time of inspection was good. The cost includes an allowance for the exterior site lighting, as well as a contingency allowance, for the repair and/or replacement of the underground electrical grid. Replacement Cost Estimate: 22,500 Life Span Estimates: Estimated Life Span Effective 40 Estimated Effective Age 27 Remaining Life Span 13 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 22,500 31,016 15,188 20,937 10, Deficiency Analysis No defects were noted. Based on life expectancy, a reserve requirement should not be needed until

38 Reserve Component: (20) Other Site Improvement - Main Entrance Gate Structure This reserve component includes the main entrance gate structure. This item was in poor condition at the time of inspection. The cost includes an allowance for removal and replacement of the main entrance gate structure. Replacement Cost Estimate: 20,000 Life Span Estimates: Estimated Life Span Effective 50 Estimated Effective Age 49 Remaining Life Span 1 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 20,000 20,500 19,600 20, Deficiency Analysis An allowance for the removal and replacement of main entrance gate structure has been allocated in

39 Reserve Component: (21) Reserve Fund Studies - Depreciation Report This reserve component accounts for the completion of a Depreciation Report every 3 years. Provincial legislation requires that Strata Corporations update their Depreciation Report a minimum of every 3 years. It is important that studies be updated as any significant changes to interest rates, construction costs and other factors can alter the recommended contribution structure. Replacement Cost Estimate: 5,460 Life Span Estimates: Estimated Life Span Effective 3 Estimated Effective Age 0 Remaining Life Span 3 Reserve Fund Estimates: 1 Current Replacement Costs 2 Future Replacement Costs 3 Current Reserve Requirements 4 Future Reserve Accumulation 5 Future Reserve Requirements 6 Annual Reserve Assessment 5,460 83, ,933 2,729 Deficiency Analysis An allowance for the completion of a Depreciation Report has been allocated in years 2017, 2020, 2023, 2026, 2029, 2032, 2035, 2038, 2041 and

40 Schedule A - Benchmark Analysis Reviewing the various reserve fund items in terms of their condition and life cycle, and analyzing the contingencies for such items as exterior walls, roofing, windows, paving, sewer systems, various reserve fund estimates were produced and they appear on the following page. In estimating the replacement costs of reserve items, we relied on Building Service and Costing publications, such as the Means Repair & Remodelling Cost Data, and Marshall and Swift Cost Service. In addition, we verified some estimates by seeking quotations from local contractors, fabricators and suppliers as well as our own cost compilations. The reserve fund estimates for Strata Plan NW 2548, Falcon Terrace, are shown in Schedule "A" - Schedule of Reserve Fund Estimates on the page that follows. In summary, the current replacement reserve estimates, the current reserve fund requirements, and estimated annual reserve fund assessment are as follows: Current replacement costs are the reserve fund provisions at current prices and under current economic conditions. Current reserve fund requirements refer to reserve funds which should be retained by the corporation and be invested in interest bearing securities. The annual reserve fund assessment consists of the annual payments by the owners into the reserve fund to meet all potential capital expenditure requirements in the future. The result of these estimates is an annual allowance that would be appropriate if the reserve were already funded to its appropriate amount. Current Deficiency/Sufficiency Analysis In dollar terms, the current reserve fund requirement is estimated at 1,209,846; whereas, the existing fund is at 184,571 as of March 31, Therefore, as of the effective date of this report the current reserve fund is deficient by 1,025,275. The fund must be capable of responding to the future costs, inclusive of the inflation between the date of this study and the date of actual replacement. This cost is shown in Column H. Column J converts this to an estimate of the unfunded cost increase. Column K quantifies the difference between the accumulated fund at current replacement costs and the amount required to replace these same components at their inflated cost. The second-to-last column, Column L, indicates the amount that should be collected each year, under normal circumstances, and assuming that the full life expectancy was still available for all reserve components. 37

41 BENCHMARK ANALYSIS RESERVE COMPONENTS BUILDING - STRUCTURAL / ARCHITECTURAL 1. SUBSTRUCTURE 2. SUPERSTRUCTURE - BALCONIES AND DECKS 3. EXTERIOR WALL - VINYL SIDING 4. EXTERIOR WALL - PAINTING 5. WINDOWS AND DOORS - WINDOWS 6. WINDOWS AND DOORS - PATIO AND BALCONY DOORS 7. WINDOWS AND DOORS - GARAGE DOORS 8. WINDOWS AND DOORS - EXTERIOR DOORS 9. ROOF ASSEMBLY - EAVESTROUGHS AND DOWNSPOUTS 10. ROOF ASSEMBLY - SOFFITS AND FASCIA 11. ROOF ASSEMBLY - ASPHALT SHINGLES Reserve Fund Estimates for Strata Plan NW 2548 Falcon Terrace "Benchmark Analysis" Schedule "A" D E F G H I J K L M EXPECTED LIFESPAN S EFFECTIVE AGE S REMAINING LIFE SPAN S CURRENT REPLACEMENT COST FUTURE REPLACEMENT COST CURRENT RESERVE FUND REQUIREMENTS FUTURE RESERVE FUND ACCUMULATION FUTURE RESERVE FUND REQUIREMENTS ANNUAL RESERVE FUND ASSESSMENT RESERVE FUND ASSESSMENT ALLOCATION ,000 19,299 9,450 13,027 6, ,000 63,946 2,000 3,197 60,749 2, , , , , ,096 8, , ,654 5,040 6, ,360 7, , , , , ,556 14, , , , , ,626 7, , ,482 66,696 75, ,022 5, ,000 99,253 48,600 66,996 32,257 1, ,977 94,971 6,664 12,664 82,307 2, ,209 85,299 71,288 76,769 8,530 1, , , , , ,961 11, S U N C O R P V A L U A T I O N S ELECTRICAL SYSTEMS 12. ACCESS CONTROLS / COMMUNICATION - MAIN ENTRY GATE INTERCOM 13. ACCESS CONTROLS / COMMUNICATION - SECURITY GATE HARDWARE & MOTOR ,000 13,861 4,500 4,728 9, ,000 7, , Effective Date: April 23, 2014 ZZNW

42 BENCHMARK ANALYSIS RESERVE COMPONENTS SITE IMPROVEMENTS 14. SEWER AND WATER SYSTEMS 15. FENCING - WOOD - FENCES AND RETAINING WALLS 16. FENCING - WOOD - FENCES AND RETAINING WALLS - POOR CONDITION 17. ASPHALT PAVING AND CONCRETE WORK 18. ASPHALT PAVING AND CONCRETE WORK - SEALANT 19. UNDERGROUND ELECTRICAL 20. OTHER SITE IMPROVEMENT - MAIN ENTRANCE GATE STRUCTURE Reserve Fund Estimates for Strata Plan NW 2548 Falcon Terrace "Benchmark Analysis" Schedule "A" D E F G H I J K L M EXPECTED LIFESPAN S EFFECTIVE AGE S REMAINING LIFE SPAN S CURRENT REPLACEMENT COST FUTURE REPLACEMENT COST CURRENT RESERVE FUND REQUIREMENTS FUTURE RESERVE FUND ACCUMULATION FUTURE RESERVE FUND REQUIREMENTS ANNUAL RESERVE FUND ASSESSMENT RESERVE FUND ASSESSMENT ALLOCATION ,500 24,230 20,250 21,807 2, , ,476 63,031 69, ,902 4, , ,043 39,810 39,810 65,233 2, , ,511 75,543 92,042 33,469 2, ,989 87,656 5,993 6,296 81,360 2, ,500 31,016 15,188 20,937 10, ,000 20,500 19,600 20, S U N C O R P V A L U A T I O N S MISCELLANEOUS 21. RESERVE FUND STUDIES - DEPRECIATION REPORT ,460 83, ,933 2, TOTALS 1,799,925 3,920,945 1,209,846 1,444,249 2,476,696 78, % Effective Date: April 23, 2014 ZZNW

43 Schedule B - 30 Year Cash Flow Projections Schedule "B" - Reserve Fund Cash Flow Projections and Reserve Fund Estimates Deficiency Analysis presents a 30 year reserve fund projection showing cash positions, cash flows and cash expenditures in a form and detail which conforms to standard financial statement presentation of reserve fund operations. The objective of the exercise is to illustrate the impact of the recommendations that are formulated based on the benchmark analysis. This is not to suggest that cash flows will follow the pattern indicated in the spreadsheet, rather this is a tool to ensure that available cash does not go below zero in any one year, and allows a matching of the overall fund operation to the combination of regularly required reserve fund contributions and an orderly catch-up provision to fully fund the reserve. The following spreadsheet is organized under the following headings. Opening Cash Balance This is the reserve fund position at the beginning of each and every fiscal year showing the cash resources available that consist of (1) bank deposits, (2) qualified investments, and (3) accrued interest earned. Cash Flows These are the regular reserve fund contributions (as calculated in Schedule A), reserve fund interest income and any make-up contributions, based on 2.50% of the opening yearly balance generated as interest. Total Cash Resources These represent the total cash resources available in any fiscal year and include the current year's cash flow. Reserve Fund Expenditures These are annual expenditures listed in the categories established in the benchmark analysis. Records or ledger accounts of these expenditure categories should be kept showing reserve fund allocations and charges in a chronological order for control and reference. Closing Cash Fund This is the reserve fund position at the end of each and every fiscal year, which is carried forward to the next year. Reserve Requirements Reserve Requirements are projected by formula taking into account the inflation factor, interest rates and reserve fund expenditures. Therefore, any reserve fund expenditures will not affect the reserve fund deficiency because such expenditures will also affect the reserve requirements. Reserve Fund Surplus (Deficiency/Sufficiency) The Reserve Fund Surplus (Deficiency/Sufficiency Analysis) has been projected by comparing the Board s reserve fund (or Closing Cash Balance) to the estimated reserve fund requirement. A fund is considered deficient if the Reserve Fund Surplus is negative and the fund is considered sufficient if the Reserve Fund Surplus is positive. It must be kept in mind that certain replacements will not occur during the 30 year cash flow horizon, so a fund will also have to be in place to accommodate those replacements as well as replacements that will occur on a cyclical basis, such as floor coverings, roof coverings etc. In fact, over a long enough period, virtually all of the reserve items identified in the study will require further replacement or refurbishment. In short, the 30 year cash flow is used as a guideline that is sufficiently long that most major replacements would occur during that time line. From a reserve fund study perspective, the end of that (30 year) period never arrives, as the study should be renewed and re-calibrated at regular intervals. This allows the incorporation of the actual experience in the project so that the projected reserve amounts are continually reflective of the long term requirements of a well planned contingency reserve. 38

44 BALANCE AS OF MARCH 31, 2014 OPENING CASH BALANCE ANNUAL RESERVE FUND ASSESSMENT RESERVE FUND MAKEUP TOTAL RESERVE FUND CONTRIBUTIONS RESERVE FUND INTEREST INCOME TOTAL CASH RESOURCES Reserve Fund Plan 30 Year Cash Flow Projection for Strata Plan NW 2548 Falcon Terrace RESERVE FUND EXPENDITURES SUBSTRUCTURE SUPERSTRUCTURE - BALCONIES AND DECKS EXTERIOR WALL - VINYL SIDING EXTERIOR WALL - PAINTING WINDOWS AND DOORS - WINDOWS WINDOWS AND DOORS - PATIO AND BALCONY DOORS WINDOWS AND DOORS - GARAGE DOORS WINDOWS AND DOORS - EXTERIOR DOORS ROOF ASSEMBLY - EAVESTROUGHS AND DOWNSPOUTS ROOF ASSEMBLY - SOFFITS AND FASCIA ROOF ASSEMBLY - ASPHALT SHINGLES ACCESS CONTROLS / COMMUNICATION - MAIN ENTRY GATE INTERCOM ACCESS CONTROLS / COMMUNICATION - SECURITY GATE HARDWARE & MOTOR SEWER AND WATER SYSTEMS FENCING - WOOD - FENCES AND RETAINING WALLS FENCING - WOOD - FENCES AND RETAINING WALLS - POOR CONDITION ASPHALT PAVING AND CONCRETE WORK ASPHALT PAVING AND CONCRETE WORK - SEALANT UNDERGROUND ELECTRICAL OTHER SITE IMPROVEMENT - MAIN ENTRANCE GATE STRUCTURE RESERVE FUND STUDIES - DEPRECIATION REPORT Reserve Estimate Schedule B , , , , , , ,512 59,150 78,867 78,867 78,867 78,867 78,867 57,375 76,500 76,500 76,500 76,500 76, , , , , , ,367 3,461 6,619 10,156 13,900 15,247 17, , , , , , ,217 9,450 2, ,038 5, , , , ,854 66, ,614 48,600 6,664 71,288 85, ,615 4,500 5, ,250 24,230 63,031 86,968 39,810 39,810 75,543 5,993 10,495 15,188 19,600 20,500 5,880 S U N C O R P V A L U A T I O N S TOTAL EXPENSES CLOSING CASH BALANCE RESERVE REQUIREMENTS RESERVE FUND SURPLUS (DEFICIENCY/SUFFICIENCY) 39,810 20,500 15, ,409 86, , , , , , , ,513 1,209,846 1,209,846 1,298,459 1,394,039 1,392,348 1,419, , , , , , , ,182 Effective Date: April 23, 2014 ZZNW

45 BALANCE AS OF MARCH 31, 2014 OPENING CASH BALANCE ANNUAL RESERVE FUND ASSESSMENT RESERVE FUND MAKEUP TOTAL RESERVE FUND CONTRIBUTIONS RESERVE FUND INTEREST INCOME TOTAL CASH RESOURCES Reserve Fund Plan 30 Year Cash Flow Projection for Strata Plan NW 2548 Falcon Terrace RESERVE FUND EXPENDITURES SUBSTRUCTURE SUPERSTRUCTURE - BALCONIES AND DECKS EXTERIOR WALL - VINYL SIDING EXTERIOR WALL - PAINTING WINDOWS AND DOORS - WINDOWS WINDOWS AND DOORS - PATIO AND BALCONY DOORS WINDOWS AND DOORS - GARAGE DOORS WINDOWS AND DOORS - EXTERIOR DOORS ROOF ASSEMBLY - EAVESTROUGHS AND DOWNSPOUTS ROOF ASSEMBLY - SOFFITS AND FASCIA ROOF ASSEMBLY - ASPHALT SHINGLES ACCESS CONTROLS / COMMUNICATION - MAIN ENTRY GATE INTERCOM ACCESS CONTROLS / COMMUNICATION - SECURITY GATE HARDWARE & MOTOR SEWER AND WATER SYSTEMS FENCING - WOOD - FENCES AND RETAINING WALLS FENCING - WOOD - FENCES AND RETAINING WALLS - POOR CONDITION ASPHALT PAVING AND CONCRETE WORK ASPHALT PAVING AND CONCRETE WORK - SEALANT UNDERGROUND ELECTRICAL OTHER SITE IMPROVEMENT - MAIN ENTRANCE GATE STRUCTURE RESERVE FUND STUDIES - DEPRECIATION REPORT Schedule B , , , , , , ,293 78,867 78,867 78,867 78,867 78,867 78,867 78,867 76,500 76,500 76,500 76,500 76,500 76,500 76, , , , , , , ,367 6,163 10,043 13,881 3,917 6,155 10,193 14, , , , , , , , ,295 62, ,511 11,874 13,434 6,332 6,819 7,343 S U N C O R P V A L U A T I O N S TOTAL EXPENSES CLOSING CASH BALANCE RESERVE REQUIREMENTS RESERVE FUND SURPLUS (DEFICIENCY/SUFFICIENCY) 6,332 11, ,806 69, , , , , , , , ,215 1,009,072 1,101, , , , , , , , , , , , ,692 Effective Date: April 23, 2014 ZZNW

46 BALANCE AS OF MARCH 31, 2014 OPENING CASH BALANCE ANNUAL RESERVE FUND ASSESSMENT RESERVE FUND MAKEUP TOTAL RESERVE FUND CONTRIBUTIONS RESERVE FUND INTEREST INCOME TOTAL CASH RESOURCES Reserve Fund Plan 30 Year Cash Flow Projection for Strata Plan NW 2548 Falcon Terrace RESERVE FUND EXPENDITURES SUBSTRUCTURE SUPERSTRUCTURE - BALCONIES AND DECKS EXTERIOR WALL - VINYL SIDING EXTERIOR WALL - PAINTING WINDOWS AND DOORS - WINDOWS WINDOWS AND DOORS - PATIO AND BALCONY DOORS WINDOWS AND DOORS - GARAGE DOORS WINDOWS AND DOORS - EXTERIOR DOORS ROOF ASSEMBLY - EAVESTROUGHS AND DOWNSPOUTS ROOF ASSEMBLY - SOFFITS AND FASCIA ROOF ASSEMBLY - ASPHALT SHINGLES ACCESS CONTROLS / COMMUNICATION - MAIN ENTRY GATE INTERCOM ACCESS CONTROLS / COMMUNICATION - SECURITY GATE HARDWARE & MOTOR SEWER AND WATER SYSTEMS FENCING - WOOD - FENCES AND RETAINING WALLS FENCING - WOOD - FENCES AND RETAINING WALLS - POOR CONDITION ASPHALT PAVING AND CONCRETE WORK ASPHALT PAVING AND CONCRETE WORK - SEALANT UNDERGROUND ELECTRICAL OTHER SITE IMPROVEMENT - MAIN ENTRANCE GATE STRUCTURE RESERVE FUND STUDIES - DEPRECIATION REPORT Schedule B , , , , , , ,567 78,867 78,867 78,867 78,867 78,867 78,867 78,867 76,500 76,500 76, , , ,367 78,867 78,867 78,867 78,867 18,055 18,652 23,002 17,432 19,839 21,927 24, , ,088 1,098, , , ,881 1,064,473 19,299 99,253 31, ,268 15,199 7,798 7,908 8,516 63,946 80,572 S U N C O R P V A L U A T I O N S TOTAL EXPENSES CLOSING CASH BALANCE RESERVE REQUIREMENTS RESERVE FUND SURPLUS (DEFICIENCY/SUFFICIENCY) 149, , ,199 16, , , , , , , , , , , , , , , , ,585-71,699 3,008 3,083 3,160 3,239 3,320 Effective Date: April 23, 2014 ZZNW

47 BALANCE AS OF MARCH 31, 2014 OPENING CASH BALANCE ANNUAL RESERVE FUND ASSESSMENT RESERVE FUND MAKEUP TOTAL RESERVE FUND CONTRIBUTIONS RESERVE FUND INTEREST INCOME TOTAL CASH RESOURCES Reserve Fund Plan 30 Year Cash Flow Projection for Strata Plan NW 2548 Falcon Terrace RESERVE FUND EXPENDITURES SUBSTRUCTURE SUPERSTRUCTURE - BALCONIES AND DECKS EXTERIOR WALL - VINYL SIDING EXTERIOR WALL - PAINTING WINDOWS AND DOORS - WINDOWS WINDOWS AND DOORS - PATIO AND BALCONY DOORS WINDOWS AND DOORS - GARAGE DOORS WINDOWS AND DOORS - EXTERIOR DOORS ROOF ASSEMBLY - EAVESTROUGHS AND DOWNSPOUTS ROOF ASSEMBLY - SOFFITS AND FASCIA ROOF ASSEMBLY - ASPHALT SHINGLES ACCESS CONTROLS / COMMUNICATION - MAIN ENTRY GATE INTERCOM ACCESS CONTROLS / COMMUNICATION - SECURITY GATE HARDWARE & MOTOR SEWER AND WATER SYSTEMS FENCING - WOOD - FENCES AND RETAINING WALLS FENCING - WOOD - FENCES AND RETAINING WALLS - POOR CONDITION ASPHALT PAVING AND CONCRETE WORK ASPHALT PAVING AND CONCRETE WORK - SEALANT UNDERGROUND ELECTRICAL OTHER SITE IMPROVEMENT - MAIN ENTRANCE GATE STRUCTURE RESERVE FUND STUDIES - DEPRECIATION REPORT Schedule B , ,588 1,050,199 1,129,516 1,236,621 1,194,020 1,137,869 78,867 78,867 78,867 78,867 78,867 78,867 78,867 78,867 78,867 78,867 78,867 78,867 78,867 78,867 22,999 23,915 26,255 28,238 30,916 29,850 28,447 1,021,821 1,059,370 1,155,321 1,236,621 1,346,404 1,302,737 1,245,183 65,233 8,608 17, ,508 9,171 9, ,868 94,971 S U N C O R P V A L U A T I O N S TOTAL EXPENSES CLOSING CASH BALANCE RESERVE REQUIREMENTS RESERVE FUND SURPLUS (DEFICIENCY/SUFFICIENCY) 65,233 9,171 25, , ,868 94, ,588 1,050,199 1,129,516 1,236,621 1,194,020 1,137,869 1,150, ,185 1,046,711 1,125,941 1,232,957 1,190,264 1,134,020 1,146,266 3,403 3,488 3,575 3,664 3,756 3,849 3,946 Effective Date: April 23, 2014 ZZNW

48 BALANCE AS OF MARCH 31, 2014 OPENING CASH BALANCE ANNUAL RESERVE FUND ASSESSMENT RESERVE FUND MAKEUP TOTAL RESERVE FUND CONTRIBUTIONS RESERVE FUND INTEREST INCOME TOTAL CASH RESOURCES Reserve Fund Plan 30 Year Cash Flow Projection for Strata Plan NW 2548 Falcon Terrace RESERVE FUND EXPENDITURES SUBSTRUCTURE SUPERSTRUCTURE - BALCONIES AND DECKS EXTERIOR WALL - VINYL SIDING EXTERIOR WALL - PAINTING WINDOWS AND DOORS - WINDOWS WINDOWS AND DOORS - PATIO AND BALCONY DOORS WINDOWS AND DOORS - GARAGE DOORS WINDOWS AND DOORS - EXTERIOR DOORS ROOF ASSEMBLY - EAVESTROUGHS AND DOWNSPOUTS ROOF ASSEMBLY - SOFFITS AND FASCIA ROOF ASSEMBLY - ASPHALT SHINGLES ACCESS CONTROLS / COMMUNICATION - MAIN ENTRY GATE INTERCOM ACCESS CONTROLS / COMMUNICATION - SECURITY GATE HARDWARE & MOTOR SEWER AND WATER SYSTEMS FENCING - WOOD - FENCES AND RETAINING WALLS FENCING - WOOD - FENCES AND RETAINING WALLS - POOR CONDITION ASPHALT PAVING AND CONCRETE WORK ASPHALT PAVING AND CONCRETE WORK - SEALANT UNDERGROUND ELECTRICAL OTHER SITE IMPROVEMENT - MAIN ENTRANCE GATE STRUCTURE RESERVE FUND STUDIES - DEPRECIATION REPORT ,150,212 1,227,742 1,337,303 1,346,464 78,867 78,867 78,867 78,867 78,867 78,867 78,867 78,867 28,755 30,694 33,433 33,662 1,257,834 1,337,303 1,449,603 1,458,993 19, , , ,855 10,635 11,453 Schedule B S U N C O R P V A L U A T I O N S TOTAL EXPENSES CLOSING CASH BALANCE RESERVE REQUIREMENTS RESERVE FUND SURPLUS (DEFICIENCY/SUFFICIENCY) 30, , ,817 1,227,742 1,337,303 1,346, ,176 1,223,698 1,333,157 1,342, ,819 4,044 4,146 4,250 4,357 Effective Date: April 23, 2014 ZZNW

49 Reserve Fund Analysis According to this Depreciation Report, based on the stated assumptions, life cycle analysis of the project, an inflation rate of 2.50% and an investment return of 2.50%, the current reserve fund position should be 1,209,846. The current reserve fund balance, as of March 31, 2014 is 184,571. Therefore, as of the effective date of this report the current reserve fund is deficient by 1,025,275. In order to formulate the recommendations, a series of tests were applied to the cash flow projections in order to ensure that, according to the forecasts, the cash balance of the reserve account never reaches zero (or a negative figure) and allow a reasonable reserve fund surplus by the end of the period. The first scenario applied was at the current funding level 13,000 per annum. Under this scenario, the closing cash balance is positive only in the first few years of the cycle, there would not be sufficient funds in the reserve to account for the necessary upgrades. Details of this scenario are provided in the appendix. The second scenario was at the contribution level suggested in the Benchmark Analysis shown in Schedule A (78,867 per annum). This also created an unsatisfactory result, with a negative reserve fund surplus throughout the cycle and negative cash balances starting year This is because the current fund has already fallen behind by what should be on hand. Details of this scenario are provided in the appendix. The third scenario was to determine an appropriate make-up contribution that would eliminate any negative closing cash balance and provide for a positive reserve fund surplus (sufficient reserve fund) during the forecast period. Accordingly, a make-up contribution of 76,500 per year resulted in a reasonable reserve surplus by year 15 of the forecast period. Thus, it is recommended that a contribution of 155,367 per annum (78,867 (Annual Reserve Fund Assessment) + 76,500(Make-up Contribution)) be contributed to the reserve over the next 15 years, after which time the reserve fund will be sufficient and contributions can be reduced to the Annual Reserve Fund Assessment amount. In all instances, it is important to adopt a disciplined approach to reserve funding and reserve management to ensure the future viability and value of condominium projects. Reserve funds, should be invested in high yielding guaranteed investments to earn maximum returns. In the long run, investment returns will exceed the owner s contributions; therefore, the higher the investment return, the less owners are required to contribute to the reserve fund. In summary of the findings, it is recommended that Strata Plan NW 2548, Falcon Terrace, contribute 155,367 as directed above, to the reserve fund. 39

50 Recommendations The Strata Plan NW 2548, Falcon Terrace, has a reserve fund position of 184,571 as of March 31, The reserve position is deficient by a total of 1,025,275. The following recommendations include the recognition of the current reserve fund position, the condition of the property, and the various assumptions implied in this report. A formal reserve fund plan and strategy should be prepared and implemented. Reserve fund expenditures should be planned in advance of contemplated major repair or replacements. Reserve funds should be fully invested in qualified securities to earn the maximum interest available at all times. An attempt should be made to achieve investment returns in the 2.50% range, on average. Reserve funds should be segregated and managed in compliance with the provincial act and regulation requirements. The annual reserve fund assessment policy of the Board should be to provide for a total reserve fund contribution of 155,367 per annum over the next 15 years, after which time the reserve fund will be sufficient and contributions can be reduced to the Annual reserve fund assessment amount. The Reserve Fund Plan or Program should be reviewed annually and updated in accordance with observed conditions and repair or replacement experience. The schedules and underlying assumptions of the Depreciation Report should be reviewed every year and the Depreciation Report in its entirety should be updated every three years. Respectfully submitted, SUNCORP VALUATIONS Maximino Laguerta, ASA July 28, 2014 Date Prepared 40

51 PART IV - APPENDIX CONDOMINIUM PLANS SCENARIO ONE - CASHFLOW SCENARIO TWO - CASHFLOW

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