Future Energy Planning and Financing October 19, 2018 David Spackman Agenda 1.Why now? 2.Financial Stability 3.Assessing needs 4.Developing Strategies 5.Investing resources 6.Creating solutions 7. Wind up 1 CHF Canada Workshop 1
Federal Government Programs 1973-78 1979-85 1986-92 Section 61 (then 34.18) Section 95 (then 56.1) ILM (FCHP) End of Mortgage What stays the same Co-op remains a non profit housing co-operative CHF Canada Workshop 2
What we know to be true Teenagers in groups are dangerous Elvis is alive and hidden in a witness protection program Turtles got flushed into the New York sewer system and still live there Change is BAD Future Viability How do we renovate our buildings and reduce operating costs without driving housing charges through the roof? 5 CHF Canada Workshop 3
Creating long term viability Building Condition Assessment Reserve fund forecast Financial statements Housing charges Reserves & Financing Energy efficiency Universal design Community infrastructure Reserves and renovations Long term operating budgets Housing charges & market projections Support for low income members Improved standard of living Accessibility/Aging in place Mixed income community 6 Assess Needs Building Condition Assessment Document review Site inspection Prioritized Capital Replacement Plan Life cycle spreadsheet Results: Which capital items you need to replace first. How much you will need to spend each year over 25 years. CHF Canada Workshop 4
Assess Needs Reserve Fund Forecast (RFF) The difference between your current reserves and reserve contributions and the spending in the BCA How much money you should be putting into your replacement reserve each year. How much you can expect to earn on your replacement reserve investments What impact this will have on housing charges Assess Needs Financial Statements What are our current reserves? Are they fully funded? (Do we have the cash to match the liability?) What is our annual contribution to reserves? Do we transfer any surplus to reserves? Do we spend our full maintenance budget each year? Do our HC s keep up with inflation? Can we implement all the repairs called for in the BCA? CHF Canada Workshop 5
Assess Needs Housing charges and affordability mandate Do your current housing charges create an annual surplus? Do your housing services provide on time maintenance, capital replacement, quality of life improvements? How do your housing charges compare to local market? Will completing all the work drive housing charges higher? Develop Strategies Human resources, who will? Lead the planning and implementation process Set the stage; dream, direction, standard of living Procure data and reports, BCA, AMP, financial statements Review data and craft a plan for the co-operative Set milestones and monitor progress Set aside time for separate planning meetings Recognize the need for outside assistance CHF Canada Workshop 6
Create Solutions Asset management Plans The BCA calls for replacement to original Do we want to rebuild 1980? Building systems Building envelope & Insulation Plumbing systems Mechanical & electrical Community Infrastructure Appliance alternatives Recycling Accessibility/aging in place Food security/transportation Quality of life Asset management planning An asset management plan will: Review Building Condition Assessment (BCA) Consider additions/phasing in the BCA Create a budgeted capital improvement plan Generate a Reserve Fund Forecast Advise when the funding gap becomes critical Consider financing options Create long term budgets & housing charge projections CHF Canada Workshop 7
Data gathering and reports cost money CMHC SEED, Preservation funding Building condition assessment Reserve fund forecast Asset management plan (operating viability analysis) Accessibility and aging in place assessment Energy Audit Property Assessment Financing analysis Financing charges 14 CMHC SEED, Preservation funding Program basics Maximum available, $50,000 per project Extended to $75,000 in special circumstances Active Federal Operating Agreement Accepting applications in 30 day windows. Funding priorities Vulnerable Canadians, Seniors, LGBTQ2+, physical developmental disabilities, new Canadians, victims of family violence, veterans, Indigenous, mental health/addiction and others) Economic Sustainability Social sustainability Environmental Sustainability Partnerships/collaborations Northern Housing (Yukon, NWT & Nunavut) 15 CHF Canada Workshop 8
CMHC SEED, Preservation funding Link Assistance with applications: Regional Specialists https://www.cmhc-schl.gc.ca/en/developing-and-renovating/fundingopportunities/preservation-funding https://www.cmhc-schl.gc.ca/en/maintaining-and-managing/managingaffordable-housing/connect-with-affordable-housing-specialists Michele McMaster mmcmaste@cmhc.ca 416-218-3452 @LinkedIn Region: Toronto 16 Create Solutions Asset management Plans _ Energy saving opportunities High efficiency boiler 9 units 1 7 CHF Canada Workshop 9
Create Solutions Asset management Plans Green Infrastructure/ lower costs Mini Split air to air heat pump Create Solutions Asset management Plans Green Infrastructure/lower costs Windows + insulation +siding Shingles + venting + insulation CHF Canada Workshop 10
Create Solutions Universal design & site accessibility Create Solutions Asset management Plans Universal design & fixture improvements Low flow, universal design Energy star best performance CHF Canada Workshop 11
Universal design & fixture improvements Create Solutions Community infrastructure Bike parking Toronto apartment Recycling 2 3 CHF Canada Workshop 12
Develop Strategies Current BCA and available programs Review BCA for energy saving opportunities in first 5 years Mechanical Heating, ventilation, air conditioning (HVAC), make up air, booster pumps etc. Plumbing DHW systems, unit fixtures, toilets Electrical Lighting, parking ramp heating, programmable thermostats Replace to high efficiency systems Move these items forward and use incentive programs 2 4 Develop Strategies EOA, Reallocate current mortgage cash flow Reallocate all mortgage payments to reserves? Some allocation for internal subsidy? Can we phase all required projects to fit with cash flow or does standard of living decline? Do all of the BCA! Do we have human resources to phase all projects? The BCA only replaces to original, do we want to do more? Will financing assist us to meet our goals? CHF Canada Workshop 13
Invest resources Longer term questions, What is the cost of minimum BCA requirements? How does that compare to reserves and contributions (RFF) Can we fund capital requirements if we redirect loan payments at EOA? Are we meeting an affordability mandate or criteria? Would financing assist us to achieve our goals? Are there programs that can assist us to achieve our goals? Invest resources Reserves are not always enough CHF Canada Workshop 14
Invest resources Financing can help close the gap finance Invest resources Financing Financing Funding for major capital repairs Invest in green infrastructure Modify units to meet changing needs of members New development / acquisition & rehab How? CMHC Direct Lending? Commercial market / Credit Unions or Banks? Sector based lending service. CHF Canada Workshop 15
Invest resources Financing Mortgage Basics Loan to Value: Loan Amount Property Value First Mortgage: 75% - 80% of appraised value Debt Service Coverage Ratio: Free cash flow to support loan Minimum DSCR 1.2 = (20% cushion, some lenders more). Lenders want to see reserve funds and BCA in place How Lending to Housing Co-ops Works Your lender is looking for good answers to three fundamental questions 1. Are going to pay me back? Can they service the debt? 3. Can they maintain the property for the whole amortization period? 2. What do I get if they don t pay me back? What s my security? CHF Canada Workshop 16
What can the Borrower Afford? Your lender will want to make sure that you can afford your debt for the full amortization of the loan. To understand this they will look at your Debt Service Coverage Ratio (DSC). DSC is really saying for every dollar in debt payments the borrower has an extra cents to cover contributions to reserves or other unexpected expenses. 1. Are they going to pay me back? Lender s Valuation vs. Realtor s Valuation 2. What do I get if they don t pay me back? Lender s valuation is based on current use of the property and current income generated Realtor s valuation is based on market value of the best use of the property and assumes true market rents Lender will base their valuation on the income that the property generates today (because if they have to foreclose, that is what they inherit) Basically the lender gets the housing with the occupants paying their current housing charges CHF Canada Workshop 17
Will they maintain the property? 3. Can they maintain the property for the whole amortization period? Lender s security is the quality of the homes Lenders expect all the work in the BCA to be completed The lender provides the loan to complete major renovations and will watch the project to ensure they are done The lender and co-op have a 25 year relationship. The lender expects reserve contributions will be enough to complete all required work (BCA) after the initial project. Lending Principles for Housing Cooperatives 1. Can this housing cooperative afford this debt? 2. Do they have the funds they need to cover their operating expenses? 3. Do they have the funds to continue to maintain this property over the full amortization period? CHF Canada Workshop 18
Invest resources Financing Co-op acquires a new mortgage to pay off CMHC mortgage and pay for repairs. Operating agreement may continue. OR Co-op acquires new mortgage to complete repairs (operating agreement is ended) 100% of funds to repairs Invest resources Refinancing Redirect current loan payment to new financing Fit Maximum - 75% Loan to Value Cash flow to support 1.2 x Debt Service Ratio Pass stress test: Cash Flow when/if RGI Funding Ends Pass stress test of a 2% interest rate increase after first fiveyear term CHF Canada Workshop 19
Invest resources Financing Borrowing limit usually determined by cash flow not LTV Repairs may focus on building envelope & systems Co-op must complete the balance of the BCA after major project Major repairs need management & project management Future reserve fund needs will require ongoing inflationary housing charge increases Lender will monitor loan performance Improving Lives Planning, Set aside time to plan Get the data, BCA, RFF, Financial statements. Review building condition, reserves, & requirements Review replacement to original and desired improvements Review capacity to support mixed income community Make a long term plan & consider financing as a tool Get expert support, planning and project management 3 9 CHF Canada Workshop 20
CHF Canada Asset Management Support CHF Canada services Technical report procurement BCA & RFF Technical investigation Asset management plans Refinancing program Analysis Application assistance Board, member, & management education Technical services procurement Scope development, tendering documents & procurement Project management Shoreham Halifax 41 CHF Canada Workshop 21
Windfield Co-op, Guelph ON Wrap-Up Assess Needs BCA, RFF, Financials CMHC Preservation funding Energy saving incentive programs Develop Strategies Asset management plan Invest Resources Reserves & financing analysis Create solutions Improved infrastructure, higher standard of living and quality of life CHF Canada Workshop 22
Asset management David Spackman 1 888 314 9015 dspackman@chfcanada.coop Financing David Howard 1 800 268 2537 ext 239 dhoward@chfcanada.coop CHF Canada Workshop 23