Spring Into Action...Capital Projects

As springtime festivals are hitting full stride, so too is the activity within our community associations. Spring cleanup is amongst us, pools are being opened, and landscaping season is in full swing. It’s easy to get caught up in the hustle-and-bustle but, as property managers and vendors, we must keep our eyes on the horizon, ensuring each of our association clients can successfully execute their 2020 business plans.

For most, budget season was six-plus months ago and 2020 budgets have formed the foundation for the new year. Although ongoing operating expenses are well known and capital reserve expenditures are budgeted for, it is best practice to exercise due diligence and reassess the needs of both 2020 budgeted and 2021 anticipated projects. Begin by creating a checklist for your association. Print a list of 2020 projects as well as anticipated projects in 2021 from your reserve study. Also gather a list of any issues related to common elements that arose since budget season (i.e. roof leaks, fence damage, pool mechanical failures, etc.).

It is critical to observe each of the common elements included in your checklist, documenting both the condition and deterioration of each. This information along with the knowledge of recent issues will guide you in answering the following questions:

1. Do any of our 2021 projects need to be addressed in 2020 due to current conditions? 2. Do all of our 2020 budgeted projects still require completion this year? a. Which projects are critical to address now? b. Are any deferrable to 2021?

3. Should we repair or replace the element? a. Can a capital repair, in lieu of replacement, extend the life of the element?

Consideration of repair vs. replace generally boils down to whether or not a repair will extend the remaining useful life of a particular component and, at a similar or lower annual cost of ownership. Your reserve study provider can provide recommendations on the criticality of addressing a capital project and guidance on when to repair vs. replace.

It is not a matter of if, but when an Association will face unexpected expenses at some time in the future. Having answers to the above questions is key to effectively evaluating priorities when faced with the realization of additional costs. A review of reserve funds may be necessary to determine an Association’s position or ability to proceed with increased spending. Should there be minimal or no flexibility with exceeding the budget, re-shuffling priorities, special assessments or bank loans become part of the discussion for moving forward.

Financing capital projects is a subject of its own. However, reshuffling priorities is common practice and involves identification of critical vs. discretionary projects (identified in the question set above). It goes without saying that critical projects are those that relate to structural components (roofing, siding, etc.) and safety hazards (deteriorated common area parking, leaning perimeter walls, deteriorated docks, etc.). These are priority number one. Failure to address in a timely manner usually leads to unnecessary and accelerated deterioration of building structures. And, with safety related hazards, increased exposure to liability.

Discretionary projects are those that have little to no impact on surrounding property, mostly items that are cosmetic in nature. Examples include pool furniture, interior paint finishes, floor and wall coverings, and furnishings. Although worn out furniture may not be visually appealing, replacement of such components should be deprioritized to ensure adequate reserve funds are available for critical projects.

With a finalized list of 2020 capital projects in hand, it is time to consult your latest reserve study to understand what each project entails. Reserve studies typically coordinate projects of similar nature whenever appropriate. Doing so minimizes community disruptions and is more cost effective than scheduling separate. Common examples include:

1. Exterior Paint Finishes – Balcony railings of similar material are typically painted in conjunction with building exteriors.

Deterioration of paint finishes is consistent when materials are similar and a coordinated project is more cost effective than conducting them separately. 2. Re-plastering Pools – The reserve study specifies whether or not tile replacement is included in the scope of work.

Knowing the recommendations specific to your association allows discussion with local contractors regarding the most cost effective solution and ensures apples-to-apples bids are prepared. 3. Asphalt Pavement Replacement and Concrete Curbs – Partial replacement of concrete curbs is generally timed with asphalt pavement replacement. A portion of curbs will crack and settle over time. Complete replacement of asphalt pavement involves complete removal of the surface pavement and base layer. It is not uncommon to have to replace some concrete curbing as a result of such expansive work. Combining these projects is more efficient and less disruptive than replacing curbs the following year.

Now secure any remaining bids you require prior to authorizing this year’s projects. If it is advantageous in terms of cost and it minimizes disruptions within the community, discuss project coordination with chosen vendors. Don’t forget to inform homeowners of any changes made to the 2020 replacement schedule (and upcoming expenses) that were the result of reassessing priorities. Doing so promotes peace of mind and instills confidence in homeowners' understanding of board decisions and the direction of the community.

BIO Andrew Stoutenburg is Reserve Advisors’ West Regional Executive Director. Since joining the company in 2013, Mr. Stoutenburg has received and currently holds his Reserve Specialist (RS) designation along with his Professional Engineering license in Texas, Arizona and Florida. He has worked with community association managers and board members across 15 states and the District of Columbia to prepare more than 350 comprehensive reserve studies, which serve as a key part of their associations’ long-term planning process.

He can be reached at 512-906-0745 or andrew@reserveadvisors.com.