Condo Media - December 2021 - 22

A PERFECT TRIO
RESERVE STUDIES
A Reserve Study serves as a vital
resource for boards to make informed
capital planning and budgeting decisions
for their associations. Also referred
to as a Capital Reserve Analysis,
the Reserve Study provides a guide for
repairing or replacing the association's
capital components by way of properly
funding the reserves to afford capital
projects 20 to 30 years into the future.
The study typically forecasts all major
capital components, assigns a projected
remaining useful life, and attaches
an anticipated cost of replacement.
Examples of capital components include,
but are not limited to, elevators,
boilers, chillers, roof systems, siding,
pools, and streets. It will also often include
" FF&E " - fixtures, furnishings,
and equipment, such as carpet and
furniture. While informative from a
budgeting standpoint, a Reserve Study
is generally not viewed as a tool for
investigative reporting.
building and component age, inflation,
preventive maintenance, and the frequency
with which the data is updated.
It is also deemed prudent to factor
annual inflation rate into the contributions
and to consider the overall financial
health of the association.
BUILDING CONDITION
ASSESSMENTS
As a building ages, a more investigative
analysis of building and component
conditions should be considered.
With more aging condominiums in the
marketplace, 30, 40, and 50-year-old
buildings, the importance of a deeper
analysis becomes increasingly important.
A Building Condition Assessment
evaluates the condition of a building's
envelope performance, structural
foundation, and superstructure, as
well as mechanical systems, including
heating and cooling systems. This
assessment is typically performed by
an architect, engineer, or construction
Also referred to as a Capital Reserve Analysis, the Reserve Study
provides a guide for repairing or replacing the association's
capital components by way of properly funding the reserves to
afford capital projects 20 to 30 years into the future.
As part of a typical Reserve Study,
the board is presented various funding
scenarios for consideration. These
scenarios assist the board in their
efforts to ensure that the association
has the appropriate financial resources
to address capital replacements
at the time that they are anticipated.
There are several methodologies used
for reserve funding. They range from
Baseline Funding, which aims to keep
the reserve balance above zero each
year, to Fully Funded, which aims to
increase the Reserve Fund Balance to
match the Total Fully Funded Balance,
or Ideal Balance, which targets maintaining
a fund balance that exceeds a
minimum determined by the board.
Regardless of the methodology used,
important variables to consider are
22 CONDOMEDIA December 2021
expert and is a far more investigative
and detailed report of the condition of
building components. The assessment
will highlight issues of concern, deterioration,
or potential failure of building
components, and it will include project
cost estimates for the repair or replacement
of these components. While the
performance of a Building Condition
Assessment has not generally been the
norm for the condominium industry,
it is anticipated that the increasing
number of aging condominiums, coupled
with the tragedy at Surfside, has
made this level of investigative analysis
more common. Further, the industry
is seeing that more jurisdictions have
implemented, are implementing, or are
considering more stringent inspection
requirements to ensure the safety and
structural integrity of buildings.
It is anticipated that this is a trend
that will continue.
PREVENTIVE MAINTENANCE
Implementing a comprehensive
preventive maintenance schedule
will positively impact the useful life of
building components and general building
conditions. This schedule can be
initiated or updated as part of either the
Reserve Study or the Building Condition
Assessment process. Establishing and
following a comprehensive preventive
maintenance schedule ensures that
building components are operating
safely and at their highest efficiency.
It also helps to maximize the useful
lives of building components and
dramatically reduce the likelihood of a
catastrophic structural or component
failure. A comprehensive schedule will
stipulate which structural elements or
building components would benefit
from preventive maintenance, include
the scope of work to be performed, and
provide the frequency with which it
should be performed. When thinking
about preventive maintenance, it should
be acknowledged that the choice is to
spend a little now or a lot more later.
In other words, it should be viewed as an
investment that has both short-term and
long-term benefits. As with the Reserve
Study and the Building Condition Assessment,
the preventive maintenance
schedule should be periodically updated
by a qualified professional in order to
realize the greatest benefits.
THE BOARD'S FIDUCIARY
RESPONSIBILITY
An association's board has a fiduciary
responsibility to make decisions about
building operations, including repairs,
maintenance, and replacements that
are in the best interest of the association.
This includes a duty to preserve
the value of the association's assets,
most notably the building, and to maintain
and repair the common elements
for the safety and enjoyment of the
residents. It is important that a board
understands how a Reserve Study
Condo Media - December 2021

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