Page 8 - The Chicagoland Cooperator Summer 2020

8 THE CHICAGOLAND COOPERATOR
—SUMMER 2020
CHICAGOCOOPERATOR.COM
• After appropriate due diligence
(seeking wise counsel)
What Do We Do First?
First, it’s important to remember that try-
ing to solve the problem with reserves is not to spend $50,000 on remodeling it? If cash the best fit for your current needs in light of your legal counsel. While documenting your
your first step. Begin your belt-tightening, permits, sure—in fact, it might be a great op-
continue your collection (and communica-
tion) efforts, and get in touch with your legal using the clubhouse—but if cash is tight, de-
counsel to find out if you have any state-law fer the project to 2021. And anything related study provider to run some cases to docu-
or governing-document limitations. Then to maintaining building integrity, like build-
make sure you’ve gathered current financial ing painting or roof work, should definitely plan—there should be no guessing! That negotiating with vendors to get some reserve
information, including financial reports with not be put off. Don’t make things worse by repayment might take the form of a single projects done now. No matter what route you
bank balances, your year-to-date budget, any risking expensive problems like dry-rot or or multiyear special assessment, or higher take, make decisions that are in good faith, in
delinquency reports, and your most recent water damage that could have easily been future reserve contributions, all of which the best interests of the association, and after
reserve study. Once all that information is prevented. Similarly, projects that protect the might be minimized by higher-than-normal investigating your options. It may turn out
compiled, your board and financial advisors best interests of the owners (like the central transfers to reserves next year, when delin-
will be better positioned to weigh the options hot water heater, or automobile gate mecha-
available.
What Are Board Options?
There are three ways reserves can help reserve cash only on projects that cannot be
rescue an association in financial crisis:
• Conserving cash by deferring reserve projects don’t represent savings. You’ll still time—particularly those projects with a high
projects
• Reallocating cash from reserves to op-
erating funds
• Saving cash by bargain shopping
Conserving Cash
In a time of financial scarcity, a good ing deterioration and avoid special assess-
standard rule is to minimize your spending ments, you might consider scaling back for enjoy a 5% or even 10% discount on some
by prioritizing expenses, including reserve a few months. Dropping your contributions of your association’s larger projects. Just be
projects. But not all projects are equal! Don’t by 10% down to 15% immediately offsets a careful when updating your reserve plan, as
defer projects that will expose owners to 10% increase in delinquencies. The same ef-
even greater problems or expenses—post-
pone less consequential reserve projects (like contributions entirely for a few months. You
new carpet in the rear stairwell, for example). could also consider a zero-interest loan from
Double-check before replacing the perimeter reserves to operating.
wood fence; can it last another year with a
few repairs? With the clubhouse closed be-
cause of the pandemic, is this really the time approaches to determine which might be integrity. So gather information. Confer with
portunity to do the remodel when no one is upcoming reserve projects. Run some cases ing and only spending where the projects
nism) are projects that you should perform association.
on schedule. Make sure you spend precious
readily deferred. And remember: deferred sociation clients significant savings at this
need to do those projects next year.
Reallocating Cash
If your reserve contributions are anywhere available, now might be a great time to check
close to the 25% of total budget that most as-
sociations find is necessary to offset ongo-
fect could be achieved by deferring reserve repeatable in future years.
Consult with legal counsel and your re-
serve study provider regarding these possible its long-term financial solvency and physical
your contribution size, reserve fund size, and process, conserve reserve cash by prioritiz-
on your reserve study software, or ask your have true merit, reallocate cash going into
ment both the borrowing and the repayment to create a repayment plan), or save cash by
quent owners resolve the funds owed to the valuable use of reserves.
Saving Cash
Certain industry sectors are offering as-
labor component, like roofing, painting, and
asphalt work, to name just a few. If the cash is
in and negotiate with your service providers.
You may be very encouraged to stimulate
the economy, keep their crews working, and
discounts available in 2020 will likely not be
Final Thoughts
No matter what your association’s current
situation, the fact remains that robust, well-
managed reserves are a crucial component to
the reserves or already in them (remember
that one of those options may be a new and
n
Robert Nordlund is founder and CEO of
Association Reserves (www.ReserveStudy.com)
and a registered professional engineer. He was
involved in creating the 1998 National Reserve
Study Standards and is a past chairman of the
Community Associations Institute (CAI)’s Re-
serve Professionals Committee, past chairman of
the Association of Professional Reserve Analysts,
and past president of the CAI Greater Los An-
geles Chapter. He regularly writes on the topic
of reserve studies and is a frequent speaker in
industry-sponsored seminars and presentations
throughout the United States.
TAPPING...
continued from page 1
A NEW
WEBINAR
SERIES!
Tune in, ask questions,
and gain professional
insight to help your
community thrive!
Sponsored by experts from across the multifamily
residential industry, our
FREE ‘town hall’
style
conversations cover the issues board members
and managers deal with every day.
FREE REGISTRATION AT CHICAGOCOOPERATOR.COM/EVENTS