Asset Management & Refinancing

Transcription

1 Asset Management & Refinancing CHF Canada AGM, June 4, 2015 David Spackman & Janet Shim 0 Agenda 1. Introductions 2. Why now 3. What is Asset Management 4. Maintenance, how to make assets last longer 5. Reserves, how to replace assets when they wear out 6. Finance, how to pay for maintenance and replacement 7. Refinancing basics 8. Refinancing program basics 9. Wrap up 1 1

2 2 Why now? The End of Operating Agreements Section 95, ILM and Section 61 55,000 homes by 2020 Not just about end of obligations to CMHC Housing stock is aging Most Housing co-op have not saved enough reserves Important to take the long view Sign on for CHF Canada 2020 program 3 2

3 What is asset management? Asset management is the planning and work required to maintain, restore, and protect the homes and property belonging to the co-operative. Asset Management Includes: An effective maintenance program A long term capital replacement program Long term replacement reserve savings A long term financial plan, including possible refinancing 4 Maintenance and Capital WHY? 5 3

4 Maintenance and Capital program WHY? 1. To ensure that buildings and site improvements are structurally sound and maximize asset life. 2. To ensure the co-op is free of safety hazards 3. To keep mechanical systems and appliances in good working order 4. To maintain and enhance the appearance and marketability of the property 5. To manage maintenance operations in a cost effective way 6. To maximize living standards for co-op members 7. To protect and maintain co-op homes now and for the future 6 Elements of a Maintenance Plan: Maintenance Budget Co-op Inspections Member work orders Annual preventative maintenance calendar Capital projects and replacements 7 4

5 The Annual Maintenance Calendar schedule seasonal maintenance work schedule routine preventative maintenance schedule annual unit inspections schedule annual capital repairs 8 Capital repairs and replacement reserve planning A capital repair is a replacement or major repair to building components including the building envelope, structures, mechanical systems, electrical systems, interior finishes and site improvements A replacement reserve plan is a plan to work out when the various parts of your co op will need replacement and how much money you need over time to cover the costs of replacing capital items or making capital repairs. 9 5

6 Benefits of capital repairs Reducing maintenance costs through major repair or replacement. Maintain the co-op in a safe, efficient and structurally sound condition. Capital repairs are an opportunity to take steps to a sustainable future improve energy efficiency. Implement improvements for aging in place. Increasing member satisfaction and increasing marketability. Preserving affordable housing for future generations 10 Planning resources 11 6

7 Asset Management Capital Replacement Plan (CRP) Make sure you have a capital reserve plan The plan tells you: which capital items you need to replace each year how much money replacements will cost each year how much money you need to set aside each year The plan will have two parts: The Building Condition Assessment (BCA) The Reserve Fund Forecast (RFF) 12 Capital replacement plan Building Condition Assessment The BCA Scope of Work should include: A desk review of construction drawings and a site inspection of the property and buildings 13 7

8 Capital replacement plan Building Condition Assessment The BCA should include: Maintenance recommendations to maximize life of all components 14 Capital replacement plan Building Condition Assessment The BCA should include: Prioritized Capital Replacement Plan Life cycle spreadsheet Translation Which capital items you need to replace first. How much you will need to spend each year over 25 years. 15 8

9 Capital replacement plan Building Condition Assessment The BCA should include: A spreadsheet listing capital repairs due each year for 25 years 16 BCA to Asset Management Plan The BCA generally calls for replacement to original What about improvements? Building systems Plumbing systems Insulation & building envelope Mechanical & electrical Community Infrastructure Appliance alternatives Recycling Transportation Food security and quality of life 17 9

10 Asset management plan Community improvement opportunities Finishes and fixture improvements Low flow, universal design Energy star best performance 18 Asset management plan Infrastructure opportunities Green Infrastructure improvements High efficiency boiler 9 unit apt. * Fortis program Electric Hydronic baseboard heater Programmable thermostat 19 10

11 Asset management plan Infrastructure opportunities Green Infrastructure improvements Windows + insulation +siding Shingles + venting + insulation 20 Paying for capital repairs Reserve Fund Forecast (RFF) You need to know The difference between your current contributions to reserves and the spending requirements of 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 21 11

12 Building Condition Assessment (BCA ) and Replacement Reserve Plan (RRP) How will you use your BCA & RRP? to make annual budget decisions to set contributions to the replacement reserve to decide when to repair or to replace to decide what capital work to do each year to identify preventive maintenance to create a long term financial plan Consider new lending (refinancing) 22 Asset Management, Long-Term Financial Plans Why does the co-op need a long term financial plan? Annual budgets only deal with the immediate future. Long-term plans forecast the financial future for years Multi-year plans keep the Co-op viable and housing affordable for the future. Affordability requires planning 23 12

13 Asset Management Comprehensive Asset Management Plans An asset management plan will: Review Building Condition Assessment (BCA) Create an annual maintenance plan Generate a Reserve Fund Forecast. Advise when the funding gap becomes critical Consider refinancing options CHF Canada Asset management services 24 Asset management plans Long Term Budgets Refinancing options Building Condition Assessment AMP Reserve Fund Forecast Capital plan Annual Maintenance Plan 25 13

14 CHF Canada, asset management support CHF Canada current services Technical report procurement BCA & RFF Technical investigation Asset management Plans Technical services procurement Scope development, tendering documents & procurement Project management 26 CHF Canada, asset management support Refinancing Program Access to new lending Sector based Fully supported 27 14

15 BREAK TIME! 28 Reserve funds are never enough 29 15

16 Refinancing closes the gap refinance 30 Asset management Long-Term Financial Plans Refinancing Refinancing Funding for major capital repairs Invest in green infrastructure Modify units to meet changing needs of members New development How? CMHC Direct Lending? Commercial market / Credit Unions or Banks? Sector based lending service

17 Asset Management Refinancing Mortgage Basics Loan to Value: Loan Amount Property Value First Mortgage: 70% to 80% of appraised value, best rate Debt Service Coverage Ratio: Free cash flow to support loan (monthly surplus) Minimum DSCR 1.2 = 20% cushion Lenders want to see reserve funds and BCA in place Lenders will offer higher LTV and appraised values are higher on well maintained properties. 32 Asset Management Refinancing basics 30 units. Average housing charge 2 bedroom = $850 per month Current Budget Current Mortgage $ 8,500 per month Current reserve contribution $ 2,500 per month x12 = $30,000 Current reserve savings $150,000 Funding BCA first 3 years $1,250,

18 Asset Management Refinancing basics 30 units. Average housing charge 2 bedroom = $850 per month Refinance : Original mortgage $8,500 4% over 25 years = $ 6,575+$1,315 (.2 dcr) = $7,890 New reserve contribution $2,500 + $610 = $3,110 x 12 = $37,320 Value of reserve after 3 years $150,000 + $111,960 = $361, Refinancing: Advantages for the Co-op Repairs & upgrades completed immediately Economies of scale for capital projects Small or no impact on existing mortgage payment Avoids large housing charge increases to pay for needed repairs Co-op and member goals more achievable Dealing with a lender that you own (credit unions are financial co-operatives) 35 18

19 CHF Canada s Refinancing Program How the new mortgage works Credit Union offers co-op a new mortgage to pay off CMHC mortgage and pay for repairs (blend & extend) CMHC Operating Agreement and subsidies continue until the CMHC mortgage would normally end OR Credit Union offers co-op a new mortgage to complete repairs (operating agreement is ended) 100% of funds to repairs 36 How the New Mortgage Works Co-op s auditor will continue to report to CHF Canada until the new mortgage is repaid Co-op must continue memberships in CHF Canada, local CHF Canada member federation and credit union during the new mortgage 37 19

20 New Mortgage Agreement Mortgage Agreement with credit union has four parts 1. Money for CMHC payout and repairs or just repairs 2. Capital plan with annual reserve contribution identified, to be updated every five years 3. Annual report from CHF Canada to credit union on co-op s financial performance and capital plan 4. Co-op agrees to facilitation by CHF Canada at lender s request if lender becomes concerned about governance or management, or financial performance slips (Loan management = better deal from Credit union) 38 What Your Co-op Will Need to Qualify Solid financial record Three years of audited financials Operating forecasts Long term Asset management Plan BCA, RFF, financials Agreement with CHF Canada facilitation and risk monitoring CHF Canada helps credit union administer loan (reduce risk) CHF Canada helps co-op report to credit union The Paperwork 39 20

21 What Your Co-op Will Need to Qualify Fit Maximum - 75% Loan to Value Cash flow to support 1.2 x Debt Service Ratio Pass stress test: Cash Flow When RGI Funding Ends Pass stress test of a 2% interest rate increase after first five-year term 40 What Lenders Need (the Paperwork ) Previous financial statement information Current property appraisal Current rent roll / vacancy statistics Environmental Assessment Summary of previous, pending and planned capital improvements Long term financial forecast BCA & Capital Reserve Plan Reserve fund forecast (loan period 25 years) Copy of Borrowing Resolution 41 21

22 CMHC Requirements, when necessary Co-op is financially viable, and will be viable when operating agreement expires (and RGI subsidies end) Capital investment is required Ten-year capital replacement plan Continue operating agreement until its scheduled expiry 42 CHF Canada Support Technical report procurement New BCA BCA update & validate Phase 1 environmental Designated substance survey DSS Technical investigation as required Technical report delivery Asset management Plans 43 22

23 CHF Canada Support Help finalize key capital needs/costs Provide expert financial advice that calibrates: Borrowing for capital repairs/renovations Total borrowing (mortgage payout plus capital renewal from borrowing) Amount of monthly payment Ongoing repair/replacement needs and reserve contribution 44 CHF Canada Support Prepare application to credit union Review credit union s offer with co-op and negotiate any changes to: Interest rate Conditions Help handle the conditions checklist with co-op and credit union 45 23

24 CHF Canada Support Handle Agency and/or provincial government processes, CMHC approval process Organize three-way agreement between co-op, credit union and CHF Canada for loan monitoring (part of deal, gets better offer from credit union) Provide annual report to Credit Union, based on co-op s annual information return Intervene at lender s request based on performance 46 CHF Canada support Project management services (post lending) Scope development Specifications and drawings Tendering documents Contractor procurement Site and project oversight 47 24

25 What you have to budget in terms of costs... CMHC prepayment fees About 0.5% lenders fees CHF Canada fee (sliding scale) Asset management plan - $ 3,200 - $7,600 (Included in fee) Property appraisal up to $ 5,000+ for a larger co-op Phase 1 environmental $2,500 3,500 Legal costs of closing and registering mortgage $ 3, Refinancing Co-op Manager s Role Significant commitment required, both in time and energy Understand and explain the risk/benefit analysis and identify the major milestones involved Ensure the co-op has the necessary technical assessment of its capital repair requirements to properly evaluate its capital funding needs If approved, work with lenders & project management during renovations

26 Co-op Housing Manager s Role Help with the necessary technical, financial, appraisal, income, vacancy, and capital planning information needed. Assist the board to understand the various refinancing agreements (loan offer, mortgage documents, tripartite agreement, etc.) and facilitate the review of these by the co-op s lawyer. Assist the board to understand and keep moving the not always sequential steps involved in the process. Assist the Board in explaining refinancing to the membership and getting approvals. 50 Country Lane Housing Co-op 51 26

27 Windfield Co-op, Guelph ON 52 Wrap-Up Maintenance Capital planning Reserves Financing Evaluation 53 27

28 Asset Management & Refinancing Janet Shim & David Spackman Evaluations please