REPORT CAPITAL RESERVE FUND STUDY SAMPLE CONDOMINIUM ASSOCIATION JUNE 2011 BA Burns Associates - Engineers -1- CONTENTS 1 Disclosure 2 Acknowledgements 3 Financial Summary 4 Analysis of Present Funds 5 Commentary 6 Addendum -2- DISCLOSURE Project Profile The …………. Condominium Association is located on ……….Road in ………….. The steeply sloped, shallow to bedrock site drains toward ………. The circulation roadways and structures themselves are terraced into the sloped site. Development of the site and building construction took place between 1985 and 1986. There are fourteen duplex, twelve triplex, and eleven standalone buildings for a total of seventy-five residential units that make up the association. This report is based upon information provided by the client and that gathered during on-site evaluations and field measurements conducted during April 2011. Representatives of the client assisted during those evaluations. No destructive testing was performed. Random sampling was used for the condition survey. This is the first reserve fund study prepared for the Association. Costs used in this study are based upon client provided information, the firm’s database of updated contractor quotes, and past projects. It is understood that they represent current market conditions. Projected future costs augment today’s prices by 3% for inflation. The person in responsible charge of the project was Robert J. Burns, P.E., R.S., a professional engineer licensed to practice in the State of New Hampshire and credentialed as a Reserve Specialist by the Community Associations Institute. The National Reserve Study Standards of CAI were used in preparing this study. This firm has no involvement with …………………Condominium Association that would result in actual or perceived conflict of interest. It is assumed that information provided to this firm is accurate regarding financial, physical, quantity or historical issues. This reserve study is provided and assembled for the client’s exclusive use, not for the purpose of performing an audit, quality/forensic analyses, or background checks of historical records. -3- ACKNOWLEDGEMENTS The very helpful assistance and collaboration of ……………, President, and ………… of the Board of Trustees and …………., Property Manager in preparing this report is appreciated. The NH Department of Environmental Services provided background information on the nature of the wastewater disposal systems. -4- SUMMARY The Analysis of Present Funds is the primary indicator of the health of an association’s reserve fund. It considers both the amount presently in the association’s reserve account as well as the current level of contribution to the account. The APF is a snapshot in time, good just for the period in which it is taken. It gives management a benchmark with which to judge how well the amount now in the reserve account is able to capitalize the anticipated short and long replacements of its physical assets. Armed with that knowledge, a strategy for annual level of contribution can be designed. The monthly assessment to support the reserve portion of the budget can then be set. As is the case with most condominium associations, the primary control for capitalization of the reserve fund is the pavements and roof coverage replacements. Our Analysis of Present Funds (Exhibit 1) found the reserve account to be significantly underfunded. This comes about due to the convergence of pavement rehabilitation, deck replacement, and roof reshingling over the span of the next ten years. The combined present reserve balance and the level of contribution to reserves will result in a negative balance in the near term if the needed and recommended capital replacement projects are carried out. See Exhibit 2 This reserve position is not unique to …………………..; it is one currently being seen by this firm stemming from our present economic conditions. Associations are now experiencing shortfalls in reserves due to unanticipated sharp increase in petroleum based products such as bituminous pavements, asphalt roof shingles, and most all other construction products. Summary of Projects The bituminous concrete pavements (roadways and parking lots) need to be replaced between 2012 and 2015. The drainage pattern for surface water runoff has, in several locations, affected the subgrade of the pavements, necessitating their reconstruction rather than simply overlaying them. Improvements to the site drainage should be done in parallel with reconstruction. An engineering evaluation of the conditions within the subgrades will give direction to the design of the most cost effective, long-term solution. Roof coverages will need replacement between 2018 and 2021. Capitalization should begin now. Special attention should be given to protection during design and specification against ice dam formation. The rear decks are approaching the limit of their service lives; replacement should begin in 2015. The rationale in support of these recommendations can be found in the Commentary section of the report. -5- Benchmark Data It is understood that: There is $................. available in the reserve accounts for capital replacements. The board of trustees has retained the first and second quarters 2011 of the general collection account as a contribution to the reserve account. For purposes of this study, four quarters of that amount ($.........) is the intended annual contribution to reserves. Specifics In order to meet the current shortfall and to fund the recommended capital replacement projects over the next ten years, an immediate increase in the level of contribution to the reserve account is necessary beginning in 2011. Our Cash Flow Analysis Projection (Exhibit 3) recommends: Set the annual level of contribution to the reserve fund at $.......... for 2011. Increase the level of contribution by 3% each year until 2022 at which point the level can decrease to $........., then to $.......... in 2030 and 2031. See Exhibit 4 Our recommendations are made with the understanding that there will always be options open to management for alternate strategies for funding reserves both now and as future conditions change. Managing expenses by asking components to provide longer service lives may not, however, be the best option. With that in mind, we are always available to discuss our recommendations. The final work product of this report will be in electronic format to facilitate the client’s future strategizing of reserve funding. -6- EXHIBIT 1 EXHIBIT 2 Reserve Fund Balance 300,000 200,000 100,000 $ (100,000) 1 2 3 4 5 Total Expenses Annual Contribution (200,000) (300,000) 6 -7- Years Ending Balance EXHIBIT 3 -8- EXHIBIT 3 -9- EXHIBIT 4 Cash Flow - Capital Reserve Fund 500,000 450,000 400,000 350,000 300,000 $ 250,000 200,000 150,000 100,000 50,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Years Total Expenses Annual Contribution Ending Balance COMMENTARY ON THE CONDITION SURVEY Component: Pavements Condition: Significant cracking of bituminous concrete pavements and parking lots with evidence of heaving was seen in varying degrees throughout the development. The roadways and parking areas are essentially terraces cut into the steeply sloped site. Drainage culverts and streams transport runoff coming off the uplands to ………… However, some of this runoff finds its way to the roadway shoulders where it can collect if not readily diverted to the culverts and streams. -10- ………Road - April 2011 Expansion of crack after sealing This condition of runoff collection was seen most clearly in the west shoulder of………..roadway. The pooled runoff now flows under the roadway pavement, through its subgrade, on its way down slope. The runoff eroded soils allow: settlement of the pavement creating pooled “bird baths”); subsequent heaving of frozen subgrade initiating pavement cracking leading to premature failure of the pavement. This same condition was seen, to a lesser degree, along the west shoulders of ……… and……... The ………. Drive roadway and its parking lot exhibit the most severe of the described conditions. Special attention should be given to drainage along/over this roadway to establish a better understanding of its present failure mode. Pavements on the other roadways and parking lots exhibit similar conditions of transverse cracking perpendicular to the roadway centerline varying from medium to low in severity. Cracking along the shoulder edges in the wheel paths was seen at random locations. Planning Strategy: The pavements cannot be simply overlaid without some degree of rehabilitation. Existing movements and cracks will, in time, reflect up through the new overlay and be a poor investment of funds. Subsurface explorations to define the nature and bearing capacity of the pavement subgrade should be carried out along those roadways that presently show the highest distress levels. The results of the explorations, coupled with engineering analyses, will direct the rehabilitation design toward the most cost effective, long-term solution. In the locations of the more severely distressed pavements, a process of grinding up and recycling of the existing pavement to a shallow depth of the subgrade followed by compaction and paving should be anticipated. A unit cost of $2.50 per sf is assigned. For the remaining (majority) of pavements a process of random localized repair followed by overlayment should be anticipated. A unit cost of $1.75 per sf is assigned. -11- For the purpose of this study, in order to provide some financial planning guidance in advance of that more specific information, distress scores were assigned to the pavement locations resulting in the following recommendations: Pavement Location ….…………..Road ……………….Road ……………….Road Total Project A ……………….Road ……………….Road ……………….Road ……………….Road ……………….Road Total Project B ……………….Road ……………….Road Total Project C ……………….Road Total Project D Distress Score 5 5 5 Unit Cost psf $2.50 2.50 2.50 3-4 3-4 2 3 3-4 1.75 1.75 1.75 1.75 1.75 3 2-3 1.75 1.75 3-4 1.75 Cost RY $47,500 48,400 19,100 $115.000 17,300 40,900 7,000 14,400 13,000 $92,600 65,700 12,300 78,000 100,000 $100,000 2012 2012 2012 2012 2013 2013 2013 2013 2013 2013 2014 2014 2014 2015 2015 See sketch at Addendum Distress Score 1 2 3 4 5 Description of Conditions Minor Moderate – Severe but isolated Severe Component: Driveways Condition: The condition of the bituminous concrete surfaces serving the stand alone buildings was seen to be consistent with their age. Driveways typically exhibit a shorter service life usually as the result of their details of construction and overall maintenance. No evidence of premature failure was seen. Planning Strategy: Anticipate overlayment of all driveways in 2014. -12- Component: Fences Condition: Tennis Court: The chain link mat is in satisfactory condition. Some of the wood posts are skewed out of the vertical but none appear unstable. Pool: The wood picket style fencing appears to be in satisfactory condition. South Face: A wood fence at the south end is considered inadequate as a guardrail in view of the steep slope below it. Planning Strategy: Tennis Court: Anticipate replacing mat and wood posts with steel in 2019. Pool: Anticipate replacement with vinyl product in 2014. South Face: Anticipate replacement with guardrail in 2012. Component: Site Lighting Condition: The wood posts and lighting fixtures are in satisfactory condition. Planning Strategy: Anticipate replacement of all lighting posts and fixtures in 2021. Component: Signage Condition: The sign identifying and representing the property at the entrance from…….. Road appears tired. Street identification signposts are in satisfactory condition. Miscellaneous signs appear to bed in satisfactory condition. Planning Strategy: Anticipate replacing property identification sign in 2012; the street signposts and miscellaneous signs in 2020. Component: Water Supply Condition: The development is supplied with potable drinking water by a system of five wells and two finish water storage tanks located on the elevated west side of the property. A structure houses the storage tanks along with chlorine and phosphate chemical treatment equipment. The water supply piping network service live extends beyond the time window for this study. -13- It is understood that the water hydrants seen on the property are not fed by the water supply system and are not available for fire suppression. It is understood that lake water is the intended source for fire suppression. The metal roof for the treatment building was replaced in 2009; replacement is beyond the time window for this study. The service life of the building itself is indefinite. Planning Strategy: The water supply treatment system underwent a complete replacement and upgrading of equipment in 2009. The following replacement schedule should be anticipated: Component Well Pump 1 Well Pump 2 Well Pump 3 Well Pump 4 Well Pump 5 Chlorine Mix Tank Phosphate Pump Finish Water Tanks Phosphate Tank Age (yrs) 11 11 11 11 2 2 2 25 2 UL 14 15 16 17 14 20 10 50+ 20 RL 3 4 5 6 12 18 8 18 RY 2014 2015 2016 2017 2023 2029 2019 2029 Cost $3,700 2,500 1,200 2,500 Component: Wastewater Disposal Condition: Wastewater from the townhouse buildings is collected, treated, and disposed of in community treatment facilities. Wastewater generated by the standalone buildings is collected and treated by individual septic tank and leaching field facilities on their building lots. The maintenance and replacement of these latter facilities is the responsibility of the individual homeowner and is not part of this study. See sketch at Addendum. The best information available is that there are three separate collection and disposal systems. Although research at the NH Department of Environmental Services was unable to produce approved drawings for construction (“Approval for Operation”) to allow confirmation of the exact nature of the disposal facilities, the client’s past experience with maintaining the facilities confirms that that there are three disposal locations. The nature of the disposal facility beneath the parking lot off South Ledge Loop and which buildings it serves is uncertain. The vent piping and inspection covers seen, as well as its location under pavement, point toward a chamber system as opposed to a stoned leach field. Wastewater from the buildings flows by gravity to septic tanks where initial treatment takes place. Effluent from these tanks flows to a pump chamber from which it is pumped to the elevated disposal facility (leaching field or chamber) where final treatment takes place. -14- Drawings obtained from NHDES require the installation of Myers WHRH10 1 HP pumps. These pump products have no ability to grind sewage prior to discharge. See Addendum. Planning Strategy: The typical service life of a single family septic tank and leaching field system is about 30+ years depending primarily on the quantity of discharge to it and the nature of the receiving soils. The seasonal occupancy of the buildings of the association would point toward a service life well in excess of 30 thirty years. The sloped rock surface beneath the fields/chamber would seem to preclude soil saturation, adding to the likelihood for a longer than typical service life. The corollary to this, however, is the potential for the future requirement by NHDES for denitrification of effluent before it reaches ……………….. Any current assignment of timing for replacement of the disposal fields would clearly be inexact. When signs of incipient failure show up, then replacement should take place without delay. It would seem reasonable to be prepared for incipient failure of other fields as one fails. One of those signs could be the need to replace septic tanks, so the cost for doing so is included with the replacement of the disposal fields. A service life of about 40 years for the disposal facilities is assumed which, for planning purposes, places their replacement in the 2023-2025 range. A cost of $60,000 to replace each one of the three disposal facilities, their connected septic tanks, and pump chambers should be anticipated. This cost includes any force main and gravity line piping that may need replacing. Typical service life for sewage pumps that “rest” for six months is assumed to be about twelve years. Component: Roofs Condition: All roofs were re-shingled in 1999 – 2000. Additional work was done on the roofs of ………… and………. in 2008; ……… and the Clubhouse in 2009; ……….. in 2010. It is understood that damages from ice dam formation has necessitated roof repairs in these locations. This damage appears to have occurred primarily around/below the skylights. Curling of shingles around several skylights was seen during the condition survey varying in intensity from severe to slight. Noted was some loss of grit in the shingle slots from roof runoff. This is normal wear and is mentioned only to explain that the condition was not seen as exceptional for the age of the roofing product. No condition of advanced wear was seen on any roof surface that might indicate the need for early replacement. The condition of ice dam / shingle curling at the skylights very likely means that the roof decks at those locations require greater exposure to cold outdoor air. An investigation into the full extent of ice dam formation and any link to inadequate overall ventilation of the roof deck would be useful in the short term and certainly a necessity before the next round of roof re-shingling. See Addendum for additional information on the service life of roof shingles. -15- Planning Strategy: The following replacement schedule should be anticipated: Group A B C D E Locations RY 2018 2019 2020 2021 2028 ……………….Road ……………….Road ……………….Road ……………….Road ……………….Road Cost $130,000 170,000 110,000 89,000 79,000 Component: Decks (Rear) Condition: The varying conditions of individual decks responds to their site location and location on the building itself. The maximum solar exposure appears to be western radiation and most buildings are sheltered from summer sun by tree foliage. Decks beneath decks clearly have an additional degree of protection. As is commonly the case in condominium construction, the decks may have been built by more than one or two subcontractors, giving rise to variation in some details of construction. For example, there is variation in the manner of attachment of the deck to the building. Several decks were seen in which blocking sets the deck ledger away from the building allowing drainage between deck and building. The question here is the hidden fastening of the blocking to the building structure as well as the difficulty of flashing between blocking/ledger/building. No flashing seen – possible pulling away of blocking? The stability of the entire deck depends on the secure fastening of the blocking to the building. Ledger Blocking Also seen were locations in which the deck joists were toe nailed into the ledger. This is not an acceptable method of fastening. As can be seen in the photo, the joist has started to pull away with only a small amount of joist material resisting detachment of the joist from the ledger. -16- The preferred method of attaching joists to ledgers and ledgers to building structure is shown in Sketch 1 in the Addendum. This construction, resulting from research at Virginia Tech, is now required by many code jurisdictions in the U.S. It is understood that there has been a need to make significant repairs at deck attachments due to water infiltration and subsequent rot within the exterior wall structure. The most common mode of deck failure is detachment of the ledger from the building at these locations, resulting at times in severe personal injury. Most of the elevated second floor decks are attached to the building on two sides which offers some degree of resistance to deck failure. Locations (not a general condition) were seen in which the handrail posts had apparently loosened and were refastened using lag screws. The preferred construction here is through bolting of the post to the end beam or joist. Planning Strategy: The number and configuration of decks varies from building to building. For example, not all three unit buildings will have the same number of decks and the same holds true for the two unit buildings. The total area of deck surface is a function of deck configuration around and under porches. There are both elevated and at-grade decks. The area of any individual deck varies from an at-grade deck of about 100 square feet to 200 square feet for an elevated deck running across the width of a unit. For planning purposes, an average area of 156 square feet per deck has been used. The original construction decks, now twenty-five years old, have a remaining service life of about five or possibly ten years for a deck beneath a deck above. A program of deck replacement is in progress. See Addendum for a list of decks that have been replaced in the past three years. Cost data for …………… buildings: Location ….Road ….Road ….Road ….Road ….Road ….Road ….Road ….Road ….Road ….Road Area (1) 1822 sf 910 451 304 1058 754 1067 763 304 Total Cost (2) $45,450 22,750 11,275 7,600 26,450 18,850 26,675 19.075 7,600 $185,725 -17- Cost data for standalone buildings: There is some variation in deck area for the standalone buildings, e.g., the …….. Style has a roofed over deck at the side entry and other styles do not have one. Some differences within styles were seen. An average deck area of 450 square feet has been used for planning purposes for all styles. For planning purposes, the total cost (2) for replacing all decks on the eleven stand alone buildings is $123,750. Recommended replacement strategy: Spread the total cost of $309,475 as follows: Assume 50% of the townhouse decks are elevated decks and 50% are at or near grade, representing lesser personal hazards. Anticipate replacement of the elevated decks between 2015-2018; replace the remaining 50% at grade decks between 2019-2025. Anticipate replacement of the decks for the standalone buildings between 2015-2018. (1) Net after deducting work completed in 2008 thru 2010 (2) Treated lumber for support structure; Trex composite material for decking and handrails; unit cost of $25/sf is averaged between elevated and at-grade decks and is discounted for multi-building contract awards. Component: Front Entry Decks Condition: These decks are roofed over, protecting them from severe exposure. No advanced deterioration of these decks was seen during a random inspection. Planning Strategy: Repairs varying in degree should be anticipated over time. A repair cost of $2,000 every other year should be anticipated. Component: Walkways Condition: Wood walkways in various locations provide either access down a steep slope or, for example, under ……. Road to a viewing platform at …………………. Planning Strategy: Anticipate the following replacements at these locations: Location RY 2021 2021 2015 2021 -18- Cost $15,000 8,000 2,000 6,000 Component: Tennis Court Condition: The court is in satisfactory condition. No exceptions to accepted construction were seen. Planning Strategy: The court was resurfaced in 2010. Re-surfacing should not be anticipated during the time window of this study. Component: Pool Condition: Since the pool was covered at the time of the condition survey, no opinion can be provided on the condition of the pool basin. Planning Strategy: The pool basin was re-plastered in 2004. Pool re-plastering is typically done about every 14-15 years. Anticipate re-plastering in 2018 at a cost of $14,000. Anticipate replacement of the concrete apron in 2013 and the wood deck with composite material in 2015. Component: Clubhouse Condition: This category covers the replacement of interior furnishings and equipment within the building. The building exterior is included in the exteriors of the other buildings. It is assumed that routine maintenance will be expensed from the operating account. Planning Strategy: Anticipate the following replacement schedule: Item Boiler DHW Tank Pool Filters(2) Pumps (4) Chlorinator Computer Copier Carpeting Sofas Tables Arm Chairs Porch Tables/Chairs RY Cost Summary 2051+ 2015 2021 $1,600 2016 2019 2019 6,000 2021 2019 3,200 2026 2019 300 2016 500 2016 250 2015 6,000 2021 8,000 2021 3,000 2021 3,000 2021 2,000 -19- $6,000 750 9,200 24,100 20,900 Table Tennis Hockey Game Pool Umbrella Table (3) Pool Chaises (3) Pool Chairs (5) Wood Tables (2) Wood Chairs (4) Dishwasher Refrigerator Remodel Rest Rooms 2026 2021 2021 2021 2021 2026 2026 2021 2021 2026 400 300 3,000 3,600 500 500 500 350 350 20,000 Component: Building Lighting Condition: There are lighting fixtures at the front entries and at the rear decks. Random replacements of fixtures were seen. Planning Strategy: Replacement of two fixtures every three years should be anticipated. Component: Lakeshore Improvements The intended improvements to the access and facilities along the lake shore are in the preliminary planning phase at this time and for that reason they are not included in this study. Component: Storage/Work Shed Condition: There is no enclosed location on the site to store material and tools used to maintain the property. A shed would provide a protected and secure location to store material purchased in advance when prices were favorable and to better organize projects that are underway. Planning Strategy: As a future improvement, install a storage shed of two-bay garage size with a likely location off ………….. Circle. Estimated budget cost to be $6,000. -20- ADDENDUM Roofs Decks Pavements Wastewater Disposal -21- ROOFS THE SERVICE LIFE OF ROOFS Depending upon their weight (thickness), roof shingles will carry a 25 - 30 all the way to 50 year limited warranty. Asphalt (organic or inorganic) shingles last longer in northern climates than southern. “Studies have shown that the average lifespan for a 20 year shingle in Phoenix, Arizona is around 14 years. In Minneapolis, Minnesota, the lifespan was 19.5 years. And in Reading, Pennsylvania, the lifespan was 20.8 years.” Experience has shown that the wearing pattern of roof shingles on identical building configurations can vary significantly depending on the specific exposure they see over time. The amount of sunlight and wind direction as well as the moisture level generated within the building can produce dissimilar wearing patterns from roof to roof. Seasonal occupancy only of a building adds another variable. Preferred practice is to anticipate that shingles will require replacement before the end of their warranted service life. Random advanced wear within the general field of a roof can become an appearance issue that can not only reduce the perceived value of the property but also become the source of unannounced water entry and damage. For that reason, we assume an average useful life of nineteen years for planning purposes even for premium grade shingles. This follows the general practice of insurance underwriters. As the recommended replacement time for a shingle application approaches, the planned useful life can be adjusted as the actual condition of the shingles at that time warrants. DECKS DECK REPLACEMENT SCHEDULE (List of past deck replacements by client) -22- Attaching Ledger Directly to Band Joist Builders often attach the deck ledger to the band joist after structural sheathing is already in place. But it’s actually stronger if you attach the ledger right against the band. In Detail 1, the reaction force of the deck joist is transmitted directly to the band joist by lag screws acting in shear. The band joist and ledger board are in direct with no sheathing in between. -23- PAVEMENTS A site plan displays recommended road work, color coded by year.An analysis used on another project illustrates a value engineering study using equivalent annual cost to support recommendations. VALUE ENGINEERING ANALYSIS - PAVEMENTS Compare the equivalent annual cost (EAC) for two actions of delivering the functionality of the pavements of ………. Drive and ……… Drive: Action A: Grind out and recycle existing pavement; improve sub-base/ drainage; pave Action B: Random patch; install geofabric; overlay existing pavement Use capital recovery at 3%, equivalent to assumed inflation rate. Roadway: ……………. Drive Action A Total Project Cost @ $2.30/sf = $61,100 Projected Effective Life = 26 years Maintenance = one crack sealing @$2,000 EAC Act A = $61,100 (crf-3%-26) + $2,000/26 = $3,544 Action B Total Project Cost @ $1.90/sf = $49,365 Projected Effective Life = 20 years Maintenance = two crack sealing + patching = $6,000 EAC Act B = $49,365 (crf-3%-20) + $6,000/20 = $3,618 Roadway: ……………. Drive Action A Total Project Cost @ $2.30/sf = $52,670 Projected Effective Life = 26 years Maintenance = one crack sealing = $2,000 EAC Act A = $52,670 (crf-3%-26) + $2,000/26 = $2,950 Action B Total Project Cost @$1.90/sf = $43,500 Projected Effective Life = 20 years Maintenance = two crack sealing + patching = $6,000 EAC Act B = $43,500 (crf-3%-20) + $6,000/20 = $3,224 Conclusion: The attention given to the techniques of rehabilitating both roadways (Action A) will yield longer effective lives for the roadways as well as reduced level of maintenance. The equivalent annual cost for Action A is lower than Action B in both cases, justifying the higher initial investments. -24- WASTEWATER DISPOSAL Site plan of a portion of the existing wastewater disposal facilities was provided. Pump Chamber Component: -25-
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