Funding Strategies | A Survey of 600 Condo Buildings (Part One) by David Albrice
In late-2014 we carried out an analysis into the operating budgets of approximately 600 condo buildings in B.C. We also reviewed each of their operating budgets over a successive three year period to identify any changes in their funding strategies during the period 2011-2014.
We learned some interesting things about how buildings are taking different approaches to the management of their capital (capex) and operating (opex) expenses. In this blog, I report briefly on the funding contributions to the long-range replacement reserve accounts. In upcoming blog posts I will report on some other interesting findings.
In brief, we have found that these 600 condo buildings are currently distributed into three groups of roughly equal size (as of late-2014) .
Group 1: No Change in the Levels of Funding Strategies
Approximately 1/3rd of the 600 condo corporations have not adjusted their funding contributions to their reserve accounts and have essentially been operating at the same contribution levels from 2011 through to 2014. In other words, long range planning has had no financial impact on their monthly condo dues (strata fees)
Group 2: ‘Moderate’ Increases to Funding Levels
Approximately 1/3rd of the 600 condo corporations have made incremental increases to their replacement reserve account, ranging from approximately $10-20 per month. In other words, they have added up to $20 to their monthly condo dues (strata fees) over the past three years.
Group 3: ‘Significant’ Increases to Funding Levels
Approximately 1/3rd of the 600 condo corporations have made dramatic increases in the contributions to their long range financial planning. In some cases, we have seen a doubling and tripling of their pre-2011 contributions, with some condos now exceeding $100 per unit per month. In other words, they have added $50, $60, $70, and more, to their monthly condo dues (strata fees).
The average, across all three of these groups, was approximately $22 in 2011 and is now about $42 per unit per month (average, not based on unit entitlement).
Disclaimer:
When considering these interim averages, it is important to recognize the following:
- Our data has a “sampling bias” arising from the fact that only the more progressive condo corporations (stratas) have commissioned their studies over the past three years. The averages therefore do not factor in the 5000+ condo buildings that have not yet commissioned their studies.
- In addition to reserve transfers, there are special levies (assessments) and demand loans that are available as other means of funding capital projects. These alternative funding sources are not directly reflected in the annual operating budgets.
- Some corporations (particularly older buildings) have been compelled to rely on special assessments (special levies) – at least in the short term – while they get over their current project backlog, which explains the funding levels for some of the corporations in Groups 1 and 2.
A detailed research paper on the unfunded liability levels of 600 condo buildings in B.C. can be downloaded here.
Closing Questions: It has taken us three years in B.C. to move from $22 (approx.) to $42 (approx.) per unit per month, average. How many more years for BC to reach the $60-100+ range we see in other jurisdictions?
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David Albrice is a Senior Asset Management Specialist at RDH Building Engineering Ltd. His experience with funding analysis comes from his work on almost 1,000 capital plans / reserve studies / depreciation reports. David can be followed onTwitter.
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