Summer is here! Any Plans for Capital Improvement Projects?

By Tarra Eshgh, CMCA®, AMS®, PCAM® , President ST & R Portfolio Management

​I’m certain that there are many communities (another word “associations”) out there that are getting ready to do improvements around their properties during this perfect season such as resurfacing asphalts, exterior building painting, entrance water feature renovation, etc. Of course, summer projects come with the question of “Are we adequately funded for these projects”. Preparing a bucket list of summer projects will help the association properly evaluate the timeline of project items/components that “need to be completed” and when funds are ready and become available for the project.
 
Funding options are varied depending on the community association’s financial status. The most common options are:

1. Reserve (Saving) Fund Account
2. Special Assessment- additional assessments that are needed for planned/unplanned repairs/replacements (not budgeted as part of the annual operating expenses).

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Prior to proceeding with the capital improvement projects, the Board of Directors will hold a meeting with all the community members to discuss the scope/work descriptions, reason for the work, and funding options. If your community association needs to consider a funding option of doing special assessments because its reserve account doesn’t have enough to fund the projects, then a question of “Should we do a one-time payment collection or take out a construction loan?” arises. Depending on the size of the project, a construction loan is generally “being significantly considered” for a project such as re-cladding/siding, deck & railing replacement, roof replacement, etc. – taking out a loan will help ease the homeowners concerns and the financial distress of requiring a lump sum payment; a loan payment plan will be spread out over 10- 15 years.
 
The Board of Directors will need do research on funding options within their community association to figure out which funding method works best. Typically, a capital improvement project such as re-cladding/siding project will involve:
 

• The project management firm to write the work scope, gathering proposals, overseeing the project, etc.,
• The association attorney will review the construction contract, etc.,
• Financial institute who will be providing a loan for such project capacity. The loan application process will be “time-consuming” since the bank will be asking for documentations similar to purchasing a home. This process is generally being assisted by the community association manager (if the association is professionally managed).
• The community association manager’s cooperation with the process such as assist with the Declaration/Bylaws’ s special assessment provision and “permitting” the association to borrow loans from any specialized Condominium & Homeowners Association’s financial institute (if applicable)
• Selecting a contractor and approve the work scopes
• Schedule meetings with the homeowners regarding the upcoming projects and its process.
• Ratification of special assessment fund & project by homeowners.

 
The list provided above is a short version of the checklist that the Board and their community association manager will walk through together. Once the checklist is completed, then the capital improvement project may begin and should operate smoothly. However, it’s not uncommon to run into a hiccup during the construction process because of the “unknown” factors, therefore, be aware but not overly concerned. The Board will have their experts by their side to help troubleshoot the issue/concerns as they arise.
 
The result of the successfully completed capital improvement project relies on many factors such as “weather permitted”, proper and sufficient funding, the community association’s experts such as building envelope engineers, insurance agent, association attorney, project manager, and community association manager. Of course, without the Board of Directors, the summer will not be as productive, and their community will not be as prosperous and well-maintained.