structural reserve on apartment

[CANative]

Thank you. The apples to apples rationale makes a lot of sense to me. And after reading half a dozen income statements per week, every week, for two years it didn't make sense to me to include this as an expense. It's just doesn't seem to reflect how it works in real life.

 

[Ken B]

What does real life have to do with it?

 

[PropertyEconomics]

I look at lots of apartment complexes and at a lot of Capital Needs Assessments. Historically many properties have included replacement reserves at $300 per unit which fankly does not meet the capital needs of the complex over time.
Newer tax credit properties often have reserves as high as $1,000 per unit whcih appears to be overly cautious ... with the majority of new assessments for capital needs showing a range from $450 - $600 as being typical.

Whether its above the line or below the line should not matter as long as the comparable sales were analized the same way and the OAR calculated the same way.

The key in this instance is how the subject and the comparables are treated so one makes sure income and OARs are calculated using the same methodology.

 

[John Glass]

Good information here from many. Based upon experience, apartment operating statements generally, mostly do not have a reserves sinking fund, but account for replacement items as they go. However, apartment investors and banks generally account for such a fund in their pro forma statements.

Since we are mimicking investor behaviour, that is what I generally do, based upon what investors use.

 

[Caligirl]

I look at lots of apartment complexes and at a lot of Capital Needs Assessments. Historically many properties have included replacement reserves at $300 per unit which fankly does not meet the capital needs of the complex over time.
Newer tax credit properties often have reserves as high as $1,000 per unit whcih appears to be overly cautious ... with the majority of new assessments for capital needs showing a range from $450 - $600 as being typical.

Interesting. I wonder what people are using as the SFF? At this point interest rates for 'accessible' cash are ridiculously low (0.9% ish for savings, 0.99% ish on a CD).

 

[CANative]

As an example, I'm working on a 157 unit complex. Built in the 40's and 50's and originally used as military housing. I have three years of operating statements.

The replacements are very consistent at about 3.12 to 3.25 percent. The dollar amounts range from $46,436 to $51,832. This is about $296 to $330 per unit.

 

[Caligirl]

As an example, I'm working on a 157 unit complex. Built in the 40's and 50's and originally used as military housing. I have three years of operating statements.

The replacements are very consistent at about 3.12 to 3.25 percent. The dollar amounts range from $46,436 to $51,832. This is about $296 to $330 per unit.

My bold-some of the former military construction I've seen from that period isn't what I would call 'quality'. :icon_lol: The first thought that enters my mind is that there must have been some previous capital upgrades for the $/unit reserves to be that low.

It always depends...

 

[Ken B]

Sounds like the PwC survey data was on the money.

 

[CANative]

My bold-some of the former military construction I've seen from that period isn't what I would call 'quality'. :icon_lol: The first thought that enters my mind is that there must have been some previous capital upgrades for the $/unit reserves to be that low.

It always depends...

They're better than most because it was for Air Force pilots (officers) and their families. And they're reasonably maintained if not really modernized.

A big company that specializes in acquiring under performing properties got it for $9.6 million and flipped it a year and a half later for $14.5 million stating 99% occupancy. As of January 2010 the occupancy was back down to 85%. Googling the address I found current and former tenant commentary, mostly negative. Gangs, parking problems, pluming problems, etc.

The project has a weird, circular design.

 

[CANative]

Sounds like the PwC survey data was on the money.

Right in the middle of the range.