Planning Your High-Rise Maintenance and Capital Improvements
Maybe this has happened to your high-rise association: An unexpected capital expense finds your condominium’s board of directors needing to impose a special assessment. In some cases, you simply cannot prepare for these expenses. But most often, “surprise” failures could have been avoided with proper budgeting and a solid preventative maintenance plan.
Although most high-rise associations would agree that it’s not cost-effective in the long run to practice reactive maintenance – addressing maintenance issues only after something breaks down – many still follow this approach. Following a preventative maintenance program requires you to budget extra money, and many associations are reluctant to increase their spending. However, Phil Pool, vice president at FirstService Residential, explains that, in the long run, you’ll save much more because your equipment will last longer.
Take, for example, the condition of the fitness equipment at one northern Virginia high-rise property. When Pool’s team began managing the building, he discovered that no one had ever performed the recommended quarterly maintenance. “Treadmills and elliptical machines that should have lasted 10 years had to be replaced after only six,” says Pool. “Spending $250 to $300 a quarter could have saved this condominium association thousands of dollars.” Without full access to their amenities, residents were understandably frustrated as well. “You can’t overlook the impact on residents’ lifestyles,” explains Pool. “It really irritates condo owners to see out-of-order signs.”
On the flip side, Pool has seen the positive outcome when an association adheres closely to a recommended maintenance schedule, like one Washington D.C. property did. That association’s diligence resulted in the elevators functioning 11 years beyond their expected useful life. “Those elevators should have lasted 30 years,” he explains, “but they had been there over 40 years.”
Establishing a plan for your building’s maintenance and capital improvements is not only important for your budget. It can also prevent life-threatening catastrophes. Fires, floods, structural collapses or heating or cooling emergencies can result if you don’t plan ahead. So what does it take to put together a program that protects both the health of your association’s finances and the safety and lifestyle of your residents?
1. You need to understand the difference between preventative maintenance and capital improvements.
In general, repairs and maintenance (R&M) keep your building’s assets in their original condition or to a specific operational standard. They also prevent your equipment from deteriorating prematurely. R&M expenses are part of your operating budget.
Pool notes that a preventive maintenance program can be an effective money saver since it catches problems when they are small enough to resolve cheaply. For instance, annual construction audits for older buildings can catch latent construction defects. Often a simple repair, such as ventilation holes under an enclosed staircase, will head off moisture entrapment that leads to rust and dry rot.
Contrary to preventative maintenance, replacement reserves involve total replacements or major projects that increase your assets’ value, useful life or functionality. Typically, these types of improvements come with a high price tag that requires a build-up of reserves over a number of years.
2. You need to follow equipment manufacturers’ recommendations.
Neglecting to keep to the maintenance recommendations of the manufacturer or installer not only can lead to premature failures, but it can also void any warranties. According to Pool, “Every major mechanical component is going to have a manufacturer’s equipment manual. That manual is going to have prescribed daily, weekly, monthly, quarterly, semi-annual and annual maintenance schedules, and it will tell you what steps should be taken at each of these intervals.”
3. Use your reserve study to plan for capital expenses.
A reserve study, which should be conducted by a qualified engineer, estimates the useful life of your equipment in order to identify predictable repair or replacement projects. The goal of the study is to help you plan future costs and minimize surprise expenses. “The reserve study helps your board determine whether a component needs to be upgraded or replaced based on its estimated useful life,” says Pool. “You want to plan out your expenditures so you don’t have to suffer later.”
4. The useful life of your equipment completely depends on proper maintenance.
Your reserve study is only as good as your adherence to a preventative maintenance program. It estimates the useful life of your equipment based on the assumption that your association will follow the preventative maintenance schedule.
If, for example, you have a $125,000 boiler that should last for 25 years but you don't follow a preventive maintenance program, it might stop functioning after only 20 years. Not only will you have lost $25,000 in value on that boiler, but you also won’t have enough money in your reserves to cover the cost. The amount budgeted for your reserves assumed you would have another five years to fully fund it.
5. Sometimes the benefits of upgrading your equipment are worth the cost.
When equipment regularly needs repair or creates excessive issues, there’s no putting off the inevitable replacement. Oftentimes, that means replacing one system with an identical system. However, if an improved (albeit, more expensive) system would significantly improve functionality or useful life, the upgrade may be worth the cost. This can be seen, for example, when a property replaces an outdated boiler with a new, high-efficiency unit that saves energy.
Pool also has seen the benefits of upgrading a component at one of his managed properties in DC that replaced its building’s overhead garage doors with high-speed doors. The new doors were rated to withstand five times as many cycles as the old model.
“These doors cost more initially, but over their life, they were going to save the association a significant amount of money,” says Pool. Although the association’s reserve study specified changing the doors every four years, with the more efficient doors, replacement would only be needed every 20 years.
6. No matter what you do, some maintenance jobs will become replacement reserves.
You’ve done your best at following a prescribed maintenance schedule. And yet, Mother Nature may still wreak havoc. What looks like a simple leak in your roof could turn into an entire roof replacement. In terms of budgeting, that maintenance job is now a capital expenditure.
7. The devil is in the details.
Whether you are trying to budget correctly or create a workable schedule for all of your maintenance projects, remember that keeping accurate records is key. Be sure that maintenance staff are logging the date each repair or inspection is performed and that you have built-in alerts in your calendars. When budgeting, look at the asset’s useful life, the purpose of the work being performed and how it affects the asset’s value.
Budgeting accurately for necessary maintenance and capital expenses can be challenging. But the returns are worth it. You’ll not only be avoiding the headaches that come with surprise expenses, but you’ll also be ensuring that you are maximizing property values and keeping resident satisfaction high.
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