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Section 2: Asset Management Section 2: Asset Management Building Blocks Building Blocks
Asset Management Building Blocks Asset Management Building Blocks Learning ObjectivesLearning Objectives
Introduce the five building blocks of asset Introduce the five building blocks of asset managementmanagement
Initial Priorities/Building BlocksInitial Priorities/Building Blocks
Project-based fundingProject-based funding
Project-based budgetingProject-based budgeting
Project-based accountingProject-based accounting
Project-based managementProject-based management
Project-based Project-based performance assessmentperformance assessment
Project-Based FundingProject-Based Funding
Separate subsidy form for each projectSeparate subsidy form for each project Project Expense Level (PEL) is a major Project Expense Level (PEL) is a major
componentcomponent Ensures appropriate resources are allocated Ensures appropriate resources are allocated
to each AMPto each AMP
Project-based fundingProject-based funding
The Flow of FundsThe Flow of Funds
• Property Management Fee
• Asset Management Fee
• Bookkeeping Fee
• Fee-for-Service
• Program Mgmt. Fees.
HUD PHAOLD$
HUD
AMP
NEW PHA/COCC
$ Subsidy $ Fees
Components of Formula FundingComponents of Formula Funding
To understand the amount of funds To understand the amount of funds available to any project, one must available to any project, one must understand the following:understand the following: Project Expense Level (PEL)Project Expense Level (PEL) Utility Expense Level (UEL)Utility Expense Level (UEL) Add-OnsAdd-Ons Frozen Formula IncomeFrozen Formula Income ProrationProration
Project Expense Level (PEL)Project Expense Level (PEL) Model-generated estimate of cost to operate a Model-generated estimate of cost to operate a
project on a per unit basis, exclusive of taxes, project on a per unit basis, exclusive of taxes, utilities, and add-onsutilities, and add-ons
Amount expressed in PUMs (per unit month)Amount expressed in PUMs (per unit month) Major coefficients that have a large impact on Major coefficients that have a large impact on
PELPEL Unit Size (Bedroom Mix)Unit Size (Bedroom Mix) Local MarketLocal Market Age of PropertyAge of Property Occupancy Type (Family vs. Elderly)Occupancy Type (Family vs. Elderly)
National average was $ 325 PUM in 2007 National average was $ 325 PUM in 2007 (excluding New York City Housing Authority)(excluding New York City Housing Authority)
Utility Expense Level (UEL)Utility Expense Level (UEL)
Represents the average utility consumption Represents the average utility consumption for a project over the past three years, for a project over the past three years, multiplied by recent utility ratesmultiplied by recent utility rates
Amount expressed in PUMsAmount expressed in PUMs
National average was $125.95 PUM in 2007National average was $125.95 PUM in 2007
Assigned UEL will vary by projectAssigned UEL will vary by project
2007 Add-Ons2007 Add-Ons
Add-OnsAdd-Ons AmountAmount PUMPUM
Self-SufficiencySelf-Sufficiency $ 13,093,430$ 13,093,430 $ 1.00$ 1.00
Energy Loan AmortizationEnergy Loan Amortization $ 16,844,422$ 16,844,422 $ 1.29$ 1.29
Payment in Lieu of TaxesPayment in Lieu of Taxes $ 95,199,853$ 95,199,853 $ 7.26$ 7.26
Cost of Independent AuditCost of Independent Audit $ 17,159,716$ 17,159,716 $ 1.31$ 1.31
Resident ParticipationResident Participation $ 24,860,325$ 24,860,325 $ 1.90$ 1.90
Asset Management FeeAsset Management Fee $ 42,777,668$ 42,777,668 $ 3.26$ 3.26
IT (Info. Technology) FeeIT (Info. Technology) Fee $ 26,215,754$ 26,215,754 $ 2.00$ 2.00
Asset RepositioningAsset Repositioning $ 43,329,841$ 43,329,841 $ 3.31$ 3.31
Total Add-Ons Total Add-Ons $279,481,009$279,481,009 $21.32$21.32
Frozen Formula IncomeFrozen Formula Income
Equal to a project’s rental income reported Equal to a project’s rental income reported on 2004 financial statements, adjusted for on 2004 financial statements, adjusted for changes in utility allowanceschanges in utility allowances
Effective for 2007 through 2009Effective for 2007 through 2009 National average was $181.09 PUM in National average was $181.09 PUM in
20072007
ProrationProration
Each year, total subsidy eligibility is Each year, total subsidy eligibility is compared with appropriations for the compared with appropriations for the Operating Fund program; the difference is Operating Fund program; the difference is prorationproration
Expressed as a percentageExpressed as a percentage Example: Example:
Eligibility = $4.0 billionEligibility = $4.0 billion Appropriation = $3.6 billionAppropriation = $3.6 billion Proration = 90%Proration = 90%
Determining Project Funding Determining Project Funding
Project Expense Level (PEL)Project Expense Level (PEL)
+ Utilities Expense Level (UEL)+ Utilities Expense Level (UEL)
+ Add-ons+ Add-ons
= Formula Expenses= Formula Expenses
- Formula Income- Formula Income
= Subsidy Eligibility= Subsidy Eligibility
- Proration- Proration
= Actual Subsidy= Actual Subsidy
+ Rental Income+ Rental Income
+ Other Income+ Other Income
+ Transfers+ Transfers
= Effective Income= Effective Income
Effective IncomeEffective Income
- Operating Expenses- Operating Expenses
= Net Income= Net Income
Project-Based BudgetingProject-Based Budgeting
Used for planning purposes Used for planning purposes Budgeted amounts must reconcile to FDSBudgeted amounts must reconcile to FDS Must be approved by PHA BoardMust be approved by PHA Board Not subject to HUD approval Not subject to HUD approval
Project-based funding
Project-based budgetingProject-based budgeting
Project-Based Budgeting Project-Based Budgeting (continued)(continued)
What are project-based budgets?What are project-based budgets? Itemized projection of income and Itemized projection of income and
expenses over a specific periodexpenses over a specific period Guideline for operating the projectGuideline for operating the project
Sample Conventional BudgetSample Conventional Budget
Gross Potential Income (GPI)Gross Potential Income (GPI)
- - Vacancy and Collection LossVacancy and Collection Loss
+ + Miscellaneous IncomeMiscellaneous Income
= Effective Gross Income (EGI)= Effective Gross Income (EGI)
- - Operating ExpensesOperating Expenses
= Net Operating Income (NOI)= Net Operating Income (NOI)
- - Reserves for ReplacementReserves for Replacement
- - Annual Debt Service (ADS)Annual Debt Service (ADS)
= Cash Flow= Cash Flow
Ratios Used for Expense Ratios Used for Expense BenchmarkingBenchmarking
Operating Expense Operating Expense
Ratio (%) = Ratio (%) =
Operating Expense Operating Expense
per Unit ($) = per Unit ($) =
Several variables may impact benchmarks Several variables may impact benchmarks Expense benchmarks can be used to Expense benchmarks can be used to
compare efficiencies across propertiescompare efficiencies across properties
Operating ExpensesOperating ExpensesIncomeIncome
Operating ExpensesOperating ExpensesNumber of UnitsNumber of Units
Workshop 2.1: Expense BenchmarksWorkshop 2.1: Expense Benchmarks
Consider data from two similar apartment Consider data from two similar apartment buildings shown on the next slidebuildings shown on the next slide
Calculate the Operating Expense Ratio and Calculate the Operating Expense Ratio and Operating Expense/Unit RatioOperating Expense/Unit Ratio
In groups, identify the project with the In groups, identify the project with the lowest costslowest costs
What other factors should be considered What other factors should be considered when evaluating the results of this cost when evaluating the results of this cost comparison?comparison?
Workshop 2.1: Expense BenchmarksWorkshop 2.1: Expense Benchmarks
Hamilton PlaceHamilton Place Southside Southside ApartmentsApartments
# of Units# of Units 2020 1010
IncomeIncome $175,000$175,000 $160,000$160,000
Operating Operating ExpensesExpenses
$150,000$150,000 $145,000$145,000
OpEx OpEx RatioRatio
OpEx/OpEx/UnitUnit
86%86% 91%91%
$7,500$7,500 $14,500$14,500
Calculating Expense BenchmarksCalculating Expense Benchmarks
Hamilton Place:Hamilton Place: Operating Expense Ratio: Operating Expense Ratio: $150,000 (Operating Expense)/$175,000 (Income) = 86%$150,000 (Operating Expense)/$175,000 (Income) = 86%
Operating Expense per Unit: Operating Expense per Unit: $150,000 (Operating Expense)/20 (Number of Units) =$150,000 (Operating Expense)/20 (Number of Units) =$ 7,500$ 7,500
Southside Apartments:Southside Apartments: Operating Expense Ratio: Operating Expense Ratio: $145,000 (Operating Expense)/$160,000 (Income) = 91% $145,000 (Operating Expense)/$160,000 (Income) = 91%
Operating Expense per Unit:Operating Expense per Unit:$145,000 (Operating Expense)/10 (Number of Units)=$145,000 (Operating Expense)/10 (Number of Units)=$ 14,500$ 14,500
Where Can I Find Benchmarks?Where Can I Find Benchmarks?
Project Expense Levels (PELs)Project Expense Levels (PELs) Project Level DataProject Level Data IREM Income/Expense AnalysisIREM Income/Expense Analysis®® Reports Reports
• www.irem.orgwww.irem.org Housing Finance AgenciesHousing Finance Agencies NeighborWorks (small properties)NeighborWorks (small properties) Rural DevelopmentRural Development Local and Regional Market StudiesLocal and Regional Market Studies
Project-Based AccountingProject-Based Accounting Year-end project statements submitted to Year-end project statements submitted to
HUDHUD Can only charge projects for services Can only charge projects for services
actually receivedactually received Fees must be Fees must be
considered considered reasonablereasonable
Project-based funding
Project-based budgeting
Project-based accountingProject-based accounting
Project-Based Accounting Project-Based Accounting (continued)(continued)
For conventional properties, the financial For conventional properties, the financial performance of each property is tracked performance of each property is tracked individually and reported to the ownerindividually and reported to the owner
This allows the manager and owner to This allows the manager and owner to make the best possible decisions for each make the best possible decisions for each individual propertyindividual property
Similarly, PHAs will assemble project level Similarly, PHAs will assemble project level financial datafinancial data
Project-Based AccountingProject-Based Accounting Under the Final Rule Under the Final Rule
Annual year-end financial statements on Annual year-end financial statements on each AMP will be requiredeach AMP will be required
Revenues, expenses, balance sheetRevenues, expenses, balance sheet To be included with the Financial Data To be included with the Financial Data
Schedule (FDS)Schedule (FDS) FDS will also be revised to include a column FDS will also be revised to include a column
for the COCCfor the COCC
Entity-Wide FDS Entity-Wide FDS Financial Reporting Model (Existing)Financial Reporting Model (Existing)
Balance SheetBalance Sheet
ProgramProgram
TotalTotalOperating Operating FundFund
Capital Capital FundFund
Section Section 8 8
Voucher Voucher ProgramProgram
Rural Rural HousingHousing
Statement of Statement of Net AssetsNet Assets
AssetsAssets $10,000,000$10,000,000 $500,000$500,000 $250,000$250,000 $750,000$750,000 $11,500,000$11,500,000
LiabilitiesLiabilities $5,000,000$5,000,000 $100,000$100,000 $200,000$200,000 $250,000$250,000 $5,550,000$5,550,000
Net AssetsNet Assets $5,000,000$5,000,000 $400,000$400,000 $50,000$50,000 $500,000$500,000 $5,950,000$5,950,000
Liabilities and Liabilities and Net Assets Net Assets $10,000,000$10,000,000 $500,000$500,000 $250,000$250,000 $750,000$750,000 $11,500,000$11,500,000
Asset Management Project FDS Asset Management Project FDS Financial Reporting Model (New)Financial Reporting Model (New)
Financial Financial StatementStatement
Asset Management ProjectsAsset Management Projects
TotalTotalProject 1Project 1 Project 2Project 2 Project 3Project 3
Balance Balance SheetSheet
AssetsAssets $3,434,000$3,434,000 $3,253,000$3,253,000 $3,131,000$3,131,000 $9,818,000$9,818,000
LiabilitiesLiabilities $1,649,000$1,649,000 $1,521,500$1,521,500 $1,503,500$1,503,500 $4,674,000$4,674,000
EquityEquity $1,785,000$1,785,000 $1,731,500$1,731,500 $1,627,500$1,627,500 $5,144,000$5,144,000
Operating Operating StatementStatement
RevenueRevenue $588,200$588,200 $527,500$527,500 $536,300$536,300 $1,652,000$1,652,000
ExpensesExpenses $462,400$462,400 $429,000$429,000 $421,600$421,600 $1,313,000$1,313,000
Net IncomeNet Income $125,800$125,800 $98,500$98,500 $114,700$114,700 $339,000$339,000
Project-Based ManagementProject-Based Management
Arrange services in the best interest of the Arrange services in the best interest of the projectproject
Assign management personnel to each Assign management personnel to each projectproject
Project-based funding
Project-based budgeting
Project-based accounting
Project-based Project-based
managementmanagement
Project-Based Management (PBM)Project-Based Management (PBM)
““The provision of property-management services The provision of property-management services that is tailored to the unique needs of each that is tailored to the unique needs of each property, given the resources available to that property, given the resources available to that property...Under PBM, these property property...Under PBM, these property management services are arranged, coordinated, management services are arranged, coordinated, or overseen by management personnel who have or overseen by management personnel who have been assigned responsibility for the day-to-day been assigned responsibility for the day-to-day operation of that property and who are charged operation of that property and who are charged with direct oversight of operations of that with direct oversight of operations of that property.”property.”
24 CFR 99024 CFR 990
Why Practice PBM?Why Practice PBM?
Maximizes performance at all levelsMaximizes performance at all levels Local staff are closer to market changes Local staff are closer to market changes
and community issuesand community issues On-site staff can monitor the projectOn-site staff can monitor the project Response to resident issues is faster and Response to resident issues is faster and
more personalmore personal
Common Characteristics of PBMCommon Characteristics of PBM
Each project has an operating budget to Each project has an operating budget to be approved by the ownerbe approved by the owner
The project is assigned dedicated The project is assigned dedicated management and maintenance personnel management and maintenance personnel who frequently work on sitewho frequently work on site
If a project is too small to afford full-time If a project is too small to afford full-time staff, the project may have part-time or staff, the project may have part-time or shared staffshared staff
Common Characteristics of PBM Common Characteristics of PBM (Continued)(Continued)
Site personnel have significant authority Site personnel have significant authority and responsibility over the day-to-day and responsibility over the day-to-day operationsoperations
Most project management tasks are Most project management tasks are handled or coordinated by the on-site staffhandled or coordinated by the on-site staff
Procurement is done by on-site Procurement is done by on-site management and reviewed by supervisormanagement and reviewed by supervisor
The person primarily in charge of the The person primarily in charge of the project on a day-to-day basis, including project on a day-to-day basis, including maintenance, is the site managermaintenance, is the site manager
Project-Based Management ExampleProject-Based Management Example
You own a group of restaurants.You own a group of restaurants. Would you have a budget for each Would you have a budget for each
restaurant?restaurant? Would you hire a manager for each Would you hire a manager for each
restaurant?restaurant? What roles would you assign to on-site What roles would you assign to on-site
staff vs. central staff? staff vs. central staff?
Workshop 2.2: Assignment of Common Workshop 2.2: Assignment of Common TasksTasks
The table on the following slide list tasks The table on the following slide list tasks commonly associated with managing Public commonly associated with managing Public HousingHousing
As a group, determine whether each task As a group, determine whether each task should be performed on-site or centrally should be performed on-site or centrally under project-based managementunder project-based management
Workshop 2.2: Assignment of Common Tasks Workshop 2.2: Assignment of Common Tasks (Answers)(Answers)
TaskTask On-SiteOn-Site CentralCentral
Leasing units and enforcing the leaseLeasing units and enforcing the lease
Processing families for admission and submitting Processing families for admission and submitting 50058 forms as required50058 forms as required
Grant-writing and other predevelopment activitiesGrant-writing and other predevelopment activities
Reviewing project-level budgets and reportsReviewing project-level budgets and reports
Inspecting units, structures, and systems on a Inspecting units, structures, and systems on a frequent basisfrequent basis
Taking applications for admissionTaking applications for admission
Interacting with local government and HUDInteracting with local government and HUD
Overseeing the portfolio including tracking occupancy Overseeing the portfolio including tracking occupancy trendstrends
Preparing budgets for the propertyPreparing budgets for the property
Purchasing and ordering goods/servicesPurchasing and ordering goods/services
Deciding when a property needs revitalization, Deciding when a property needs revitalization, demolition, or dispositiondemolition, or disposition
Project-Based Project-Based Performance AssessmentPerformance Assessment
Revise PHAS to emphasize AMP Revise PHAS to emphasize AMP performanceperformance
Development of internal PHA monitoring Development of internal PHA monitoring mechanismsmechanisms
Project-based funding
Project-based budgeting
Project-based accounting
Project-based management
Project-based Project-based performance assessmentperformance assessment
HUD Oversight and the Public Housing HUD Oversight and the Public Housing Assessment System (PHAS) Assessment System (PHAS)
Each project will be evaluated on financial, Each project will be evaluated on financial, managerial, and physical aspects in managerial, and physical aspects in addition to use of Capital Funds addition to use of Capital Funds
New system will:New system will: Be consistent with the norms in multifamily Be consistent with the norms in multifamily
housinghousing Avoid PHA self-certificationsAvoid PHA self-certifications Rely on existing data sourcesRely on existing data sources Emphasize on-site management reviewsEmphasize on-site management reviews
Internal PHA Monitoring MechanismsInternal PHA Monitoring Mechanisms
Develop mechanisms to collect data to Develop mechanisms to collect data to measure actual AMP performance against measure actual AMP performance against goalsgoals
Goals must be clearly articulated in annual Goals must be clearly articulated in annual plans and budgets. For example, budget plans and budgets. For example, budget goals may include monthly income and goals may include monthly income and expenditures. expenditures.
Project GoalsProject Goals
In order to measure performance, goals In order to measure performance, goals must be articulatedmust be articulated
Annual budget preparation includes goals:Annual budget preparation includes goals:
Rent collectionsRent collections
VacanciesVacancies
Unit turnaroundsUnit turnarounds
InspectionsInspections
Maintenance services Maintenance services
Sample Monthly Project ReviewSample Monthly Project Review
55thth of month: Financial statements made of month: Financial statements made available available
77thth of month: Manager’s monthly Project Report of month: Manager’s monthly Project Report due to Regional Managerdue to Regional Manager
99thth of month: Meeting with Site Manager and of month: Meeting with Site Manager and Regional Manager to review performanceRegional Manager to review performance
1010thth of month: Regional Manager forwards of month: Regional Manager forwards narrative variance report to Director of PM and narrative variance report to Director of PM and ED, accompanying monthly financial reportED, accompanying monthly financial report
12th–1512th–15thth of month: ED reviews performance of month: ED reviews performance with Board and Committeeswith Board and Committees
Long-term Capital PlanningLong-term Capital Planningand Asset Repositioning and Asset Repositioning
Key information needed:Key information needed: Physical needs assessmentPhysical needs assessment Market dataMarket data Asset valueAsset value Funding sourcesFunding sources
Long-Term Capital PlanningLong-Term Capital Planningand Asset Repositioning: Strategiesand Asset Repositioning: Strategies
Asset strategies: Asset strategies: Hold/defer Hold/defer Hold/modernizeHold/modernize RefinanceRefinance Sale/disposition/demolitionSale/disposition/demolition
Each strategy must be compared against the Each strategy must be compared against the mission and goals of the agency mission and goals of the agency
End of Section 2End of Section 2