replacement reserve report - wordpress.com · 2017. 6. 13. · poston & company . melissa blocker,...

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REPLACEMENT RESERVE REPORT FY 2017 OCEAN NEIGHBORS HOMEOWNERS ASSOCIATION

Community Management by:

POSTON & COMPANY

Melissa Blocker, Property Manager

304 Meeting Street Charleston, SC 29401

843-343-7858 [email protected]

Consultant:

2661 Riva Road, Suite 1023 Annapolis, MD 21401

410.268.0479 800.850.2835

MillerDodson.com

http://www.millerdodson.com/�

INTENTIONALLY LEFT BLANK

REPLACEMENT RESERVE REPORT

OCEAN NEIGHBORS HOMEOWNERS

ASSOCIATION

JAMES ISLAND, SOUTH CAROLINA Description. Ocean Neighbors is located in James Island, South Carolina. Ocean Neighbors contains (per the property manager) 240 detached dwellings which were constructed in 1990. The survey examined the common elements of the property, including but not limited to:

• Concrete sidewalks, curbs, and gutters • Common area for lake access • 9.98± acre lake - per plat • Dock with ramp and pergola • Tot lot • Gazebo with benches • Street signage • Common area lighting

Level of Service. This study has been performed as a Level 1 Full Service Reserve Study as defined under the National Reserve Study Standards that have been adopted by the Community Associations Institute. As such, a complete inventory of components was established for the commonly owned elements of this facility based on information provided by the Community Manager or by quantities that were developed from field measurement or takeoffs from to-scale drawings as performed by the Analyst. The condition of each inventory component was established by the Analyst, based on a visual inspection or review of provided historical data with a major repair or replacement cost for each also set. The included fund status and funding plan have been derived from analysis of this inventory.

Section A

Replacement Reserve Analysis

Executive Summary - A1 General Information - A2

Current Funding - A3 Cash Flow Method Funding - A4

Inflation Adjusted Funding - A5 Comments - A6

Section B

Replacement Reserve Inventory

Replacement Reserve Inventory General information - B1

Replacement Reserve Inventory Comments - B2

Schedule of Projected Replacements and Exclusions - B3

Section C

Projected Annual Replacements

Projected Annual Replacements General Information - C1

Calendar of Projected Annual Replacements - C2

Section D

Condition Assessment

Appendix

Accounting Summary - CF1 Component Method - CM1

Overview, Standard Terms, and Definitions

Video Answers to Frequently Asked Questions

To aid in the understanding of this report and its concepts and practices, on our web site, we have developed videos addressing frequently asked topics. In addition, there are posted links covering a variety of subjects under the resources page of our web site at mdareserves.com. Purpose. The purpose of this Replacement Reserve Study is to provide Ocean Neighbors (hereinafter called the Association) with an inventory of the common community facilities and infrastructure components that require periodic replacement. The Study includes a general view of the condition of these items and an effective financial plan to fund projected periodic replacements. • Inventory of Items Owned by the Association. Section B lists the Projected Replacements of the

commonly owned items that require periodic replacement using funding from Replacement Reserves. The Replacement Reserve Inventory also provides information about excluded items, which are items whose replacements are not scheduled for funding from Replacement Reserves.

• Condition of Items Owned by the Association. Section B includes our estimates of the normal

economic life and the remaining economic life for the projected replacements. Section C provides a year-by-year listing of the projected replacements. Section D provides additional detail for items that are unique or deserving of attention because of their condition or the manner in which they have been treated in this study.

• Financial Plan. The Association has a fiduciary responsibility to protect the appearance, value, and

safety of the property and it is therefore essential the Association have a financial plan that provides funding for the projected replacements. In conformance with American Institute of Certified Public Accountant guidelines, Section A, Replacement Reserve Analysis evaluates the current funding of Replacement Reserves as reported by the Association and recommends annual funding of Replacement Reserves by the Cash Flow Method. Section A, Replacement Reserve Analysis includes graphic and tabular presentations of the Association’s current funding and the recommended funding based on the Cash Flow Method. An Executive Summary of these calculations is provided on Page A1. The alternative Component Method of funding is provided in the Appendix.

Basis. The data contained in this Replacement Reserve Study is based upon the following: • The Request for Proposal submitted and executed by the Association.

• Miller-Dodson performed a visual evaluation April 11, 2017 to determine a remaining useful life and

replacement cost for the commonly owned elements of this facility. • This study contains additional recommendations to address inflation for the Cash Flow Method only.

For this recommendation, Miller - Dodson uses the Producers Price Index (PPI), which gauges inflation in manufacturing and construction. Please see page A5 for further details.

Current Funding. This reserve study has been prepared for Fiscal Year 2017 covering the period from January 1, 2017 to December 31, 2017. The Replacement Reserves on deposit as of January 31, 2017 are reported to be $67,591. The planned contribution for the fiscal year is $2,696. The balance and contribution figures have been supplied by the managing agent and confirmation or audit of these figures is beyond the scope of the study. For the purposes of this study, it is assumed that the annual contribution will be deposited at the end of each month. Acknowledgement. Miller-Dodson Associates would like to acknowledge the assistance and input of the Community Manager, Melissa Blocker, Justin J. Price, Attorney and Mr. Scott J. Smith, President of the HOA who provided very helpful insight into the current operations of the property. Analyst’s Credentials. B. Emerson Treffer holds a Bachelor of Science Degree in Business Administration from the University of Maryland. Mr. Treffer has over forty years of experience in valuing all types of commercial, industrial, and special purpose real estate. He is qualified as an expert witness in

https://www.youtube.com/channel/UCRMT6DwI3dIluiw_iXBrYUA�http://mdareserves.com/resources/links�http://mdareserves.com/resources/links�

various Federal, State, and County Courts. Currently, Mr. Treffer is a Reserve Analyst for Miller - Dodson Associates. Respectfully submitted,

B. Emerson Treffer Reserve Analyst

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Miller + Dodson Associates, Inc. Replacement Reserve Analysis - Page A1Ocean Neighbors revised Revised May 11, 2017

19518703OCEAN NE17

EXECUTIVE SUMMARYThe Ocean Neighbors revised Replacement Reserve Analysis uses the Cash Flow Method (CFM) tocalculate Replacement Reserve funding for the periodic replacement of the 33 Projected Replacementsidentified in the Replacement Reserve Inventory.

$22,647 RECOMMENDED REPLACEMENT RESERVE FUNDING FOR THE STUDY YEAR, 2017$7.86 Per unit (average), minimum monthly funding of Replacement Reserves

We recommend the Association adopt a Replacement Reserve Funding Plan based on the annual fundingrecommendation above. Inflation adjusted funding for subsequent years is shown on Page A5.

Ocean Neighbors revised reports a Starting Balance of $67,591 and Annual Funding totaling $2,696.Current funding is inadequate to fund the $865,646 of Projected Replacements scheduled in the Replacement Reserve Inventory over the 40-year Study Period. See Page A3 for a more detailed evaluation.

#1 - Cumulative Replacement Reserve Funding and Expenditures Graph

The Current Funding Objective as calculated by the Component Method (Fully Funded) is $136,093 making the reserve account 49.7% funded. See the Appendix for more information on this method.

175,431

$865

,646

887,646

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Cash Flow Method - Cumulative Receipts

Current Funding - Cumulative Receipts

Projected Replacements - CumulativeExpenditures


19518703OCEAN NE17

REPLACEMENT RESERVE ANALYSIS - GENERAL INFORMATION

The Ocean Neighbors revised Replacement Reserve Analysis calculations of recommended funding ofReplacement Reserves by the Cash Flow Method and the evaluation of the Current Funding are based upon thesame Study Year, Study Period, Beginning Balance, Replacement Reserve Inventory and Level of Service.

2017 STUDY YEARThe Association reports that their accounting year begins on January 1, and the Study Year, the first yearevaluated by the Replacement Reserve Analysis, begins on January 1, 2017.

40 Years STUDY PERIODThe Replacement Reserve Analysis evaluates the funding of Replacement Reserves over a 40-year Study Period.

$67,591 STARTING BALANCEThe Association reports Replacement Reserves on Deposit totaling $67,591 at the start of the Study Year.

Level One LEVEL OF SERVICEThe Replacement Reserve Inventory has been developed in compliance with the National Reserve StudyStandards for a Level One Study, as defined by the Community Associations Institute (CAI).

$865,646 REPLACEMENT RESERVE INVENTORY - PROJECTED REPLACEMENTSThe Ocean Neighbors revised Replacement Reserve Inventory identifies 33 items that will require periodicreplacement, that are to be funded from Replacement Reserves. We estimate the cost of these replacements willbe $865,646 over the 40-year Study Period. The Projected Replacements are divided into 12 major categoriesstarting on Page B3. Pages B1-B2 provide detailed information on the Replacement Reserve Inventory.

#2 - Annual Expenditures for Projected Replacements Graph This graph shows annual expenditures for Projected Replacements over the 40-year Study Period. The red line shows the average annual expenditureof $21,641. Section C provides a year by year Calender of these expenditures.

40-year Average$21,641

$0 $0 $0 $75

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UPDATINGUPDATING OF THE FUNDING PLANThe Association has a responsibility to review the Funding Plan annually. The review should include a comparisonand evaluation of actual reserve funding with recommended levels shown on Page A4 and A5. The Projected Replacements listed on Page C2 should be compared with any replacements accomplished and funded from Replacement Reserves. Discrepancies should be evaluated and if necessary, the Reserve Study should be updatedor a new study commissioned. We recommend annual increases in replacement reserve funding to account for the impact of inflation. Inflation Adjusted Funding is discussed on Page A5.

UPDATING OF THE REPLACEMENT RESERVE STUDYAt a minimum, the Replacement Reserve Study should be professionally updated every three to five years or aftercompletion of a major replacement project. Updating should also be considered if during the annual review of the Funding Plan, discrepancies are noted between projected and actual reserve funding or replacement costs. Updatingmay also be necessary if there is a meaningful discrepancy between the actual inflation rate and the inflation rate used for the Inflation Adjusted Funding of Replacement Reserves on Page A5.

ANNUAL EXPENDITURES AND CURRENT FUNDINGThe annual expenditures that comprise the $865,646 of Projected Expenditures over the 40-year Study Period andthe impact of the Association continuing to fund Replacement Reserves at the current level are detailed in Table 3.

#3 - Table of Annual Expenditures and Current Funding Data - Years 1 through 40Year 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Starting Balance $67,591Projected Replacements ($750) ($1,600) ($36,363) ($48,000) ($60,905) ($1,600)

Annual Deposit $2,696 $2,696 $2,696 $2,696 $2,696 $2,696 $2,696 $2,696 $2,696 $2,696End of Year Balance $70,287 $72,983 $75,679 $77,625 $78,721 $45,054 $47,750 $2,446 ($55,763) ($54,667)

Cumulative Expenditures ($750) ($2,350) ($38,713) ($38,713) ($86,713) ($147,618) ($149,218)Cumulative Receipts $70,287 $72,983 $75,679 $78,375 $81,071 $83,767 $86,463 $89,159 $91,855 $94,551

Year 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036Projected Replacements ($140,789) ($27,346) ($750) ($1,600) ($35,377) ($55,346) ($22,750) ($1,600)

Annual Deposit $2,696 $2,696 $2,696 $2,696 $2,696 $2,696 $2,696 $2,696 $2,696 $2,696End of Year Balance ($192,759) ($217,409) ($214,713) ($212,767) ($211,671) ($244,352) ($241,656) ($294,306) ($314,360) ($313,264)

Cumulative Expenditures ($290,006) ($317,352) ($317,352) ($318,102) ($319,702) ($355,079) ($355,079) ($410,425) ($433,175) ($434,775)Cumulative Receipts $97,247 $99,943 $102,639 $105,335 $108,031 $110,727 $113,423 $116,119 $118,815 $121,511

Year 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046Projected Replacements ($50,477) ($20,000) ($66,251) ($1,600) ($14,003) ($28,000) ($22,750) ($28,946)



Year 2047 2048 2049 2050 2051 2052 2053 2054 2055 2056Projected Replacements ($20,911) ($750) ($1,600) ($65,080) ($48,000) ($60,905) ($1,600)



EVALUATION OF CURRENT FUNDINGThe evaluation of Current Funding (Starting Balance of $67,591 & annual funding of $2,696), is done in today'sdollars with no adjustments for inflation or interest earned on Replacement Reserves. The evaluation assumesReplacement Reserves will only be used for the 33 Projected Replacements identified in the Replacement ReserveInventory and that the Association will continue Annual Funding of $2,696 throughout the 40-year Study Period. Annual Funding of $2,696 is approximately 12 percent of the $22,647 recommended Annual Funding calculatedby the Cash Flow Method for 2017, the Study Year.Evaluation of the 33 Projected Replacements calculates an average annual expenditure over the next 40 yearsof $21,641. Annual funding of $2,696 is 12 percent of the average annual expenditure.Our calculations identify funding shortfalls in 32 years of the Study Period with the initial shortfall in 2025. Thelargest shortfall, $-691,311, occurs in 2055. All shortfalls can be seen and evaluated in Table 3 above.In summary, Current Funding as reported by the Association and shown above, does not provide adequate funding forthe $865,646 of Projected Replacements scheduled in the Replacement Reserve Inventory over the Study Period.


19518703OCEAN NE17

CASH FLOW METHOD FUNDING

$22,647 RECOMMENDED REPLACEMENT RESERVE FUNDING FOR 2017$7.86 Per unit (average), minimum monthly funding of Replacement Reserves

Recommended Replacement Reserve Funding has been calculated using the Cash Flow Method (also called the Straight Line or Threshold Method). This method calculates a constant annual funding between peaks in cumulative expenditures, while maintaining a Minimum Balance (threshold) in the Peak Years. Peak Years. The First Peak Year occurs in 2028 with Replacement Reserves on Deposit dropping to the

Minimum Balance after the completion of $317,352 of replacements from 2017 to 2028. Recommendedfunding declines from $22,647 in 2028 to $21,179 in 2029. Peak Years are identified in Chart 4 and Table 5.

Minimum Balance. The calculations assume a Minimum Balance of $22,000 in Replacement Reserves. Thisis approx. 12 months of average expenditures based on the $21,641, 40-year average annual expenditure.

Cash Flow Method Study Period. Cash Flow Method calculates funding for $865,646 of expendituresover the 40-year Study Period. It does not include funding for any projects beyond 2056 and in 2056, the end of year balance will always be the Minimum Balance.

#4 - Cash Flow Method - Graph of Cumulative Receipts and Expenditures - Years 1 through 40

#5 - Cash Flow Method - Table of Receipts & Expenditures - Years 1 through 40Year 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Starting Balance $67,591 Projected Replacements ($750) ($1,600) ($36,363) ($48,000) ($60,905) ($1,600)

Annual Deposit $22,647 $22,647 $22,647 $22,647 $22,647 $22,647 $22,647 $22,647 $22,647 $22,647End of Year Balance $90,238 $112,884 $135,531 $157,428 $178,475 $164,759 $187,405 $162,052 $123,794 $144,841

Cumulative Expenditures $750 $2,350 $38,713 $38,713 $86,713 $147,618 $149,218Cumulative Receipts $90,238 $112,884 $135,531 $158,178 $180,825 $203,471 $226,118 $248,765 $271,412 $294,058

Year 2027 1st Peak - 2028 2029 2030 2031 2032 2033 2034 2035 2036Projected Replacements ($140,789) ($27,346) ($750) ($1,600) ($35,377) ($55,346) ($22,750) ($1,600)



Year 2037 2038 2039 2nd Peak - 2040 2041 2042 2043 2044 2045 2046Projected Replacements ($50,477) ($20,000) ($66,251) ($1,600) ($14,003) ($28,000) ($22,750) ($28,946)



Year 2047 2048 2049 2050 2051 2052 2053 2054 3rd Peak - 2055 4th Peak - 2056Projected Replacements ($20,911) ($750) ($1,600) ($65,080) ($48,000) ($60,905) ($1,600)



$865

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Cash Flow Method - Cumulative Receipts Cash Flow Method - Year End Balance Cumulative Expenditures Peak Year


19518703OCEAN NE17

INFLATION ADJUSTED FUNDING

The Cash Flow Method calculations on Page A4 have been done in today's dollars with no adjustment for inflation. At Miller + Dodson, we belive that long-term inflation forecasting is effective at demonstrating the power of compounding,not at calculating appropriate funding levels for Replacement Reserves. We have developed this proprietary model to estimate the short-term impact of inflation on Replacement Reserve funding.

$22,647 2017 - CASH FLOW METHOD RECOMMENDED FUNDING #6 - Inflation Adjusted FundingThe 2017 Study Year calculations have been made using current replacement costs(see Page B2), modified by the Analyst for any project specific conditions.

$23,401 2018 - INFLATION ADJUSTED FUNDINGA new analysis calculates 2018 funding based on three assumptions; Replacement Reserves on Deposit totaling $90,238 on January 1, 2018. No Expenditures from Replacement Reserves in 2017.

Construction Cost Inflation of 2.30 percent in 2017.The $23,401 inflation adjusted funding in 2018 is a 3.33 percent increase over thenon-inflation adjusted 2018 funding of $22,647.


Construction Cost Inflation of 2.30 percent in 2018.The $24,248 inflation adjusted funding in 2019 is a 7.07 percent increase over thenon-inflation adjusted 2019 funding of $22,647.


Construction Cost Inflation of 2.30 percent in 2019.The $25,208 inflation adjusted funding in 2020 is a 11.31 percent increase over thenon-inflation adjusted funding of $22,647.

YEAR FIVE & BEYONDThe inflation adjusted funding calculations outlined above are not intended to be a substitute for periodic evaluation of common elements by an experienced Reserve Analyst. Industry Standards, lender requirements, and many state and local statutes require a Replacement Reserve Study be professionally updated every 3 to 5 years.

INFLATION ADJUSTMENTPrior to approving a budget based upon the 2018, 2019 and 2020 inflation adjusted funding calculations above,the 2.30 percent base rate of inflation used in our calculations should be compared to rates published by the Bureauof Labor Statistics. If there is a significant discrepancy (over 1 percent), contact Miller Dodson + Associates prior to using the Inflation Adjusted Funding.

INTEREST ON RESERVESThe recommended funding calculations do not account for interest earned on Replacement Reserves.In 2017, based on a 1.00 percent interest rate, we estimate the Association may earn $789 on an average balanceof $78,914, $1,019 on an average balance of $101,938 in 2018, and $1,258 on $125,763 in 2019. The Association may elect to attribute 100 percent of the earned interest to Reserves, resulting in a reduction in the 2017 funding from $22,647 to $21,858 (a 3.48 percent reduction), $23,401 to $22,382 in 2018 (a 4.36 percentreduction), and $24,248 to $22,990 in 2019 (a 5.19 percent reduction).

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Cash FlowMethodFunding

InflationAdjustedFunding


19518703OCEAN NE17

REPLACEMENT RESERVE STUDY - SUPPLEMENTAL COMMENTS Ocean Neighbors revised has 240 units. The type of property is a home owner association.

The Cash Flow Method calculates the minimum annual funding necessary to prevent Replacement Reserves fromdropping below the Minimum Balance. Failure to fund at least the recommended levels may result in funding not being available for the Projected Replacements listed in the Replacement Reserve Inventory.

The accuracy of the Replacement Reserve Analysis is dependent upon expenditures from Replacement Reservesbeing made ONLY for the 33 Projected Replacements specifically listed in the Replacement Reserve Inventory.The inclusion/exclusion of items from the Replacement Reserve Inventory is discussed on Page B1.

Miller + Dodson Associates, Inc. Replacement Reserve Inventory - Page B1Ocean Neighbors revised Revised May 11, 2017

19518703OCEAN NE17

REPLACEMENT RESERVE INVENTORYGENERAL INFORMATION

Ocean Neighbors revised - Replacement Reserve Inventory identifies 85 items. Two types of items areidentified, Projected Replacements and Excluded Items:

PROJECTED REPLACEMENTS. 33 of the items are Projected Replacements and the periodicreplacements of these items are scheduled for funding from Replacement Reserves. The Projected Replacementshave an estimated one-time replacement cost of $371,958. Replacements totaling $865,646 are scheduledin the Replacement Reserve Inventory over the 40-year Study Period.Projected Replacements are the replacement of commonly-owned physical assets that require periodic replacement and whose replacement is to be funded from Replacement Reserves.

EXCLUDED ITEMS. 52 of the items are Excluded Items, and expenditures for these items are NOTscheduled for funding from Replacement Reserves. The accuracy of the calculations made in the ReplacementReserve Analysis is dependent on expenditures NOT being made for Excluded Items. The Excluded Itemsare listed in the Replacement Reserve Inventory to identify specific items and categories of items thatare not to be funded from Replacement Reserves. There are multiple categories of items that are typicallyexcluded from funding by Replacement Reserves, including but not limited to:

Tax Code. The United States Tax Code grants very favorable tax status to Replacement Reserves, conditionedon expenditures being made within certain guidelines. These guidelines typically exclude maintenanceactivities, minor repairs and capital improvements.Value. Items with a replacement cost of less that $1,000 and/or a normal economic life of less than 3 years are typically excluded from funding from Replacement Reserves. This exclusion should reflect Associationpolicy on the administration of Replacement Reserves. If the Association has selected an alternative level,it will be noted in the Replacement Reserve Inventory - General Comments on Page B2.Long-lived Items. Items that when properly maintained, can be assumed to have a life equal to the propertyas a whole, are typically excluded from the Replacement Reserve Inventory.

Unit improvements. Items owned by a single unit and where the items serve a single unit are generallyassumed to be the responsibility of that unit, not the Association.Other non-common improvements. Items owned by the local government, public and private utility companies, the United States Postal Service, Master Associations, state and local highway authorities, etc., may beinstalled on property that is owned by the Association. These types of items are generally not the responsibility of the Association and are excluded from the Replacement Reserve Inventory.

The rationale for the exclusion of an item from funding by Replacement Reserves is discussed in more detail inthe 'Comments' sections of the Section B - Replacement Reserve Inventory.

CATEGORIES. The 85 items included in the Ocean Neighbors revised Replacement Reserve Inventoryare divided into 12 major categories. Each category is printed on a separate page, Pages B3 to B13.

LEVEL OF SERVICE. This Replacement Reserve Inventory has been developed in compliance with the standardsestablished for a Level One Study - Full Service, as defined by the National Reserve StudyStandards, established in 1998 by Community Associations Institute, which states:

A Level I - Full Service Reserve Study includes the computation of complete component inventoryinformation regarding commonly owned components provided by the Association, quantities derived from field measurements and/or quantity takeoffs from to-scale engineering drawings thatmay be made available. The condition of all components is ascertained from a visual inspectionof each component by the analyst. The remaining economic life and the value of the componentsare provided based on these observations and the funding status and funding plan are then derived from analysis of this data.


19518703OCEAN NE17

REPLACEMENT RESERVE INVENTORY - GENERAL INFORMATION (cont'd)

INVENTORY DATA. Each of the 33 Projected Replacements listed in the Replacement Reserve Inventoryincludes the following data:

Item Number. The Item Number is assigned sequentially and is intended for identification purposes only.

Item Description. We have identified each item included in the Inventory. Additional information may beincluded in the Comments section at the bottom of each page of the Inventory.

Units. We have used standard abbreviations to identify the number of units including SF-square feet, LF-lineal feet, SY-square yard, LS-lump sum, EA-each, and PR-pair. Non-standard abbreviations are noted in the Comments section at the bottom of the page.

Number of Units. The methods used to develop the quantities are discussed in "Level of Service" above.

Unit Replacement Cost. We use four sources to develop the unit cost data shown in the Inventory; actualreplacement cost data provided by the client, information provided by local contractors and suppliers,industry standard estimating manuals, and a cost database we have developed based upon our detailedinterviews with contractors and service providers who are specialists in their respective lines of work.

Normal Economic Life (Yrs). The number of years that a new and properly installed item should beexpected to remain in service.

Remaining Economic Life (Yrs). The estimated number of years before an item will need to be replaced. In "normal" conditions, this could be calculated by subtracting the age of the item from the Normal Economic Life of the item, but only rarely do physical assets age "normally". Some itemsmay have longer or shorter lives depending on many factors such as environment, initial quality of the item, maintenance, etc.

Total Replacement Cost. This is calculated by multiplying the Unit Replacement Cost by the Number of Units.

Each of the 52 Excluded Items includes the Item Description, Units, and Number of Units. Many of theExcluded Items are listed as a 'Lump Sum' with a quantity of 1. For the Excluded Items, this indicates thatall of the items identified by the 'Item Description' are excluded from funding by Replacement Reserves.

REVIEW OF EXPENDITURES. This Replacement Reserve Study should be reviewed by an accounting professional representing the Association prior to implementation.

PARTIAL FUNDING. Items may have been included in the Replacement Reserve Inventory at less than 100 percent of their full quantity and/or replacement cost. This is done on items that will never be replacedin their entirety, but which may require periodic replacements over an extended period of time. The assumptions that provide the basis for any partial funding are noted in the Comments section.

REMAINING ECONOMIC LIFE GREATER THAN 40 YEARS. The calculations do not include funding for initialreplacements beyond 40 years. These replacements are included in this Study for tracking and evaluation. Theyshould be included for funding in future Studies, when they enter the 40-year window.


19518703OCEAN NE17

SITE COMPONENTSPROJECTED REPLACEMENTS

UNIT NORMAL REMAININGITEM ITEM NUMBER REPLACEMENT ECONOMIC ECONOMIC REPLACEMENT

# DESCRIPTION UNIT OF UNITS COST ($) LIFE (YRS) LIFE (YRS) COST ($)

5

5

5

1 Concrete curb & gutter, mountable (2%) ft 430 $28.75 6 5 2 $12,3632 Concrete roadway (6%) sf 816 $10.45 6 5 2 $8,527

5

3 Concrete flatwork (2%) sf 709 $9.10 6 5 2 $6,4565

4 Retaining wall, railroad ties sf 80 $32.65 20 15 2 $2,6125

5 Fence, wood split, 2 rails ft 105 $22.45 15 5 2 $2,3576 Fence, 5'- wood board ft 240 $18.50 20 10 2 $4,440

5

7 Entrance monument, repoint masonry ea 1 $14,500.00 10 8 2 $14,5005

8 Sign & post, street ea 9 $285.00 35 30 2 $2,5659 Sign & post, other ea 20 $245.00 35 30 2 $4,900

5

10 Irrigation, controller ea 2 $1,050.00 10 5 2 $2,10011 Irrigation, head ea 20 $80.00 5 4 2 $1,600

5

5

5

5

SITE COMPONENTS - Replacement Costs - Subtotal $62,420

SITE COMPONENTSCOMMENTS

We have assumed that the Association will replace the asphalt pavement by the installation of a 2 inch thick overlay. The pavement will need to be milled prior to the installation of the overlay. Milling and the cost of minor repairs (5 to 10 percent of the total area) to the base materials and bearing soils beneath the pavement are included in the cost shown above.

For concrete components and other roadway shoulder work, we have assumed that the Association will conduct concrete component replacement projects in conjunction with the asphalt pavement and other concrete or right-of-way replacement projects.

Concrete flatwork includes all sidewalks, the path at the tot lot and the stamped concrete at the entrance.


19518703OCEAN NE17

SITE COMPONENTS (cont.)PROJECTED REPLACEMENTS



12 Site light, standard single head ea 11 $480.00 20 15 2 $5,28013 Site Light, 12' aluminum pole ea 11 $2,850.00 25 20 2 $31,35014 Spot Lights, decorative ea 16 $285.00 10 5 2 $4,560

5

15 Gazebo, 10' octogon, PLT-wood w/asphalt shi ea 1 $8,450.00 25 20 2 $8,4505

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

SITE COMPONENTS (cont.) - Replacement Costs - Subtotal $49,640

SITE COMPONENTS (cont.)COMMENTS


19518703OCEAN NE17

SITE COMPONENTS (cont.)PROJECTED REPLACEMENTS AND EXCLUDED ITEMS



16 Domestic water main allowance ls 1 $4,000.00 10 8 2 $4,00017 Sanitary main allowance ls 1 $3,500.00 10 8 2 $3,500

5

18 Fire hydrant ea 5 $3,975.00 20 15 2 $19,8755

Sewer pumping station ea 1 3 EXCLUDED5

19 Pond aerators ea 5 $4,000.00 15 7 2 $20,00020 Storm water management (10% allowance) ls 8 $3,500.00 10 7 2 $28,00021 Pond dredging allowance acre 3 $40,000.00 30 10 2 $120,000

5

22 Entrance palm trees ea 8 $650.00 20 10 2 $5,2005

5

5

5

5

5

5

5

5

5

5

5

SITE COMPONENTS (cont.) - Replacement Costs - Subtotal $200,575

SITE COMPONENTS (cont.)COMMENTS

Comprehensive drawings detailing the components of the systems listed above were not available for our review. We have included the estimated cost of the systems based upon our experience with other similar communities. We have assumed that 10 percent of the system(s) will require replacement. In the future, this assumption and the estimated costs should be adjusted based upon actual experience at the community.

The pond dredging allowance provides funding for periodic spot dredging of silt buildup in the pond.

05/11/17. Excluded pumping station.


19518703OCEAN NE17

RECREATION (cont.)PROJECTED REPLACEMENTS



23 Picnic table ea 5 $575.00 15 8 2 $2,8755

24 Bench ea 3 $880.00 15 8 2 $2,6405

25 Dog waste station ea 2 $475.00 20 15 2 $9505

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

RECREATION (cont.) - Replacement Costs - Subtotal $6,465

RECREATION (cont.)COMMENTS


19518703OCEAN NE17




26 Tot lot, MP structure, 2 platforms & 2 slides (s ea 1 $13,250.00 15 8 2 $13,25027 Tot lot, ADA MP structure, 2 platforms & 2 slid ea 1 $15,040.00 15 8 2 $15,040

5

28 Tot lot, spring ride (small) ea 2 $825.00 15 8 2 $1,65029 Tot lot, 5" single post swing, 2 seat ea 2 $1,350.00 15 8 2 $2,700

5

30 Add Mulch to tot lot ea 1 $750.00 5 3 2 $7505

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5



Tot lots and tot lot equipment should be evaluated annually by a playground safety specialist for compliance with the Consumer Product Safety Commission, Handbook for Public Playground Safety. Defects should be corrected immediatelyto protect the users of the facilities from potential injury and the Association from potential liability for those injuries.


19518703OCEAN NE17




31 Piling, 8" ea 8 $1,040.00 30 20 2 $8,3205

32 Pier structure, PTL sf 110 $34.60 20 10 2 $3,80633 Pier decking, PTL sf 445 $16.50 15 10 2 $7,343

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5




19518703OCEAN NE17

UNIT IMPROVEMENTS EXCLUSIONSEXCLUDED ITEMS



Domestic water pipes serving one unit ls 1 3 EXCLUDEDSanitary sewers serving one unit ls 1 3 EXCLUDEDElectrical wiring serving one unit ls 1 3 EXCLUDEDCable TV service serving one unit ls 1 3 EXCLUDEDTelephone service serving one unit ls 1 3 EXCLUDEDGas service serving one unit ls 1 3 EXCLUDEDAsphalt Paving/Streets ls 1 3 EXCLUDEDDriveway on an individual lot ls 1 3 EXCLUDEDApron on an individual lot ls 1 3 EXCLUDED

5

Stairs on an individual lot ls 1 3 EXCLUDED5

Retaining wall on an individual lot ls 1 3 EXCLUDEDFence on an individual lot ls 1 3 EXCLUDEDDock on an individually lot ls 1 3 EXCLUDEDSpeed Bumps ls 1 3 EXCLUDEDUnit exterior ls 1 3 EXCLUDEDUnit windows ls 1 3 EXCLUDEDUnit doors ls 1 3 EXCLUDEDUnit skylights ls 1 3 EXCLUDEDUnit deck, patio, and/or balcony ls 1 3 EXCLUDEDUnit mailbox ls 1 3 EXCLUDEDUnit interior ls 1 3 EXCLUDEDUnit HVAC system ls 1 3 EXCLUDED

UNIT IMPROVEMENTS EXCLUSIONSCOMMENTS

Unit improvement Exclusions. We understand that the elements of the project that relate to a single unit are the responsibility of that unit owner. Examples of items excluded from funding by Replacement Reserves by this standard arelisted above.

The list above exemplifies exclusions by the cited standard(s) and is not intended to be comprehensive.


19518703OCEAN NE17

UTILITY EXCLUSIONSEXCLUDED ITEMS



Primary electric feeds ls 1 3 EXCLUDEDElectric transformers ls 1 3 EXCLUDEDCable TV systems and structures ls 1 3 EXCLUDEDTelephone cables and structures ls 1 3 EXCLUDED

5

Gas mains and meters ls 1 3 EXCLUDED5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

UTILITY EXCLUSIONSCOMMENTS

Utility Exclusions. Many improvements owned by utility companies are on property owned by the Association. We have assumed that repair, maintenance, and replacements of these components will be done at the expense of the appropriate utility company. Examples of items excluded from funding Replacement Reserves by this standard are listed above.



19518703OCEAN NE17

MAINTENANCE AND REPAIR EXCLUSIONSEXCLUDED ITEMS



Cleaning of asphalt pavement ls 1 3 EXCLUDEDCrack sealing of asphalt pavement ls 1 3 EXCLUDEDPainting of curbs ls 1 3 EXCLUDEDStriping of parking spaces ls 1 3 EXCLUDEDNumbering of parking spaces ls 1 3 EXCLUDED

5

Landscaping and site grading ls 1 3 EXCLUDED5

Exterior painting ls 1 3 EXCLUDEDInterior painting ls 1 3 EXCLUDED

5

Janitorial service ls 1 3 EXCLUDEDRepair services ls 1 3 EXCLUDEDPartial replacements ls 1 3 EXCLUDEDCapital improvements ls 1 3 EXCLUDED

5

5

5

5

5

5

5

5

5

MAINTENANCE AND REPAIR EXCLUSIONSCOMMENTS

Maintenance activities, one-time-only repairs, and capital improvements. These activities are NOT appropriately funded from Replacement Reserves. The inclusion of such component in the Replacement Reserve Inventory could jeopardize the special tax status of ALL Replacement Reserves, exposing the Association to significant tax liabilities. We recommend that the Board of Directors discuss these exclusions and Revenue Ruling 75-370 with a Certified Public Accountant.

Examples of items excluded from funding by Replacement Reserves by this standard are listed above.



19518703OCEAN NE17

GOVERNMENT EXCLUSIONSEXCLUDED ITEMS



Government, roadways & parking ls 1 3 EXCLUDEDGovernment, sidewalks & curbs ls 1 3 EXCLUDEDGovernment, lighting ls 1 3 EXCLUDEDGovernment, stormwater mgmt. ls 1 3 EXCLUDEDGovernment, ponds ls 1 3 EXCLUDED

5

Government, mailboxes ls 1 3 EXCLUDED5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

GOVERNMENT EXCLUSIONSCOMMENTS

Government Exclusions. We have assumed that some of the improvements installed on property owned by the Association will be maintained by the state, county, or local government, or other association or other responsible entity. Examples of items excluded from funding by Replacement Reserves by this standard are listed above.

Excluded right-of-ways, including LIST ROADS, and adjacent properties.



19518703OCEAN NE17

IRRIGATION SYSTEM EXCLUSIONSEXCLUDED ITEMS



Subsurface irrigation pipe ls 1 3 EXCLUDEDSubsurface irrigation valve ls 1 3 EXCLUDEDSubsurface irrigation control wiring ls 1 3 EXCLUDED

5

Irrigation control system ls 1 3 EXCLUDEDIrrigation system electrical service ls 1 3 EXCLUDEDIrrigation system enclosures ls 1 3 EXCLUDED

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

5

IRRIGATION SYSTEM EXCLUSIONSCOMMENTS

Irrigation System Exclusions. We have assumed that the maintenance, repair, and periodic replacement of the components of the extensive irrigation systems at the property will not be funded from Replacement Reserves. These systems should be inspected each spring when the systems are brought on line and each fall when they are winterized. Repairs/replacements should be made in conjunction with these inspections.

Intentionally Left Blank

Miller + Dodson Associates, Inc. Projected Annual Replacements - Page C1Ocean Neighbors revised Revised May 11, 2017

19518703OCEAN NE17

PROJECTED ANNUAL REPLACEMENTSGENERAL INFORMATION

CALENDAR OF ANNUAL REPLACEMENTS. The 33 Projected Replacements in the Ocean Neighbors revisedReplacement Reserve Inventory whose replacement is scheduled to be funded from Replacement Reserves are broken down on a year-by-year basis, beginning on Page C2.

REPLACEMENT RESERVE ANALYSIS AND INVENTORYPOLICIES, PROCEDURES, AND ADMINISTRATION

REVISIONS. Revisions will be made to the Replacement Reserve Analysis and Replacement Reserve Inventoryin accordance with the written instructions of the Board of Directors. No additional charge is incurred for the first revision, if requested in writing within three months of the date of the Replacement Reserve Study. It is ourpolicy to provide revisions in electronic (Adobe PDF) format only.

TAX CODE. The United States Tax Code grants favorable tax status to a common interest development (CID)meeting certain guidelines for their Replacement Reserve. If a CID files their taxes as a 'Corporation' onForm 1120 (IRC Section 277), these guidelines typically require maintenance activities, partial replacements, minor replacements, capital improvements, and one-time only replacements to be excluded from Reserves.A CID cannot co-mingle planning for maintenance activities with capital replacement activities in the Reserves(Revenue Ruling 75-370). Funds for maintenance activities and capital replacements activities must be held inseparate accounts. If a CID files taxes as an "Exempt Homeowners Association" using Form 1120H (IRCSection 528), the CID does not have to segregate these activities. However, because the CID may elect tochange their method of filing from year to year within the Study Period, we advise using the more restrictiveapproach. We further recommend that the CID consult with their Accountant and consider creating separateand independent accounts and reserves for large maintenance items, such as painting.

CONFLICT OF INTEREST. Neither Miller - Dodson Associates nor the Reserve Analyst has any prior or existingrelationship with this Association which would represent a real or perceived conflict of interest.

RELIANCE ON DATA PROVIDED BY THE CLIENT. Information provided by an official representative of theAssociation regarding financial, physical conditions, quality, or historical issues is deemed reliable.

INTENT. This Replacement Reserve Study is a reflection of the information provided by the Association and the visual evaluations of the Analyst. It has been prepared for the sole use of the Association and is not for thepurpose of performing an audit, quality/forensic analyses, or background checks of historical records.

PREVIOUS REPLACEMENTS. Information provided to Miller - Dodson Associates regarding prior replacementsis considered to be accurate and reliable. Our visual evaluation is not a project audit or quality inspection.

EXPERIENCE WITH FUTURE REPLACEMENTS. The Calendar of Annual Projected Replacements, listsreplacements we have projected to occur over the next thirty years, begins on Page C2. Actual experience inreplacing the items may differ significantly from the cost estimates and time frames shown because of conditionsbeyond our control. These differences may be caused by maintenance practices, inflation, variations in pricingand market conditions, future technological developments, regulatory actions, acts of God, and luck. Someitems may function normally during our visual evaluation and then fail without notice.

REVIEW OF THE REPLACEMENT RESERVE STUDY. For this study to be effective, it should be reviewed by the Ocean Neighbors revised Board of Directors, those responsible for the management of the itemsincluded in the Replacement Reserve Inventory, and the accounting professionals employed by the Association.


19518703OCEAN NE17

PROJECTED REPLACEMENTS - YEARS ONE TO FIFTEENItem 2017 - STUDY YEAR $ Item 2018 - YEAR 2 $ Item 2019 - YEAR 3 $

No Scheduled Replacements No Scheduled Replacements No Scheduled Replacements

Item 2020 - YEAR 4 $ Item 2021 - YEAR 5 $ Item 2022 - YEAR 6 $ 30 Add Mulch to tot lot $750 11 Irrigation, head $1,600 1 Concrete curb & gutter, mou $12,363

2 Concrete roadway (6%) $8,5273 Concrete flatwork (2%) $6,4565 Fence, wood split, 2 rails $2,35710 Irrigation, controller $2,10014 Spot Lights, decorative $4,560

Total Scheduled Replacements $750 Total Scheduled Replacements $1,600 Total Scheduled Replacements $36,363

Item 2023 - YEAR 7 $ Item 2024 - YEAR 8 $ Item 2025 - YEAR 9 $ 19 Pond aerators $20,000 7 Entrance monument, repoint $14,50020 Storm water management (1 $28,000 16 Domestic water main allowa $4,000

17 Sanitary main allowance $3,50023 Picnic table $2,87524 Bench $2,64026 Tot lot, MP structure, 2 platfo $13,25027 Tot lot, ADA MP structure, 2 $15,04028 Tot lot, spring ride (small) $1,65029 Tot lot, 5" single post swing, $2,70030 Add Mulch to tot lot $750

No Scheduled Replacements Total Scheduled Replacements $48,000 Total Scheduled Replacements $60,905

Item 2026 - YEAR 10 $ Item 2027 - YEAR 11 $ Item 2028 - YEAR 12 $ 11 Irrigation, head $1,600 6 Fence, 5'- wood board $4,440 1 Concrete curb & gutter, mou $12,363

21 Pond dredging allowance $120,000 2 Concrete roadway (6%) $8,52722 Entrance palm trees $5,200 3 Concrete flatwork (2%) $6,45632 Pier structure, PTL $3,80633 Pier decking, PTL $7,343

Total Scheduled Replacements $1,600 Total Scheduled Replacements $140,789 Total Scheduled Replacements $27,346

Item 2029 - YEAR 13 $ Item 2030 - YEAR 14 $ Item 2031 - YEAR 15 $ 30 Add Mulch to tot lot $750 11 Irrigation, head $1,600

No Scheduled Replacements Total Scheduled Replacements $750 Total Scheduled Replacements $1,600


19518703OCEAN NE17

PROJECTED REPLACEMENTS - YEARS SIXTEEN TO THIRTYItem 2032 - YEAR 16 $ Item 2033 - YEAR 17 $ Item 2034 - YEAR 18 $ 4 Retaining wall, railroad ties $2,612 1 Concrete curb & gutter, mou $12,363

10 Irrigation, controller $2,100 2 Concrete roadway (6%) $8,52712 Site light, standard single he $5,280 3 Concrete flatwork (2%) $6,45614 Spot Lights, decorative $4,560 20 Storm water management (1 $28,00018 Fire hydrant $19,87525 Dog waste station $950

Total Scheduled Replacements $35,377 No Scheduled Replacements Total Scheduled Replacements $55,346

Item 2035 - YEAR 19 $ Item 2036 - YEAR 20 $ Item 2037 - YEAR 21 $ 7 Entrance monument, repoint $14,500 11 Irrigation, head $1,600 5 Fence, wood split, 2 rails $2,357

16 Domestic water main allowa $4,000 13 Site Light, 12' aluminum pole $31,35017 Sanitary main allowance $3,500 15 Gazebo, 10' octogon, PLT-w $8,45030 Add Mulch to tot lot $750 31 Piling, 8" $8,320


Item 2038 - YEAR 22 $ Item 2039 - YEAR 23 $ Item 2040 - YEAR 24 $ 19 Pond aerators $20,000 1 Concrete curb & gutter, mou $12,363

2 Concrete roadway (6%) $8,5273 Concrete flatwork (2%) $6,45623 Picnic table $2,87524 Bench $2,64026 Tot lot, MP structure, 2 platfo $13,25027 Tot lot, ADA MP structure, 2 $15,04028 Tot lot, spring ride (small) $1,65029 Tot lot, 5" single post swing, $2,70030 Add Mulch to tot lot $750


Item 2041 - YEAR 25 $ Item 2042 - YEAR 26 $ Item 2043 - YEAR 27 $ 11 Irrigation, head $1,600 10 Irrigation, controller $2,100

14 Spot Lights, decorative $4,56033 Pier decking, PTL $7,343

Total Scheduled Replacements $1,600 Total Scheduled Replacements $14,003 No Scheduled Replacements

Item 2044 - YEAR 28 $ Item 2045 - YEAR 29 $ Item 2046 - YEAR 30 $ 20 Storm water management (1 $28,000 7 Entrance monument, repoint $14,500 1 Concrete curb & gutter, mou $12,363

16 Domestic water main allowa $4,000 2 Concrete roadway (6%) $8,52717 Sanitary main allowance $3,500 3 Concrete flatwork (2%) $6,45630 Add Mulch to tot lot $750 11 Irrigation, head $1,600



19518703OCEAN NE17

PROJECTED REPLACEMENTS - YEARS THIRTY-ONE TO FORTY-FIVEItem 2047 - YEAR 31 $ Item 2048 - YEAR 32 $ Item 2049 - YEAR 33 $ 6 Fence, 5'- wood board $4,4408 Sign & post, street $2,5659 Sign & post, other $4,900

22 Entrance palm trees $5,20032 Pier structure, PTL $3,806

Total Scheduled Replacements $20,911 No Scheduled Replacements No Scheduled Replacements

Item 2050 - YEAR 34 $ Item 2051 - YEAR 35 $ Item 2052 - YEAR 36 $ 30 Add Mulch to tot lot $750 11 Irrigation, head $1,600 1 Concrete curb & gutter, mou $12,363

2 Concrete roadway (6%) $8,5273 Concrete flatwork (2%) $6,4564 Retaining wall, railroad ties $2,6125 Fence, wood split, 2 rails $2,35710 Irrigation, controller $2,10012 Site light, standard single he $5,28014 Spot Lights, decorative $4,56018 Fire hydrant $19,87525 Dog waste station $950

Total Scheduled Replacements $750 Total Scheduled Replacements $1,600 Total Scheduled Replacements $65,080

Item 2053 - YEAR 37 $ Item 2054 - YEAR 38 $ Item 2055 - YEAR 39 $ 19 Pond aerators $20,000 7 Entrance monument, repoint $14,50020 Storm water management (1 $28,000 16 Domestic water main allowa $4,000

17 Sanitary main allowance $3,50023 Picnic table $2,87524 Bench $2,64026 Tot lot, MP structure, 2 platfo $13,25027 Tot lot, ADA MP structure, 2 $15,04028 Tot lot, spring ride (small) $1,65029 Tot lot, 5" single post swing, $2,70030 Add Mulch to tot lot $750


Item 2056 - YEAR 40 $ Item 2057 (beyond Study Period) $ Item 2058 (beyond Study Period) $ 11 Irrigation, head $1,600 21 Pond dredging allowance $120,000 1 Concrete curb & gutter, mou $12,363

33 Pier decking, PTL $7,343 2 Concrete roadway (6%) $8,5273 Concrete flatwork (2%) $6,456


Item 2059 (beyond Study Period) $ Item 2060 (beyond Study Period) $ Item 2061 (beyond Study Period) $ 30 Add Mulch to tot lot $750 11 Irrigation, head $1,600

No Scheduled Replacements Total Scheduled Replacements $750 Total Scheduled Replacements $1,600

Miller - Dodson Associates, Inc. Condition Assessment - Page D1 Ocean Neighbors Revised May 1, 2017

CONDITION ASSESSMENT General Comments. Miller-Dodson Associates conducted a Reserve Study inspection on April 11, 2017 at Ocean Neighbors. This subdivision is in generally average condition for a community constructed in 1990. A review of the Replacement Reserve Inventory will show that we are anticipating most of the components achieving their normal economic lives. The following comments pertain to the larger, more significant components in the Replacement Reserve Inventory and to those items that are unique or deserving of attention because of their condition or the manner in which they have been treated in the Replacement Reserve Analysis or Inventory. General Condition Statements. Excellent. 100% to 90% of Normal Economic Life expected, with no appreciable wear or defects. Good. 90% to 60% of Normal Economic Life expected, minor wear or cosmetic defects found. Normal maintenance should be expected. If performed properly, normal maintenance may increase the useful life of a component. Otherwise, the component is wearing normally. Fair. 60% to 30% of Normal Economic Life expected, moderate wear with defects found. Repair actions should be taken to extend the life of the component or to correct repairable defects and distress. Otherwise, the component is wearing normally. Marginal. 30% to 10% of Normal Economic Life expected, with moderate to significant wear or distress found. Repair actions are expected to be cost effective for localized issues, but normal wear and use are evident. The component is reaching the end of the Normal Economic Life. Poor. 10% to 0% of Normal Economic Life expected, with significant distress and wear. Left unattended, additional damage to underlying structures is likely to occur. Further maintenance is unlikely to be cost effective. SITE COMPONENTS (May 1, 2017. Per the property manager, the streets (asphalt paving) and the speed bumps were removed from the study). Concrete Work. The concrete work includes the community curbs and gutters and sidewalks. We have modeled for curb replacement when the asphalt pavement is overlaid. The overall condition of the concrete work is average with a few tripping hazards and a few areas of general deterioration including cracking. Below are the typical concrete curbs and concrete gutters that were observed.

Concrete curb and gutter at entrance to Typical streets view of curb and gutter Ocean Neighbors The standards we used for recommending replacement are as follows:


1. Trip hazard, 0.5 inch height difference. 2. Severe cracking. 3. Severe spalling. 4. Uneven riser heights on steps. 5. Steps with risers in excess of 8.25 inches.

Because it is highly unlikely that all of the community’s concrete components will fail and require replacement in the period of the study, we have programmed funds for the replacement of 60% of the inventory and spread those funds over a 60-year timeframe to reflect the incremental nature of this work. This approach assumes a failure rate of 1% per year. Curb and Gutter. The Association maintains an extensive inventory of concrete curb and gutter. In general, the community’s concrete curbing and gutters are in fair to average condition. The association should inspect the development periodically and look for and repair the following types of defects as they occur:

• Cracking. There are some sections of the curb and gutter that are cracked. Some of the cracks are creating trip hazards.

• Scaling and Flaking. Scaling and flaking are the loss of the surface mortar in concrete, typically

caused by water freezing within the concrete. Once started, scaling and flaking can be expected to continue to grow as a result of exposure of the concrete to freeze-thaw cycles. These scaled sections are creating trip hazards.

• Popouts. The curb and gutter have developed a number of popouts. Popouts are small sections of

concrete surface that fail as the result of moisture freezing in a void just below the surface, causing pieces of concrete to pop away, leaving a shallow divot. Water can collect in the popouts and can extend the damage if it freezes.

• Lack of Expansion Joints. Sections of the curb and gutter were installed without a proper expansion

joint between the curb and the adjacent concrete. As a result, the edge of the concrete along the curb is breaking off, creating trip hazards.

• While curb inlets are long life items, soil movement can result in displacement of the structure. Openings between the inlets and the surrounding pavement and other surfaces can result in erosion and settlement of the pavement surrounding the curb inlet. This movement results in additional settlement and erosion. Uncorrected, the entire curb inlet will require replacement or rebuilding.

Because it is highly unlikely that all of the community’s concrete curb and gutter sections will fail and require replacement in the period of the study, we have programmed funds for the replacement of 60 percent of the inventory and spread those funds over a 60-year timeframe to reflect the incremental nature of this work. This approach assumes a failure rate of one percent per year.

Typical street views of curb and gutter


Concrete Flatwork. The concrete flatwork includes the community sidewalks. The Association maintains an extensive inventory of concrete flatwork. The overall condition of the concrete flatwork is fair a few areas of defects. The association should periodically inspect the sidewalks for the following types of defects and complete the repairs as needed:

• Cracking. There are a number of sections of the concrete flatwork that have cracked. • Heaving/Settlement. Sections of the concrete flatwork have heaved or settled relative to their

adjacent sections, creating trip hazards. • Scaling and Flaking. Several sections of the concrete flatwork are scaling and flaking. Scaling and

flaking are the loss of the surface mortar in concrete, typically caused by water freezing within the concrete. Once started, scaling and flaking can be expected to continue to grow as a result of exposure of the concrete to freeze-thaw cycles.

• Tree Root Damage. There are locations where roots from trees planted near the concrete walks

have pushed the concrete, causing cracks and heaving. Repair of these areas will require removal of the asphalt and the tree roots.

The expansion joint material is not present in many of the joints between the concrete sidewalks and curbs. The expansion material that fills these joints is installed to allow movement and to serve as a gasket to prevent water from entering the pavement. If these joints are left open, soil will wash away underneath the pavement and will cause settlement of both the curb and gutter and the sidewalk. Additionally, water that is allowed to collect behind the curb and gutter will open up the joint between the asphalt and gutter pan, which will deteriorate the edges of the asphalt. The expansion joint material should be replaced with an impregnated homasote approximately every five years as a normal maintenance procedure.

Typical street views of curb and gutter

Domestic Water and Sanitary Mains. The Association is responsible for the maintenance of the water and sanitary mains located under the roadways within the community. No engineering drawings were available to accurately determine distances, sizes of lines, and materials used for underground components of the system. Accordingly, we have provided an estimate of the repair allowance reflects recent repair costs for work performed at Ocean Neighbors. Inspection of the underground lines and structures is beyond the scope of work of this study.


James Island pumping station which serves the Ocean Neighbors Development

Storm Water System. We included the storm water intakes (drains) located along the streets and underground piping portions of the storm water system in the reserve analysis. No engineering drawings were available to accurately determine distances, sizes of lines and materials used for underground components of the system. Accordingly, we have provided an estimate of the approximate replacement cost based on our experience with other communities of similar size and our inspection of the visible components when on site. Inspection of the underground lines and structures is beyond the scope of this study. Fencing. The Association maintains an inventory of wood fencing along the sides and rear of the tot lot. The condition of the fencing is average condition. The wood fences of the individual homeowners are not common property and are not included in this study. Fencing systems have a large number of configurations and finishes that can usually be repaired as a maintenance activity by replacing individual components as they become damaged or weathered.

Fenced tot lot and storage shed

Protection from string machine damage during lawn maintenance can extend the useful life of some fence types. Protection from this type of damage is typically provided by applying herbicides around post bases or installing protective sheathing. Pressure treated wood fencing should be cleaned and sealed every year or two. Typically the least cost fencing option, this type of fence can last 15 to 20 years if maintained properly. Cedar fencing should be cleaned and sealed every year or two. This type of fence can last 20 to 25 years if properly maintained. For more information on fencing, visit our website link to the American Fence Association. Site Lighting and Common Area Lights. The Association is responsible for the operation of the community’s street lights and common area lighting. These street lights will be replaced on as needed basis. The inventory has been divided to provide for replacement of one third of the lamps on a ten year cycle. Electrical Stations. The Association maintains external electric stations which include circuit boxes, meters and outlets.

http://mdareserves.com/resources/links/site-components�


Entrance Signs. The Association maintains an entrance sign at the corner of Ocean Neighbors Blvd. and Old Military Road. The entrance roadway consists of two sections of stamped concrete painted to replicate brick.

RECREATIONAL FACILITIES Tot Lot. The community maintains one tot lot. This tot lot includes two play structures, miscellaneous play equipment, wood fence, two swings, benches, picnic tables, storage shed, and wood chip surface. The tot lot is in generally good condition. The wood chip surface is somewhat displaced and should be replenished.

The safety of each individual piece of playground equipment as well as the layout of the entire play area should be considered when evaluating a playground for safety. The installation and maintenance of the protective surfacing under and around all equipment is crucial. Please note that the evaluation of the equipment and these facilities for safety is beyond the scope of this work. Information for playground design and safety can be found in the "Public Playground Safety Handbook", U.S. Consumer Product Safety Commission (Pub Number 325). For a link to this handbook, please see our web site at www.mdareserves.com/resources/links/recreation. Our estimates for playground equipment are based on comparing photos of the existing equipment with equipment of a similar size in manufacturers’ catalogs. We use the pricing that is quoted by manufacturers

http://mdareserves.com/resources/links/recreation�


for comparable equipment and add 30% for the disposal of the old equipment and installation of new equipment. Community Lake. The community maintains a lake that is surrounded by numerous single family dwellings along the perimeter of the lake. This lake serves as a water retention area as part of the community’s overall storm water management program. Access to the lake is via the common area (lot) that runs from the street to the lake. The other improvements include a small dock and three benches and a ramp that leads to a pergola that overlooks the lake. Per the president of the HOA, there are five (5) aerators and the water depth varies from the shallow areas along the perimeter of the lake to depths of 8 to 12 feet in various locations.

Community lake and dock area

Access to the lake common area

Dredging. Ponds will accumulate silt and over time and lose the ability to store storm water at design levels, which could result in overflows and minor local flooding. In addition, water quality can be negatively affected by increased siltation and debris accumulation. Accordingly, ponds require periodic dredging. Estimates of cost and the frequency of dredging ponds are a function of many variables, including the volume of the pond, the siltation rate, the nature of the material being removed, the method of removal, and the haul distance to a site that will accept the spoil material. Most of this information is unknown and must be assumed for the purpose of reserve study planning. The siltation rate and cost of periodic dredging are speculative, varying greatly depending on local conditions.


As a rule of thumb, dredging should be performed when approximately one-third of the volume of the pond has been filled with silt. In the absence of accurate information about the original depth of the pond and the local siltation rate, we have assumed that it will be necessary to remove one cubic yard of material over a third of the pond area periodically as noted in the inventory. We have assumed that the material being removed is free of heavy metals and hydrocarbons, and that it will be accepted as fill at a local landfill. A more accurate prediction of cost and cycles will require a hydrologic analysis and testing, which is beyond the scope of our study. As a supplement to traditional dredging methods, hydro-raking can prolong the interval between dredging. Because of the significant cost of this work, it is recommended that the Association undertake studies to refine the assumptions of this study. Based on our understanding, we recommend the following:

• Periodically remove accumulated debris and vegetation growing in the ponds. • Survey the ponds to establish the current profile of the bottom. After five years of operation, have the

pond re-surveyed to establish new depths to determine the local siltation rate. This will establish the frequency required for periodic dredging.

• Periodically sample and test for contaminants. • Consult with local contractors to determine the cost of removing and disposing of the spoil, once its

nature is known. Firms that specialize in this work can be typically found by internet searching “Lake and Pond, Construction and Maintenance” for your state or area of the country. Some states provide short lists of companies that specialize in this type of work. Please note that the periodic removal of overgrown vegetation from the pond is considered a maintenance activity and has not been reserved for or included in this study. ----------- Storm water structures must be maintained over time so that they may perform their two major functions - storm water storage and storm water quality improvement. A well-planned maintenance program is the best way to ensure that these structures will continue to perform their water quality and quantity functions.

The following information outlines the general maintenance considerations for storm-water management structures. Storm-water management structures will require routine and non-routine maintenance. Routine maintenance such as visual inspections, vegetation management, and the regular removal of debris and litter provides a variety of benefits such as reducing the chance of clogging outlet structures, trash racks, risers, and other facility components. It is important to note that while general maintenance tasks are suggested, actual maintenance needs are very site specific. Below is a lists component of a general maintenance program.

Routine Non-Routine • Visual Inspection Bank Stabilization • Vegetation Management Sediment Removal • Debris/Litter Control Outlet Structure Maintenance / Replacement • Maintaining Undisturbed Areas Around Infiltration Trenches/Basins (routine) • Maintenance of Mechanical Components (dependent on age of structure; non-routine)

Ponds should be inspected once a year, addressing the items listed below.

MINIMUM INSPECTION CHECKLIST FOR PONDS.

• Obstructions of the inlet or outlet devices by trash and debris • Excessive erosion or sedimentation in the basin


• Cracking or settling of the dam • Low spots in the bottom of a dry pond • Deterioration of pipes • Condition of the emergency spillway • Stability of the side-slopes • Upstream and downstream channel conditions • Signs of vandalism

Vegetation Management. Grass is usually used around and in storage ponds to prevent erosion and to filter sediment. The grass near the pond should not be over-fertilized, or the excessive nutrients will be washed into the pond and contribute to the growth of algae. Grass should be cut no shorter than 6-8 inches. Please note that the periodic removal of overgrown vegetation from the pond is considered a maintenance activity and has not been reserved for or included in this study. Sediment Removal. One of the main purposes of a storm-water management pond is to remove sediment from storm water. As water flows through the pond, sediment will accumulate and eventually will need to be removed. Storm-water management structures vary in design and shape. Therefore, there is no general rule for the frequency of sediment removal. Upstream conditions such as land use, type of land cover (vegetated vs. paved), and soil types are important factors in determining how rapidly sediment will accumulate in a pond. Sediment removal is usually the single largest cost of maintaining a storm-water management structure. Owners are responsible for maintaining the facility and should plan ahead, setting aside the necessary funds to pay for sediment removal. The best solution to sediment removal is to designate an on-site area or a site adjacent to the facility where the sediment can be disposed. This area will need to locate outside of the floodplain. If such a disposal area is not available, the sediment will need to be transported and disposed of off-site. Transportation costs and disposal fees can greatly increase the cost of sediment removal. Once the sediment is removed, the bottom of the basin and any disturbed areas will need to be stabilized and re-vegetated, or the structure will quickly clog and require sediment removal again. We have provided funds for the minor dredging of the detention pond and clearing of the swales, creek area, and drainage lines. Because of the significance of the cost of this work in establishing the correct reserve contribution, it is recommended that the Association undertake studies to refine the information and replace the assumptions we have had to make with more factual information as a basis for the estimates. This Condition Assessment is based upon our visual survey of the property. The sole purpose of the visual survey was an evaluation of the common elements of the property to ascertain the remaining useful life and the replacement costs of these common elements. Our evaluation assumed that all components met building code requirements in force at the time of construction. Our visual survey was conducted with care by experienced persons, but no warranty or guarantee is expressed or implied.

End of Condition Assessment

Miller + Dodson Associates, Inc. Cash Flow Method Accounting Summary - Page CF1Ocean Neighbors revised Revised May 11, 2017

19518703OCEAN NE17

CASH FLOW METHOD ACCOUNTING SUMMARYThis Ocean Neighbors revised - Cash Flow Method Accounting Summary is an attachment to theOcean Neighbors revised - Replacement Reserve Study dated Revised May 11, 2017 and is for use byaccounting and reserve professionals experienced in Association funding and accounting principles.This Summary consists of four reports, the 2017, 2018, and 2019 Cash Flow Method Category FundingReports (3) and a Three-Year Replacement Funding Report.

CASH FLOW METHOD CATEGORY FUNDING REPORT, 2017, 2018, and 2019. Each of the 33 ProjectedReplacements listed in the Ocean Neighbors revised Replacement Reserve Inventory has beenassigned to one of 6 categories. The following information is summarized by category in each report: Normal Economic Life and Remaining Economic Life of the Projected Replacements. Cost of all Scheduled Replacements in each category. Replacement Reserves on Deposit allocated to the category at the beginning and end

of the report period. Cost of Projected Replacements in the report period. Recommended Replacement Reserve Funding allocated to the category during the

report period as calculated by the Cash Flow Method.

THREE-YEAR REPLACEMENT FUNDING REPORT. This report details the allocation of the $67,591Beginning Balance (at the start of the Study Year) and the $67,940 of additional Replacement ReserveFunding in 2017 through 2019 (as calculated in the Replacement Reserve Analysis) to each of the 33Projected Replacements listed in the Replacement Reserve Inventory. These allocations have been made using Chronological Allocation, a method developed by Miller Dodson Associates, Inc., and discussed below.The calculated data includes: Identification and estimated cost of each Projected Replacement scheduled in years 2017 through 2019. Allocation of the $67,591 Beginning Balance to the Projected Replacements by Chronological Allocation. Allocation of the $67,940 of additional Replacement Reserve Funding recommended in the

Replacement Reserve Analysis in years 2017 through 2019, by Chronological Allocation.

CHRONOLOGICAL ALLOCATION. Chronological Allocation assigns Replacement Reserves to ProjectedReplacements on a "first come, first serve" basis in keeping with the basic philosophy of the Cash Flow Method.The Chronological Allocation methodology is outlined below. The first step is the allocation of the $67,591 Beginning Balance to the Projected Replacements in the

Study Year. Remaining unallocated funds are next allocated to the Projected Replacements in subsequentyears in chronological order until the total of Projected Replacements in the next year is greater than the unallocated funds. Projected Replacements in this year are partially funded with each replacementreceiving percentage funding. The percentage of funding is calculated by dividing the unallocated funds by the total of Projected Replacements in the partially funded year.At Ocean Neighbors revised the Beginning Balance funds all Scheduled Replacements inthe Study Year through 2023 and provides partial funding (60%) of replacements scheduled in 2024.

The next step is the allocation of the $22,647 of 2017 Cash Flow Method Reserve Funding calculatedin the Replacement Reserve Analysis. These funds are first allocated to fund the partially fundedProjected Replacements and then to subsequent years in chronological order as outlined above.At Ocean Neighbors revised the Beginning Balance and the 2017 Replacement ReserveFunding, funds replacements through 2024 and partial funds (5.8%) replacements in 2025.

Allocations of the 2018 and 2019 Reserve Funding are done using the same methodology. The Three-Year Replacement Funding Report details component by component allocations made by

Chronological Allocation.


19518703OCEAN NE17

2017 - CASH FLOW METHOD CATEGORY FUNDING REPORTEach of the 33 Projected Replacements included in the Ocean Neighbors revised Replacement ReserveInventory has been assigned to one of the 6 categories listed in TABLE CF1 below. This calculated data is asummary of data provided in the Three-Year Replacement Funding Report and Replacement Reserve Inventory.The accuracy of this data is dependent upon many factors including the following critical financial data: A Beginning Balance of $67,591 as of the first day of the Study Year, January 1, 2017. Total reserve funding (including the Beginning Balance) of $90,238 in the Study Year. No expenditures from Replacement Reserves other than those specifically listed in the

Replacement Reserve Inventory.

If any of these critical factors are inaccurate, do not use the data and please contact Miller Dodson Associatesto arrange for an update of the Replacement Reserve Study.

2017 - CASH FLOW METHOD CATEGORY FUNDING - TABLE CF1NORMAL REMAINING ESTIMATED 2017 2017 2017 2017

ECONOMIC ECONOMIC REPLACEMENT BEGINNING RESERVE PROJECTED END OF YEARCATEGORY LIFE LIFE COST BALANCE FUNDING REPLACEMENTS BALANCE

SITE COMPONENTS 5 to 35 years 4 to 30 years $62,420 $33,403 $839 $34,242SITE COMPONENTS (cont.) 10 to 25 years 5 to 20 years $49,640 $4,560 $4,560SITE COMPONENTS (cont.) 10 to 30 years 0 to 15 years $200,575 $28,878 $19,556 $48,434RECREATION (cont.) 15 to 20 years 8 to 15 years $6,465 $319 $319RECREATION (cont.) 5 to 15 years 3 to 8 years $33,390 $750 $1,932 $2,682RECREATION (cont.) 15 to 30 years 10 to 20 years $19,469


19518703OCEAN NE17

2018 - CASH FLOW METHOD CATEGORY FUNDING REPORTEach of the 33 Projected Replacements included in the Ocean Neighbors revised Replacement ReserveInventory has been assigned to one of the 6 categories listed in TABLE CF2 below. This calculated data is asummary of data provided in the Three-Year Replacement Funding Report and Replacement Reserve Inventory.The accuracy of this data is dependent upon many factors including the following critical financial data: Replacement Reserves on Deposit totaling $90,238 on January 1, 2018. Total reserve funding (including the Beginning Balance) of $112,884 from 2017 through 2018. No expenditures from Replacement Reserves other than those specifically listed in the

Replacement Reserve Inventory.

If any of these critical factors are inaccurate, do not use the data and please contact Miller Dodson Associatesto arrange for an update of the Replacement Reserve Study.

2018 - CASH FLOW METHOD CATEGORY FUNDING - TABLE CF2NORMAL REMAINING ESTIMATED 2018 2018 2018 2018

ECONOMIC ECONOMIC REPLACEMENT BEGINNING RESERVE PROJECTED END OF YEARCATEGORY LIFE LIFE COST BALANCE FUNDING REPLACEMENTS BALANCE

SITE COMPONENTS 5 to 35 years 3 to 29 years $62,420 $34,242 $5,392 $39,634SITE COMPONENTS (cont.) 10 to 25 years 4 to 19 years $49,640 $4,560 $4

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