T A M P A B A Y N E W S L E T T E R

In This Issue

1. Words from Kelly Vickers

2. Reserve Now or Regret Later

3. Out of the Dumps and Into the Future

4. Removing the Pain from the Policy

Summer 2011 Edition

Tampa Bay Region

2963 Gulf to Bay Blvd, Suite 265

Clearwater, FL 33759

813.448.3982 Phone

Southwest Florida Region

3358 Woods Edge Cir, Ste 102

Bonita Springs, FL 34134

239.495.3428 Phone

Orlando Region

301 East Pine Street, Suite 150

Orlando, FL 32801

407.705.3236 Phone

Corporate Headquarters

8200 NW 33rd Street, Ste 300

Miami, FL 33122

800.514.5770 Phone

KW PROPERTY MANAGEMENT & CONSULTINGspecializes in community association management.We take pride in maintaining great lookingcommunities and producing on time and error freefinancial statements; of which all are reviewed by oneof our seven in-house CPA’s. Our licensedCommunity Association Managers are seasonedprofessionals with years of experience, which enablesthem to efficiently manage the most difficult andcomplex communities.

At KW PROPERTY MANAGEMENT & CONSULTINGwe believe a successful customer service experiencebegins long before that first phone call is received. Wehave implemented an unrivaled customer serviceprogram that allows us to utilize two of our strongesttools – our people and technology. This combinationprovides our clients with feedback as well as access toinformation twenty four hours a day seven days a week.

Our professional team manages approximately35,000 units throughout the state. These peoplerange from Certified Public Accountants (CPA),licensed Community Association Managers (CAM),Certified Manager of Community Associations(CMCA®), Association Management Specialist(AMS®), Professional Community AssociationManagers (PCAM®), Real Property Administrator(RPA®) and certified maintenance personnel.

KW PROPERTY MANAGEMENT & CONSULTING isa management company and it stops there. Unlikesome of our competitors, we do not have a financialinterest in or affiliation with any of the vendors in ournetwork. This is a growing problem in the marketplace today as many management companies findthemselves not independent when making a decisionthat financially impacts the association, rather makinga decision that is in the best financial interest of theircompany.

KW PROPERTY MANAGEMENT & CONSULTINGdoes not want to be the biggest managementcompany, only the best. We want to provide you withthe quality service you expect and pay for. When weare hired, our management team develops a shortterm transition and long term operational plan,specifically designed to meet your association needs.

Please feel free to contact me at 727-859-2462 or 941-225-2747 in order to set up a time we can meet withyou at your community. After meeting, we will be ableto send you a comprehensive proposal on how we canbest serve your association.

At your service,

Kelly Vickers, LCAMBusiness Development ManagerKW PROPERTY MANAGEMENT & CONSULTING

Dear Board Member—Kelly Vickers, LCAM, Business Development Manager

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Picture yourself onboard an airplane for a long-awaited family vacation. As you watch the clouds floatby, you happily day-dream of the adventures in storefor you and your loved ones. As the flight attendantshand out the first round of drinks, the pilot makes asudden announcement: “Folks, we’re terribly sorry, butthe plane is almost out of fuel. What’s worse, the wingsare barely held together by duct tape, and the landinggear has needed repair for months now.” He goes onto tell you and the other shocked passengers that theplane will need to make an emergency landing, andeveryone will have to pitch in to afford the cost of therepairs. “But what happened to all the money we paidfor these tickets?!” you exclaim to the attendant.“Didn’t anyone think to use some of that money tocare for the plane?” As tension rises in the cabin, thepilot safely makes the emergency landing. After a longand costly wait, the plane is fixed and you continue onyour trip, but not before your sanity and yourpocketbook have been put to the test.

No doubt this is an extreme scenario, butunfortunately we can draw a comparison to somethingthat happens every day in communities around thecountry. Imagine the feelings of a homeowner who’sbought a home in what she thought was a greatcommunity association, only to find out that herbuilding’s elevators are on their last legs, the roof isconstantly leaking, and her balcony railing is rustedthrough. When she raises her concerns at that month’sboard meeting, she’s told that there’s no money forthe work that needs to be done, and that the residentswill have to cover the replacement costs through amajor special assessment. You can imagine herdisappointment, anger and frustration, all of whichcould have been avoided had the association beenplanning and preparing for these expenses all along.Just like the passengers on the airplane, she’swondering how this could have happened, and who isto blame for the problem.

Surprisingly, this is a very common situation. In everycommunity association, a significant portion of theassessment fees collected from the owners should beheld in special accounts known as reserves, only to beused for specific purposes. Not to be commingled with

routine “Operating” funds which cover everydayexpenses such as insurance, utilities, and managementfees, reserve funds are intended only for repair,restoration, replacement, and maintenance of theassociation’s major physical assets. Typical reserve-funded projects include roof replacements, painting,pavement resurfacing, replacement or modernizationof HVAC and other mechanical systems, interiorremodeling, amenity area updates, and many more.Because they typically don’t occur every year (andsometimes not for many years at a time), these largecosts are often underestimated or overlookedcompletely.

To adequately prepare for these inevitable expenses, acommunity association needs to determine how muchmoney should be contributed to reserves each year sothat sufficient funds are available when componentsreach the end of their useful lives. This can quicklybecome a complicated exercise, especially in olderproperties with many projects due (or overdue) forserious work. Combined with a universal desire to keepassessments as low as possible, this often means thatfunding of the reserves is put off until “next year.”

As the years go by, and major expenses creep closer,the association will find itself in increasingly direstraits. Eventually, the residents will look around and

Funding for the Future: Reserve Now or Regret Later—By Will Simons, RS

—Continued on page 4

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notice that the paint is peeling, the streets arecrumbling, and the amenities are sorely in need ofupdating. At that point, tough decisions need to bemade. Will the association be able to pass a specialassessment to raise the funds? Will it need to take out aloan, committing to years of interest payments? Or willit let the property continue to decline until home valuesbecome negatively affected? Clearly, none of these is adesirable option. The wisest method of preparing formajor projects is to identify ahead of time what willneed to be done, properly estimate the size andfrequency of costs, and design a reserve funding planthat will help meet those costs accordingly. In otherwords, the association will need to conduct a ReserveStudy and incorporate the findings into the annualbudget process.

A Reserve Study is done in two parts: the PhysicalAnalysis and the Financial Analysis. The PhysicalAnalysis is a thorough, detailed inspection of theassociation’s actual physical assets, such as buildings,streets, amenity areas, and so on. Photographs andmeasurements are taken to help define the size andscope of all expected projects. Useful Life andRemaining Useful Life estimates are assigned to eachline item in order to determine when (and how often)repairs or replacements are likely to be necessary. Usingthis framework of data, replacement and/or repaircosts are estimated, and a schedule of projectedexpenses is produced. The Financial Analysis includes areview of the association’s current reserve accounts,resulting in a determination of relative reserve fundstrength known as “Percent-Funded.” A recommendedfunding plan is then created, intended to prepare theassociation for the various projects identified in thestudy.

Reserve Studies have become an integral part of theannual budgeting process for associations across thecountry. Associations that are well-prepared for largeexpenses are easier to manage and are more desirableto prospective buyers. More importantly, currentresidents of these associations will be less exposed to

the possibility of special assessments. A communityassociation is not an apartment complex; all ownerscollectively share the responsibility of protecting thevalue of the association’s shared assets. Proactive,responsible board members must embrace theirfiduciary duty to do right by the people they represent,and association managers must help put their clients ina position to make wise decisions.

A reliable Reserve Study takes time and expertise toprepare. With the necessary experience and credentials,a professional Reserve Study provider is anindependent third party, able to take responsibility forthe recommendations shown in the study. While boardmembers and property managers often contributevaluable background information, a professional is ableto give clear, unbiased recommendations grounded infacts and objective data. As with filing taxes ordetermining insurance requirements, the associationshould always seek the advice of specially trainedexperts when it comes to major financial decision-making. If your association doesn’t have a current,professional Reserve Study, there’s no time to waste.Whether it’s an airline ensuring the safety of itspassengers or a community association planning aheadfor care of its most important assets, crossing fingersand hoping for the best is no substitute for diligent,responsible planning.

To learn more about reserve studies or Association Reservescontact Will Simons, President of Association Reserves –Florida, LLC at 800-706-4560 or wsimons@reservestudy.com.

Funding for the Future: Reserve Now or Regret Later

—Continued from page 3

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Out of the Dumps and Into the Future A fresh look at the budget process

When the gavel drops to adjourn the annual budget meetingdirectors typically exhale a sigh of relief that yet anotherbudget season is over. Of course, the new fiscal year is justbeginning! Adopting the budget is a critical board task.When this milestone feels more like a millstone, a fresh lookat the process is in order.

The typical budget process begins with analyzing the year-to-date financial statement to estimate funds needed tocontinue the status quo operations for another year. Floridastate statute also requires a reserve schedule that projects thecost of periodic replacement of capital improvements.

The predictable result is yet another cost increase with noapparent benefit to the unit owners footing the bill. Inaddition, unit owners who pay assessments also pay apremium to cover the cost of those who do not. This is all themore reason for the board to build a budget that looksforward rather than back.

Rather than dive head first into historical data, the initialfocus of the Board of Directors or Budget Committee shouldbe to understand and articulate the vision, values and needsof the community. Who has purchased in the community andwhy? What are the tangible/intangible features and servicesthat attract and retain owner residents? What brings the

community together? What are the changes in financialconditions, physical facilities, services and activities that willenhance market value and quality of life -- one, three and fiveyears from now?

The answers to these questions are the foundation of anaction plan that the budget brings to life. Some may arguethat since large portions of the budget are non-discretionary– insurance, utilities, essential contracted services and payrollfor core staff – this exercise is not worth the effort, especiallyin tough economic times. However, when owners have tostretch to make their assessment payments they need to knowand see that every dollar builds value now and in the future.

Instead of simply rolling forward last year’s plan take a freshlooks at what staff, services, equipment and technology canbest achieve the vision. At the same time do not overlook thebasics. Walk the property like you are seeing it for the veryfirst time. Note the small things that can make every day atthe property better. Start with aesthetics at the front entrance-replace the bent or missing letters on the entry monument,reshape the bushes and replace the greasy traffic cones.

In the garage or parking areas determine if the wheel stopsshould be reset or repaired. Does the lighting work and is itenergy efficient? If the goal is a remodeled clubhouse, startby refinishing the front door and replacing the mismatched,sticking hardware. At tree trimming time, order an extradumpster, including one for hazardous waste, and invite theresidents to clean out those storage lockers. Then have a mid-year resident event to review and celebrate progress, hearfrom your owners and readjust plans and priorities.

With the foundation of an action plan based on values andvision, you can elevate your budget process from a grindingexercise in cost-cutting to an engaging process that maintainsthe essentials, provides tangible payback in the short-termand builds value for the future.

To learn more about how a professional management company canassist your association in its financial goals contact KWPROPERTY MANAGEMENT & CONSULTING at 727-859-2462or 941-225-2747.

—By Marlene Niemeier, LCAM, CMCA, AMS

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Now more than ever associations are searching forways to trim their annual budgets. Being thatinsurance premiums represent a large percentage ofthe budget for most associations below are a fewproven tips and techniques to minimize yourinsurance expenses:

• Make Sure your Property Policy Limits areAccurate – Obtaining annual appraisal updates isthe only sure way of knowing if the policy limits areappropriate. If the association’s property appraisalis more than eighteen months old, there may be areduction in its realized value which could equateto a lower premium.

• Don’t risk a Claim Payment Penalty - If the policyhas a coinsurance clause review the policy carefullyto ensure that the policy limits equal or exceed therequirement. If the policy has a 90% coinsuranceclause but the policy limit is only 80% of thecurrent replacement cost, the association will facea penalty at the time of a claim.

• Don’t Overlook Potential Premium Savings – Ifyour association is in a VE Flood Zone you may beable to obtain a Letter of Map Amendment(LOMA) from FEMA rezoning you to an X Zone .The process is lengthy and quite involved, with theaverage effort taking between twelve and eighteenmonths, but it has the ability of providing apotential savings of between eighty and ninetypercent on the premium for the association.

• Budget for Your Deductibles – The amount ofdeductible varies by type of policy and carrier.Make sure the association budget includes aprovision for payment of deductibles in the eventof a claim, or establish a Letter of Credit with yourfinancial institution to cover that potential liability.

• Protect Your Association Against UnpaidAssessments – A limited number of agents in thestate have access to an innovative product available

that couples an insurance policy from an A Ratedcarrier with unparalleled collections support.Associations submit delinquent units to theinsurance carrier and the association is advancedits uncollected maintenance fees, going forward,for up to six months. All fees associated with thecollections process are paid by the insurancecarrier. Best of all, the premium for the policy istaken out of the payment made to the associationeach month so there is no out-of-pocket expense. Itis well worth obtaining a proposal to see how theprogram would benefit your association.

At the end of the day, your insurance agent should beyour business partner who recognizes the association’sdesire to fulfill its fiduciary responsibility to itsmembership. An effective agent should submit theassociation’s account to all available markets to obtainthe best possible price and coverage, provide alternatedeductible options to allow the association to chooseone that is conducive to their budget, and include inthe proposal a market summary that lists the carriersthat were contacted including their underwritingdecision, terms, conditions and pricing.

Lastly, don’t forget the impact of premium financingon the budget. Most premium finance companiesallow agents to add to the base rate offered by thefinance company. If an agent sells insurance; theyshould not receive additional compensation forarranging an association’s financing. Check the rateon the current finance contract; if the APR is morethan 3.09% then the association is paying more than itprobably should.

Phil Gambrell, Co-Owner, Gambrell & Sturges InsuranceG&S specializes in residential condominium associations in FL,AL & MS. For more information please contact Phil at 850-547-0065 or 850-232-8102 or pgambrell@gambrellsturges.com.

Association Insurance– Removing the Pain from the Policy

— By Phil Gambrell, Co-Owner, Gambrell & Sturges Insurance

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1 FEMA Rating – VE relates to areas subject to 100 yr flood and additional velocity

hazards (wave action).

2 FEMA Rating – X relates to areas outside the 500 yr flood plain with less than

0.2% annual probability of flooding.

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2963 Gulf to Bay Blvd, Suite 265 • Clearwater, FL 33759

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