Condoboss Q&A with Nik Clark: Why are Reserve Studies Critical for Proper Community Association Planning?

Condoboss Q&A with Nik Clark: Why are Reserve Studies Critical for Proper Community Association Planning?

Condoboss(CB):  Tell me a little about yourself.  Why are you passionate about the community association industry?  Tell me about your background in serving the industry.

Nik Clark(NK):  Superior Reserve Engineering and Consulting is a new company, but we are industry veterans.  Between the 2 founding partners, [I] and Justin J. Maier PE RS, we have 24 years of experience conducting reserve studies for community associations. Our passion is real estate.  We love buildings and construction.  Community associations are a huge piece of the real estate world and we feel very strongly that our higher level of expertise can bring greater value to community associations than previously seen in the industry.  Our pride in our work and ability to innovate on behalf of our clients demonstrates success to us.

Our passion for the community associations industry is derived from the rewards of providing associations with expert consulting regarding their property that is crucial to the sustainability of that property.  When associations fail to plan, and buildings fall into disrepair, it’s bad for everyone.  It’s hard for managers to manage and it affects the quality of life of the people who live, rest, eat, work, and recreate in the place they call “home” within a community. We believe that through our innovative service, we improve people’s quality of life, and as we pursue that ultimate goal, the rewards of the business relationship improve our quality of life.  Pardon the cliché, but it’s a “win – win”.

CB:  Why should an association pay for a reserve study?

NC:  This is a question that I believe I could write a thesis on. If I had to draw it down to a few key big-picture points it would be as follows.  Sustainability is a key consideration not just for associations but for businesses, municipalities and other entities on a local, regional and national scale.  No matter what kind of asset or infrastructure we refer to: buildings, parking lots, roads, bridges, pools. All assets must be maintained or they fail to serve their purpose.  For an association, there is no more fundamental obligation than to ensure that their building continues to serve its purpose in perpetuity.  Maintaining and replacing their capital assets therefore, is critical.

As volunteer-run non-profit entities, an association board has a huge fiduciary responsibility to plan for these expenditures.  The time and expertise involved in developing a reserve study is such that most associations choose to leverage the expertise of a professional reserve study provider.  Selecting a capable provider and paying them to perform this service ensures that the study is accurate, complete, and respects the precious amount of “free time” that volunteer board members have outside of their professional endeavors to enjoy “life”.  In short, an association should pay for a reserve study because they are important, useful, and require unique expertise that is outside of most volunteer boards’ skill-set.

CB:  Most boards typically throw the reserve studies into a drawer.  How do you prevent that from happening?

NC:  We prevent this from happening in several ways.  First, we take a realistic personalized approach to each study.  We know that most associations have drastically under-funded their reserves for a long period of time.  As such, reserving enough money to make up for years of under-funding in order to complete every project that “should” be done right away may not be possible.  We know boards will need to make “business decisions” about what to fund and what to defer.  In our studies we identify critical projects that shouldn’t be deferred, and others, while perhaps not ideal, that could be pushed off.

We also help associations understand that most condominiums are drastically under-funded and that the reserve study presents an ideal level of funding that, if not immediately attainable, should still be consciously worked towards to become better funded over time.  The truth is that assets WILL fail if not replaced or maintained.  Doing nothing is not an option.  You must do something, and a good reserve study will give you the best information to make the right decisions for your association.

CB:  What about smaller buildings that really can’t afford $3,000 reserve studies?  What can you offer them?  Say a 15 unit condo association?

NC:  Even small associations have expensive projects.  Small associations need to be even more mindful of how they spend money and make sure they are armed with the information they need to procure the most appropriate contracts on future work.  We give associations information not found in other reserve studies. We include more than just a replacement cost and year.  We conduct every property inspection with an Illinois Licensed Professional Engineer (PE) who includes targeted advice in the report that allows associations to potentially save thousands of dollars on future projects.

With 14 years of reserve study and several more of forensic building investigation experience in the Chicagoland area we bring a unique skill-set to the reserve industry. This allows us to create a reserve study that does more than tell you what to reserve.  We tell you how to save money on future projects and make sure they are done right. Our goal is to make the reserve study “pay for itself” many times over with information that can be leveraged to obtain better bids, avoid contractor short-cuts, and extend the useful lives of assets.

CB:  What is so unique and different about Superior Reserve compared to the other reserve study companies?

NC:  First, our experience. Every study is conducted by a *licensed* Illinois Professional Engineer (PE) with 14 years of reserve study experience who has also obtained their Reserve Specialist (RS) designation from the Community Associations Institute. Many companies claim to use engineers, but actually employ recent college graduates with an engineering degree.  While these individuals can produce a solid standard reserve study, they lack the experience to make the most accurate projections and deliver information beyond just average cost and useful life estimates.  Second, we have a more intuitive, easier-to-use report.

We applied 24 years of combined reserve study experience and client feedback to design a powerful report based on unmatched engineering expertise that doesn’t require that a manager or board member have an engineering degree to understand and use. Lastly, we know that service matters.  We are a boutique engineering firm with the knowledge and flexibility to meet our clients’ unique needs, not a big corporate cookie-cutter firm that has an assembly-line approach to processing clients.

CB:  Why MUST larger associations have a current up to date reserve study?

NC:  The larger the association, the larger potential liability on the part of a board of directors for failing to fulfill the fundamental role of setting aside appropriate reserves to maintain the property in perpetuity.  All associations benefit from a good reserve study, but larger associations even more-so because the sheer magnitude of future expenditures is so large that without a quality reserve study, it’s virtually impossible to budget, plan, and collect appropriate assessments from unit owners.

CB:  What are the risks of NOT having a current and up-to-date reserve study?

NC:  The greatest risk of not having a current reserve study is an unexpected special assessment.  Over the years, we have observed associations that fail to reserve accumulate deferred maintenance that results in special assessments from a few thousand to 10’s of thousands and even over 100,000 dollars PER UNIT special assessments.  Association boards have been sued for failing to reserve.

Some associations who failed to reserve even reached a point of disrepair that resulted in being declared uninhabitable by local building inspectors.  Beyond special assessments, for many people, their condominium unit is one of their largest investments.  Failure to set aside appropriate reserves results in deferral of critical maintenance and upkeep which significantly affects the resale value of their unit.  Unfortunately, failure to reserve does not extend the useful life of assets.  They will require replacement. Doing nothing is not an option.

CB:  In my experience, reserve studies are unrealistic.  The financial expectations for associations are usually not practical.  What is your opinion about that?

NC:  Some reserve studies are unrealistic.  Many reserve studies are unrealistic.  For this reason, an association should critically review the qualifications of potential reserve study providers and retain one who has the experience and willingness to go the extra mile to be sensitive to their unique situation.  Associations should select a reserve study provider that will ask the right questions, listen, and develop what they believe to be a realistic plan and then continue to consult with the association to make sure that the plan the provider thought was realistic is realistic for the association.

We include information in our report that helps associations who are significantly under-funded make the best out of a less-than-ideal situation.  We lend our expertise to help them understand which projects can be deferred and which cannot.

CB:  How should reserve studies integrate into budgets and capital plans?

NC:  Reserve studies should be an integral part of the budgeting and planning process. A superior reserve study shouldn’t *only* be part of the annual budgeting and planning process, but rather should be referenced throughout the year as projects are discussed, and bids obtained and critiqued.  Our reports contain additional information beyond budgetary projections that can arm boards with information to be better, more informed consumers when it comes to contracting projects.

CB:  What are the bottom line benefits of your reserve studies?

NC:  Our reserve studies save clients money.  With more accurate cost projections, we ensure that associations are not taking in more funds than they need.  With a more custom condition assessment, we project replacement dates that are based on true condition, not a “book” average.  This saves money by maximizing the useful life of elements and avoiding premature replacement. Finally, because we have the industry’s most experienced reserve analyst who is a licensed Illinois Professional Engineer we can provide money-saving advice to associations regarding their upcoming projects and ways to extend the useful lives of existing assets that less experienced providers cannot.

About the Authors:

 Salvatore J. Sciacca aka “Condoboss” is one of the nation’s leading experts in the community property management industry.  He is also the President and Founder of Chicago Property Services, Chicago’s #1 community property management company specializing in management and operations of condos/townhomes/HOA’s of 100units and under.

Salvatore is also the founder of managemycommunity.com (MMC), which is a state-of-the-art online support portal for community associations.  With over 20 years of industry experience, Salvatore is recognized for his extensive knowledge of capital planning, preventative maintenance, cost-saving measures and community building techniques.

He holds industry stature as a Certified Manager of Community Associations (CMCA), the designation of Association Management Specialist (AMS) and is fully licensed as a manager (License #: 261.001386) through the State of IL.

Salvatore can be reached at: 312.455.0107 x102 or ssciacca@chicagopropertyservices.com

Nik Clark is the co-founder and a partner at Superior Reserve Engineering and Consulting and is one of the leading experts in the reserve study industry with over 10 years of experience.

Nik can be reached at: 888-688-4560 or

nik@superiorreserve.com
www.superiorreserve.com