Nepenthe Updateon Finances

Board of Directors Meeting

Nov. 30, 2009

Items

• Operating budget

• Reserves budgets

• Financial planning

• Painting and Siding

Just Like at Home

CheckingAccount

Saving Account

PaycheckDay to DayLiving Costs

UtilitiesLandscapePaperAllowance

Savings for theRainy Day:

SidingPaintingRoofingMachines break

Just Like at Home – At Nepenthe…

DUESDay to DayLiving Costs

UtilitiesLandscapeOffice suppliesSalaries

Savings for theRainy Day:

SidingPaintingRoofingMachines break

OperatingAccount

Reserves Accounts

Operating Budget

• Easy to plan

• Routine costs

• Projections of increases fairly reliable

CheckingAccount

SMUDWaterEtc…

CHECKSBILLS

Monthly Routine Costs

• SMUD

• Pool maintenance

• Landscape service

• Phone lines

• Etc

Operating Budget Savings

• Board worked hard last year to find efficiencies created last year:– E-mailing newsletter– End copier lease– Not sending copying to southern California but doing

it in house

• Taking hard look at landscape maintenance contract– Significant savings

• Fall planting• Irrigation work

Dues for Operating Expenses

• Finance committee recommended an Operating Expense budget to the Board that called for a $4.00 a month increase.

• The Board sent the budget back to the FC to redo with no more than a $2.00 a month increase.

• The Board voted to increase the Operating dues by $2.00 effective January 1, 2010.

Reserve Account

LandscapeBuildings

PavingCommon Areas

Landscape

Reserve Account

We have improved but stillNeed to address watering the Streets.

Reserve Account

Common Areas

BEFORE

Reserve Account

Common Areas

AFTER

Paving

Reserve Account

BEFORE

Buildings

Reserve Account

BEFORE

Buildings

Reserve Account

AFTER

Funding the Reserves

• Good financial planning

• Avoids special assessment– Other HOAs have had assessments of

$32,000 in ONE year!

• Looked at by lenders before they will approve an HOA loan for purchase

Reserves AreThe Planning Process

RESERVES = ESTIMATES

• Projects– What– When– Cost

Schedule

2009 – 2010 – 2011 – 2012 …. 2020 …… 2030 ……… 2040

FinishPainting & Siding

FinishPainting & Siding

RemodelClubhouse

RemodelClubhouse

Painting & Siding

Painting & Siding

Painting & Siding

Water!Roof

Roof

Schedule

2009 – 2010 – 2011 – 2012 …. 2020 …… 2030 ……… 2040

FinishPainting & Siding

FinishPainting & Siding

RemodelClubhouse

RemodelClubhouse

Painting & Siding

Painting & Siding

Painting & Siding

Water!

RoofRoof

Reserves AreThe Planning Process

Confidence Level of Reserve Projections

0

1

2

3

4

5VERY HIGHVERY HIGHShort TemShort Tem ROOFINGROOFING

Funding Targets

• Reserve study projects our funding levels in the thirty year bar chart.

• Fully funded means we have enough money to pay for everything if everything failed in any year.

• Target Is 70% funded.

Dues for Reserves

• The Board is increasing the monthly dues contribution to the reserves by $2.00.

TOTAL INCREASE

$2.00 to Operating Expenses$2.00 to Reserves Account

$4.00 Overall Increase to Monthly Dues

This equates to a one percent increase.

2006 – 2007 – 2008 - 2009 – 2010 – 2011 – 2012 …. 2020 …… 2030 ……… 2040

FinishPainting & Siding

FinishPainting & Siding

RemodelClubhouse

RemodelClubhouse

Painting & Siding

Painting & Siding

RoofRoof

Painting & Siding

Water!

Estimate!

Estimate!

How Do You Figure The Costs of Items in the Reserve Study?

Start talking to contractors

Estimate!

2006 – 2007 – 2008 - 2009 – 2010 – 2011 – 2012 …. 2020 …… 2030 ……… 2040 …..

FinishPainting & Siding

FinishPainting & Siding

RemodelClubhouse

RemodelClubhouse

Painting & Siding

Painting & Siding

RoofRoof

Painting & Siding

Water!

Follow actual costs

Conversations with architects

How Do You Figure The Costs of Items in the Reserve Study?

Estimate!

Estimate!

2006 – 2007 – 2008 - 2009 – 2010 – 2011 – 2012 …. 2020 …… 2030 ……… 2040 …..

FinishPainting & Siding

FinishPainting & Siding

RemodelClubhouse

RemodelClubhouse

Painting & Siding

Painting & Siding

RoofRoof

Painting & Siding

Water!

Follow actual costs

Guessimate!

Conversations with architects

How Do You Figure The Costs of Items in the Reserve Study?

Preliminary discussions.•Homeowner meetings in January/February over use of space.•Estimates include Pool Patio concrete replacement which was left out of earlier studies.

Estimate!

The closer you get to spending the money,

the more accurate your estimate will be.

But then… life happens!

But then… life happens!

For example, WATER

2006 – 2007 – 2008 - 2009 – 2010 – 2011 – 2012 …. 2020 …… 2030 ……… 2040 …..

FinishPainting & Siding

FinishPainting & Siding

RemodelClubhouse

RemodelClubhouse

Painting & Siding

Painting & Siding

RoofRoof

Painting & Siding

Water!

Follow actual costs

Conversations with architects

Painting & Siding

Water!

How Do You Figure The Costs of Items in the Reserve Study?

May not be able to afford everything

identified in reserve.

Estimate!

Estimate!

A Reserve Study is simply an estimate of future potential costs.

And every year the estimates change.

And every three years the estimates are reviewed in detail and may

change even more.

PAINTING & SIDINGIs it over budget?

What was the budget…

• Finance Committee estimates

• Board president estimates (O. Turner)

• Bids

• Reserve amounts from 06 to 09

• Project manager estimates

Lesson:Have One Number Separate From Reserves For Any and

Every Project

Confusion ensued from too many numbers discussed for

Paint/Siding.

Current Painting and Siding Project

• In 2006 Finance Committee recommended to the board that they start to consider an assessment.

• In 2007 the FC recommended an assessment of $5,000 for each owner.

• This was voted on by the membership and passed.

Cost of Painting and Siding

• In 2006 the FC told owners cost of P&S etimated to be $3.4 million.

$3,400,000

$3,400,000

Finance Committee Presentation to Homeowners Oct 2006

Nepenthe Reserve Analysis October 2006

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

"Other" 23,708 349,368 131,338 500,125 758,447 550,213 180,777

Roofing 1,415,493 60,618 58,852 62,436 66,239 90,209 70,273

Painting/Siding 640,079 1,081,283 1,165,371 1,150,230 50,000 246,000 261,000

Paving 42,832 - 246,993 217,184 1,086,627 49,654 -

2007 2008 2009 2010 2011 2012 2013

Nepenthe Reserve Analysis October 2006

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

"Other" 23,708 349,368 131,338 500,125 758,447 550,213 180,777

Roofing 1,415,493 60,618 58,852 62,436 66,239 90,209 70,273

Painting/Siding 640,079 1,081,283 1,165,371 1,150,230 50,000 246,000 261,000

Paving 42,832 - 246,993 217,184 1,086,627 49,654 -

2007 2008 2009 2010 2011 2012 2013FROM POWERPOINT PRESENTED TO HOA OCT 06

FROM POWERPOINT PRESENTED TO HOA OCT 06

$3,400,000$3,400,000

Cost Estimates

• In 2007 the Finance Committee increased that estimate to be $5.5 million.

$5,500,000

$5,500,000

Key Reserve ExpensesFinance Committee Sept 07

• Painting/Siding– $5.5 million over three years– These are reasonable estimates– Can this be put off?

• Siding is deteriorating faster than anticipated– $298,000 needed last fall for emergency repairs– Additional funds will be needed this year for

problems recently identified.

• Painting/Siding– $5.5 million over three years– These are reasonable estimates– Can this be put off?

• Siding is deteriorating faster than anticipated– $298,000 needed last fall for emergency repairs– Additional funds will be needed this year for

problems recently identified.

FROM POWERPOINT PRESENTED TO HOA SEPT 07

FROM POWERPOINT PRESENTED TO HOA SEPT 07

$5,500,000

$5,500,000

Finance Committee Presentation to Homeowners Sept 2007

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

Paving/Concrete (alley/priv st) 41,396 280,817 248,342 883,824

Painting/Structure/Rehab 1,604,675 1,775,514 2,152,562 131,750

Landscaping 120,805 124,430 43,526 75,732

Fencing (patios/pools/tennis) 31,861 30,553 18,458 444,487

Fund Private Streets 279,126

Other Reserve Study Costs 306,339 249,305 345,091 138,506

2008 2009 2010 2011

Pa

intin

g

Pa

intin

g

Pa

intin

g

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

Paving/Concrete (alley/priv st) 41,396 280,817 248,342 883,824

Painting/Structure/Rehab 1,604,675 1,775,514 2,152,562 131,750

Landscaping 120,805 124,430 43,526 75,732

Fencing (patios/pools/tennis) 31,861 30,553 18,458 444,487

Fund Private Streets 279,126

Other Reserve Study Costs 306,339 249,305 345,091 138,506

2008 2009 2010 2011

Pa

intin

g

Pa

intin

g

Pa

intin

g

FROM POWERPOINT PRESENTED TO HOA SEPT 07

FROM POWERPOINT PRESENTED TO HOA SEPT 07

$5,500,000

$5,500,000

Crib Notes From Board President

• Source: Sept 4, 2007 Word Document

• $4,673,500 paint and siding 2008-2010

• $ 290,206 for additional siding for failures – this has been included in the project

• TOTAL = $4,963,716

$4,673,500

$4,673,500

Bid From Draeger 2007

• $2,145,301 estimate• A Chart of unit charges were included • Everyone expected the costs to be higher

than the bids due to problems that would be uncovered as siding was removed.

• Draeger was selected for low bid, low unit cost, and ability to use the new ceramic paint.

$2,145,301+

$2,145,301+

Ceramic Paint

• Painting Cycles– Nepenthe has not maintained a paint cycle

consistently.– This is what caused many of our problems.

• Paint lasts 5 years.

• Ceramic paint has potential to last 7 to 10 years. If this holds true, we will have saved a lot of money!

DanMark Estimates

• February 2007 - $4,129,129

• September 2007 - $4,098,290

Looking at Reserves for P&S

All Reserve Estimates & Projected Final Cost

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

2006 2007a 2007b 2008 2009 Proj 9/09

2007 2008 2009 2010

By Phase - Estimate and Actual/ProjectedNov 23, 2009 - using 07 est & 09 Projected

$0

$250,000

$500,000

$750,000

$1,000,000

$1,250,000

$1,500,000

$1,750,000

$2,000,000

Ph 1 est Ph 1 act Ph 2 est Ph 2 act Ph 3 est Ph 3 pro

Siding w/c Paint CM fees Other

Total Project - Estimated 07 and Projected

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

Total Est 9/07 Total Projected 11/09

Siding w/c Paint CM fees Other

Total Project - Estimated 07 and Projected

$2,750,000$3,000,000$3,250,000$3,500,000$3,750,000$4,000,000$4,250,000$4,500,000$4,750,000$5,000,000

Total Est 9/07 Total Projected 11/09

Siding w/c Paint CM fees Other

Including Fence Gutters, over by 16%

Over estimate by 9%

These estimates didnot include inflation factors!

Projected Final Costs

• Paint, Siding, and Project Management Fees are 9% or $348,889 more than estimated in 2007.

• Total Project including above and gutters, fences, and project yard were 16% or $644,817 more than estimated in 2007.

• However, funds were reserved separately for gutters and fences during this time.

WITHOUT INFLATION FACTORS!

WITHOUT INFLATION FACTORS!

Oversight

• Draeger - well respected firm– Checked references

• DanMark – well respected firm– Selected from 3 proposals– Previously good experience with them

• Board – frequent reports from DanMark

• Owners – few complaints

• Board inspections –

Oversight• Draeger - well respected firm

– Checked references

• DanMark – well respected firm– Selected from 3 proposals– Previously good experience with them

• Board – frequent reports from DanMark• Owners – few complaints• Board inspections – Board inspections – not qualified to not qualified to

inspect this type of workinspect this type of workXXXXXX

So What Happened?• Damage to homes was much more severe

– Example A• Estimate was for 4 Sheet replacement• Work required 24 Sheet replacement• Estimated cost would have been $908.00• Actual cost was $6,407.00

– Example B• Estimate was for 12 Sheet replacement• Work required 62.5 Sheet replacement• Estimated cost would have been $2,724.00• Actual cost was $16,054.64

Example “A”

• When “belly band” was removed

Example “B”

• When “belly band” was removed

Why did “belly bands” fail?

• T-111 siding is prone to damage if not maintained.

• Original Nepenthe construction did not have eaves/gutters

• More exposure to rain/moisture• Prior painting projects DID NOT CAULK

BELLY BANDS!!!• Painting/siding maintenance ignored• Created “perfect storm”

What Have We Learned?

• Projects like the Siding are full of variables.– Until you start removing siding, you never

know how bad it will be

• Nepenthe should NEVER put off routine Painting and Siding– Rest assured if it is put off, it will simply cost

more later.

What Have We Learned?

• Set an overall project number and monitor to that number, not to annual reserves

• Overestimate the cost as it is better to come in under budget than over

• PROJECT MANAGEMENT IS A MUST– Past Nepente work was very sub-par

• Example of belly bands not being caulked

• We are starting a notebook of these learnings for future board

Are Finances Done Now? NO!

Operating - Continue to review monthly– Even if Operating Budget allows, we want

lowest cost possible– Still looking at ways to be more efficient

Are Finances Done Now? NO!

• Reserves – Continue to review– If something fails, must we fix now?– Do we postpone something else?– Are all investments beneficial to the overall

property values?

We Are A Community

• Some people never use the Tennis Courts

• Some people never use the pools

• Some people never use the gym

• Some people never use the clubhouse

But all those parts add up to the community that is

Nepenthe.

And they add up to maintaining our property values.

If You Have Questions…

Call or Email the Office.