Section 2: Asset Management Section 2: Asset Management Building Blocks Building Blocks

Asset Management Building Blocks Asset Management Building Blocks Learning ObjectivesLearning Objectives

Introduce the five building blocks of asset Introduce the five building blocks of asset managementmanagement

Initial Priorities/Building BlocksInitial Priorities/Building Blocks

Project-based fundingProject-based funding

Project-based budgetingProject-based budgeting

Project-based accountingProject-based accounting

Project-based managementProject-based management

Project-based Project-based performance assessmentperformance assessment

Project-Based FundingProject-Based Funding

Separate subsidy form for each projectSeparate subsidy form for each project Project Expense Level (PEL) is a major Project Expense Level (PEL) is a major

componentcomponent Ensures appropriate resources are allocated Ensures appropriate resources are allocated

to each AMPto each AMP

Project-based fundingProject-based funding

The Flow of FundsThe Flow of Funds

• Property Management Fee

• Asset Management Fee

• Bookkeeping Fee

• Fee-for-Service

• Program Mgmt. Fees.

HUD PHAOLD$

HUD

AMP

NEW PHA/COCC

$ Subsidy $ Fees

Components of Formula FundingComponents of Formula Funding

To understand the amount of funds To understand the amount of funds available to any project, one must available to any project, one must understand the following:understand the following: Project Expense Level (PEL)Project Expense Level (PEL) Utility Expense Level (UEL)Utility Expense Level (UEL) Add-OnsAdd-Ons Frozen Formula IncomeFrozen Formula Income ProrationProration

Project Expense Level (PEL)Project Expense Level (PEL) Model-generated estimate of cost to operate a Model-generated estimate of cost to operate a

project on a per unit basis, exclusive of taxes, project on a per unit basis, exclusive of taxes, utilities, and add-onsutilities, and add-ons

Amount expressed in PUMs (per unit month)Amount expressed in PUMs (per unit month) Major coefficients that have a large impact on Major coefficients that have a large impact on

PELPEL Unit Size (Bedroom Mix)Unit Size (Bedroom Mix) Local MarketLocal Market Age of PropertyAge of Property Occupancy Type (Family vs. Elderly)Occupancy Type (Family vs. Elderly)

National average was $ 325 PUM in 2007 National average was $ 325 PUM in 2007 (excluding New York City Housing Authority)(excluding New York City Housing Authority)

Utility Expense Level (UEL)Utility Expense Level (UEL)

Represents the average utility consumption Represents the average utility consumption for a project over the past three years, for a project over the past three years, multiplied by recent utility ratesmultiplied by recent utility rates

Amount expressed in PUMsAmount expressed in PUMs

National average was $125.95 PUM in 2007National average was $125.95 PUM in 2007

Assigned UEL will vary by projectAssigned UEL will vary by project

2007 Add-Ons2007 Add-Ons

Add-OnsAdd-Ons AmountAmount PUMPUM

Self-SufficiencySelf-Sufficiency $ 13,093,430$ 13,093,430 $ 1.00$ 1.00

Energy Loan AmortizationEnergy Loan Amortization $ 16,844,422$ 16,844,422 $ 1.29$ 1.29

Payment in Lieu of TaxesPayment in Lieu of Taxes $ 95,199,853$ 95,199,853 $ 7.26$ 7.26

Cost of Independent AuditCost of Independent Audit $ 17,159,716$ 17,159,716 $ 1.31$ 1.31

Resident ParticipationResident Participation $ 24,860,325$ 24,860,325 $ 1.90$ 1.90

Asset Management FeeAsset Management Fee $ 42,777,668$ 42,777,668 $ 3.26$ 3.26

IT (Info. Technology) FeeIT (Info. Technology) Fee $ 26,215,754$ 26,215,754 $ 2.00$ 2.00

Asset RepositioningAsset Repositioning $ 43,329,841$ 43,329,841 $ 3.31$ 3.31

Total Add-Ons Total Add-Ons $279,481,009$279,481,009 $21.32$21.32

Frozen Formula IncomeFrozen Formula Income

Equal to a project’s rental income reported Equal to a project’s rental income reported on 2004 financial statements, adjusted for on 2004 financial statements, adjusted for changes in utility allowanceschanges in utility allowances

Effective for 2007 through 2009Effective for 2007 through 2009 National average was $181.09 PUM in National average was $181.09 PUM in

20072007

ProrationProration

Each year, total subsidy eligibility is Each year, total subsidy eligibility is compared with appropriations for the compared with appropriations for the Operating Fund program; the difference is Operating Fund program; the difference is prorationproration

Expressed as a percentageExpressed as a percentage Example: Example:

Eligibility = $4.0 billionEligibility = $4.0 billion Appropriation = $3.6 billionAppropriation = $3.6 billion Proration = 90%Proration = 90%

Determining Project Funding Determining Project Funding

Project Expense Level (PEL)Project Expense Level (PEL)

+ Utilities Expense Level (UEL)+ Utilities Expense Level (UEL)

+ Add-ons+ Add-ons

= Formula Expenses= Formula Expenses

- Formula Income- Formula Income

= Subsidy Eligibility= Subsidy Eligibility

- Proration- Proration

= Actual Subsidy= Actual Subsidy

+ Rental Income+ Rental Income

+ Other Income+ Other Income

+ Transfers+ Transfers

= Effective Income= Effective Income

Effective IncomeEffective Income

- Operating Expenses- Operating Expenses

= Net Income= Net Income

Project-Based BudgetingProject-Based Budgeting

Used for planning purposes Used for planning purposes Budgeted amounts must reconcile to FDSBudgeted amounts must reconcile to FDS Must be approved by PHA BoardMust be approved by PHA Board Not subject to HUD approval Not subject to HUD approval

Project-based funding

Project-based budgetingProject-based budgeting

Project-Based Budgeting Project-Based Budgeting (continued)(continued)

What are project-based budgets?What are project-based budgets? Itemized projection of income and Itemized projection of income and

expenses over a specific periodexpenses over a specific period Guideline for operating the projectGuideline for operating the project

Sample Conventional BudgetSample Conventional Budget

Gross Potential Income (GPI)Gross Potential Income (GPI)

- - Vacancy and Collection LossVacancy and Collection Loss

+ + Miscellaneous IncomeMiscellaneous Income

= Effective Gross Income (EGI)= Effective Gross Income (EGI)

- - Operating ExpensesOperating Expenses

= Net Operating Income (NOI)= Net Operating Income (NOI)

- - Reserves for ReplacementReserves for Replacement

- - Annual Debt Service (ADS)Annual Debt Service (ADS)

= Cash Flow= Cash Flow

Ratios Used for Expense Ratios Used for Expense BenchmarkingBenchmarking

Operating Expense Operating Expense

Ratio (%) = Ratio (%) =

Operating Expense Operating Expense

per Unit ($) = per Unit ($) =

Several variables may impact benchmarks Several variables may impact benchmarks Expense benchmarks can be used to Expense benchmarks can be used to

compare efficiencies across propertiescompare efficiencies across properties

Operating ExpensesOperating ExpensesIncomeIncome

Operating ExpensesOperating ExpensesNumber of UnitsNumber of Units

Workshop 2.1: Expense BenchmarksWorkshop 2.1: Expense Benchmarks

Consider data from two similar apartment Consider data from two similar apartment buildings shown on the next slidebuildings shown on the next slide

Calculate the Operating Expense Ratio and Calculate the Operating Expense Ratio and Operating Expense/Unit RatioOperating Expense/Unit Ratio

In groups, identify the project with the In groups, identify the project with the lowest costslowest costs

What other factors should be considered What other factors should be considered when evaluating the results of this cost when evaluating the results of this cost comparison?comparison?

Workshop 2.1: Expense BenchmarksWorkshop 2.1: Expense Benchmarks

Hamilton PlaceHamilton Place Southside Southside ApartmentsApartments

# of Units# of Units 2020 1010

IncomeIncome $175,000$175,000 $160,000$160,000

Operating Operating ExpensesExpenses

$150,000$150,000 $145,000$145,000

OpEx OpEx RatioRatio

OpEx/OpEx/UnitUnit

86%86% 91%91%

$7,500$7,500 $14,500$14,500

Calculating Expense BenchmarksCalculating Expense Benchmarks

Hamilton Place:Hamilton Place: Operating Expense Ratio: Operating Expense Ratio: $150,000 (Operating Expense)/$175,000 (Income) = 86%$150,000 (Operating Expense)/$175,000 (Income) = 86%

Operating Expense per Unit: Operating Expense per Unit: $150,000 (Operating Expense)/20 (Number of Units) =$150,000 (Operating Expense)/20 (Number of Units) =$ 7,500$ 7,500

Southside Apartments:Southside Apartments: Operating Expense Ratio: Operating Expense Ratio: $145,000 (Operating Expense)/$160,000 (Income) = 91% $145,000 (Operating Expense)/$160,000 (Income) = 91%

Operating Expense per Unit:Operating Expense per Unit:$145,000 (Operating Expense)/10 (Number of Units)=$145,000 (Operating Expense)/10 (Number of Units)=$ 14,500$ 14,500

Where Can I Find Benchmarks?Where Can I Find Benchmarks?

Project Expense Levels (PELs)Project Expense Levels (PELs) Project Level DataProject Level Data IREM Income/Expense AnalysisIREM Income/Expense Analysis®® Reports Reports

• www.irem.orgwww.irem.org Housing Finance AgenciesHousing Finance Agencies NeighborWorks (small properties)NeighborWorks (small properties) Rural DevelopmentRural Development Local and Regional Market StudiesLocal and Regional Market Studies

Project-Based AccountingProject-Based Accounting Year-end project statements submitted to Year-end project statements submitted to

HUDHUD Can only charge projects for services Can only charge projects for services

actually receivedactually received Fees must be Fees must be

considered considered reasonablereasonable

Project-based funding

Project-based budgeting

Project-based accountingProject-based accounting

Project-Based Accounting Project-Based Accounting (continued)(continued)

For conventional properties, the financial For conventional properties, the financial performance of each property is tracked performance of each property is tracked individually and reported to the ownerindividually and reported to the owner

This allows the manager and owner to This allows the manager and owner to make the best possible decisions for each make the best possible decisions for each individual propertyindividual property

Similarly, PHAs will assemble project level Similarly, PHAs will assemble project level financial datafinancial data

Project-Based AccountingProject-Based Accounting Under the Final Rule Under the Final Rule

Annual year-end financial statements on Annual year-end financial statements on each AMP will be requiredeach AMP will be required

Revenues, expenses, balance sheetRevenues, expenses, balance sheet To be included with the Financial Data To be included with the Financial Data

Schedule (FDS)Schedule (FDS) FDS will also be revised to include a column FDS will also be revised to include a column

for the COCCfor the COCC

Entity-Wide FDS Entity-Wide FDS Financial Reporting Model (Existing)Financial Reporting Model (Existing)

Balance SheetBalance Sheet

ProgramProgram

TotalTotalOperating Operating FundFund

Capital Capital FundFund

Section Section 8 8

Voucher Voucher ProgramProgram

Rural Rural HousingHousing

Statement of Statement of Net AssetsNet Assets               

AssetsAssets $10,000,000$10,000,000 $500,000$500,000 $250,000$250,000 $750,000$750,000 $11,500,000$11,500,000

LiabilitiesLiabilities $5,000,000$5,000,000 $100,000$100,000 $200,000$200,000 $250,000$250,000 $5,550,000$5,550,000

Net AssetsNet Assets $5,000,000$5,000,000 $400,000$400,000 $50,000$50,000 $500,000$500,000 $5,950,000$5,950,000

Liabilities and Liabilities and Net Assets Net Assets    $10,000,000$10,000,000 $500,000$500,000 $250,000$250,000 $750,000$750,000 $11,500,000$11,500,000

Asset Management Project FDS Asset Management Project FDS Financial Reporting Model (New)Financial Reporting Model (New)

Financial Financial StatementStatement

Asset Management ProjectsAsset Management Projects

TotalTotalProject 1Project 1 Project 2Project 2 Project 3Project 3

Balance Balance SheetSheet

AssetsAssets $3,434,000$3,434,000 $3,253,000$3,253,000 $3,131,000$3,131,000 $9,818,000$9,818,000

LiabilitiesLiabilities $1,649,000$1,649,000 $1,521,500$1,521,500 $1,503,500$1,503,500 $4,674,000$4,674,000

EquityEquity $1,785,000$1,785,000 $1,731,500$1,731,500 $1,627,500$1,627,500 $5,144,000$5,144,000

Operating Operating StatementStatement

RevenueRevenue $588,200$588,200 $527,500$527,500 $536,300$536,300 $1,652,000$1,652,000

ExpensesExpenses $462,400$462,400 $429,000$429,000 $421,600$421,600 $1,313,000$1,313,000

Net IncomeNet Income $125,800$125,800 $98,500$98,500 $114,700$114,700 $339,000$339,000

Project-Based ManagementProject-Based Management

Arrange services in the best interest of the Arrange services in the best interest of the projectproject

Assign management personnel to each Assign management personnel to each projectproject

Project-based funding

Project-based budgeting

Project-based accounting

Project-based Project-based

managementmanagement

Project-Based Management (PBM)Project-Based Management (PBM)

““The provision of property-management services The provision of property-management services that is tailored to the unique needs of each that is tailored to the unique needs of each property, given the resources available to that property, given the resources available to that property...Under PBM, these property property...Under PBM, these property management services are arranged, coordinated, management services are arranged, coordinated, or overseen by management personnel who have or overseen by management personnel who have been assigned responsibility for the day-to-day been assigned responsibility for the day-to-day operation of that property and who are charged operation of that property and who are charged with direct oversight of operations of that with direct oversight of operations of that property.”property.”

24 CFR 99024 CFR 990

Why Practice PBM?Why Practice PBM?

Maximizes performance at all levelsMaximizes performance at all levels Local staff are closer to market changes Local staff are closer to market changes

and community issuesand community issues On-site staff can monitor the projectOn-site staff can monitor the project Response to resident issues is faster and Response to resident issues is faster and

more personalmore personal

Common Characteristics of PBMCommon Characteristics of PBM

Each project has an operating budget to Each project has an operating budget to be approved by the ownerbe approved by the owner

The project is assigned dedicated The project is assigned dedicated management and maintenance personnel management and maintenance personnel who frequently work on sitewho frequently work on site

If a project is too small to afford full-time If a project is too small to afford full-time staff, the project may have part-time or staff, the project may have part-time or shared staffshared staff

Common Characteristics of PBM Common Characteristics of PBM (Continued)(Continued)

Site personnel have significant authority Site personnel have significant authority and responsibility over the day-to-day and responsibility over the day-to-day operationsoperations

Most project management tasks are Most project management tasks are handled or coordinated by the on-site staffhandled or coordinated by the on-site staff

Procurement is done by on-site Procurement is done by on-site management and reviewed by supervisormanagement and reviewed by supervisor

The person primarily in charge of the The person primarily in charge of the project on a day-to-day basis, including project on a day-to-day basis, including maintenance, is the site managermaintenance, is the site manager

Project-Based Management ExampleProject-Based Management Example

You own a group of restaurants.You own a group of restaurants. Would you have a budget for each Would you have a budget for each

restaurant?restaurant? Would you hire a manager for each Would you hire a manager for each

restaurant?restaurant? What roles would you assign to on-site What roles would you assign to on-site

staff vs. central staff? staff vs. central staff?

Workshop 2.2: Assignment of Common Workshop 2.2: Assignment of Common TasksTasks

The table on the following slide list tasks The table on the following slide list tasks commonly associated with managing Public commonly associated with managing Public HousingHousing

As a group, determine whether each task As a group, determine whether each task should be performed on-site or centrally should be performed on-site or centrally under project-based managementunder project-based management

Workshop 2.2: Assignment of Common Tasks Workshop 2.2: Assignment of Common Tasks (Answers)(Answers)

TaskTask On-SiteOn-Site CentralCentral

Leasing units and enforcing the leaseLeasing units and enforcing the lease

Processing families for admission and submitting Processing families for admission and submitting 50058 forms as required50058 forms as required

Grant-writing and other predevelopment activitiesGrant-writing and other predevelopment activities

Reviewing project-level budgets and reportsReviewing project-level budgets and reports

Inspecting units, structures, and systems on a Inspecting units, structures, and systems on a frequent basisfrequent basis

Taking applications for admissionTaking applications for admission

Interacting with local government and HUDInteracting with local government and HUD

Overseeing the portfolio including tracking occupancy Overseeing the portfolio including tracking occupancy trendstrends

Preparing budgets for the propertyPreparing budgets for the property

Purchasing and ordering goods/servicesPurchasing and ordering goods/services

Deciding when a property needs revitalization, Deciding when a property needs revitalization, demolition, or dispositiondemolition, or disposition

Project-Based Project-Based Performance AssessmentPerformance Assessment

Revise PHAS to emphasize AMP Revise PHAS to emphasize AMP performanceperformance

Development of internal PHA monitoring Development of internal PHA monitoring mechanismsmechanisms

Project-based funding

Project-based budgeting

Project-based accounting

Project-based management

Project-based Project-based performance assessmentperformance assessment

HUD Oversight and the Public Housing HUD Oversight and the Public Housing Assessment System (PHAS) Assessment System (PHAS)

Each project will be evaluated on financial, Each project will be evaluated on financial, managerial, and physical aspects in managerial, and physical aspects in addition to use of Capital Funds addition to use of Capital Funds

New system will:New system will: Be consistent with the norms in multifamily Be consistent with the norms in multifamily

housinghousing Avoid PHA self-certificationsAvoid PHA self-certifications Rely on existing data sourcesRely on existing data sources Emphasize on-site management reviewsEmphasize on-site management reviews

Internal PHA Monitoring MechanismsInternal PHA Monitoring Mechanisms

Develop mechanisms to collect data to Develop mechanisms to collect data to measure actual AMP performance against measure actual AMP performance against goalsgoals

Goals must be clearly articulated in annual Goals must be clearly articulated in annual plans and budgets. For example, budget plans and budgets. For example, budget goals may include monthly income and goals may include monthly income and expenditures. expenditures.

Project GoalsProject Goals

In order to measure performance, goals In order to measure performance, goals must be articulatedmust be articulated

Annual budget preparation includes goals:Annual budget preparation includes goals:

Rent collectionsRent collections

VacanciesVacancies

Unit turnaroundsUnit turnarounds

InspectionsInspections

Maintenance services Maintenance services

Sample Monthly Project ReviewSample Monthly Project Review

55thth of month: Financial statements made of month: Financial statements made available available

77thth of month: Manager’s monthly Project Report of month: Manager’s monthly Project Report due to Regional Managerdue to Regional Manager

99thth of month: Meeting with Site Manager and of month: Meeting with Site Manager and Regional Manager to review performanceRegional Manager to review performance

1010thth of month: Regional Manager forwards of month: Regional Manager forwards narrative variance report to Director of PM and narrative variance report to Director of PM and ED, accompanying monthly financial reportED, accompanying monthly financial report

12th–1512th–15thth of month: ED reviews performance of month: ED reviews performance with Board and Committeeswith Board and Committees

Long-term Capital PlanningLong-term Capital Planningand Asset Repositioning and Asset Repositioning

Key information needed:Key information needed: Physical needs assessmentPhysical needs assessment Market dataMarket data Asset valueAsset value Funding sourcesFunding sources

Long-Term Capital PlanningLong-Term Capital Planningand Asset Repositioning: Strategiesand Asset Repositioning: Strategies

Asset strategies: Asset strategies: Hold/defer Hold/defer Hold/modernizeHold/modernize RefinanceRefinance Sale/disposition/demolitionSale/disposition/demolition

Each strategy must be compared against the Each strategy must be compared against the mission and goals of the agency mission and goals of the agency

End of Section 2End of Section 2