Why You Shouldn’t Get Your Hopes up About an El Niño This Winter

El Nino generated storm waves crash onto seaside houses at Mondos Beach, California on January 12, 2016.  (MARK RALSTON/AFP/Getty Images)

An El Niño is forecast for the winter ahead, and we all know what that means. Or do we?

El Niño – that cyclical warming of the equatorial Pacific Ocean – has long been associated with wet winters across much of the West. Which is always welcome news across the chronically water-short region. But in reality, whether El Niño actually delivers greater-than-normal precipitation is strictly a toss-up, says Jan Null, owner of Golden Gate Weather Services, a consultancy based in Saratoga, California.

The National Weather Service Climate Prediction Center tells us, in its most recent forecast of the El Niño Southern Oscillation (ENSO), that there is as much as a 70 percent chance of El Niño conditions forming during the winter ahead. And it’s likely to be a “weak” El Niño. But what does that mean? Elementally, it means the equatorial Pacific is expected to be warmer than normal, and this may alter weather events around the globe.

But it doesn’t mean you should get your hopes up for a wet winter. Null has taken it upon himself to try to bring a dose of reality to the situation, via an exhaustive breakdown of precipitation results from past El Niño events. In an interview with Water Deeply, he explains why our expectations about this weather phenomenon are often wrong.

Water Deeply: What does an El Niño prediction mean for precipitation in California and elsewhere in the West?

Jan Null: With any El Niño, and especially weak events, there is no strong correlation with either above- or below-normal precipitation in California. For example, in the very important Sacramento Basin, of the 10 weak El Niño events since 1950, five have been above normal and five below normal. And the range of these solutions is from 43 percent of normal in 1976–77 to 135 percent of normal in 1977–78.

Likewise, rainfall in the California portion of the Colorado ranges from 30 percent of normal in 2006–07 to 214 percent in 2004–05 – both weak El Niños.

Water Deeply: Why is forecasting El Niño so difficult?

Null: The accuracy for seasonal forecasts is not nearly as absolute as our weather forecasts in the short term. So with forecasting El Niño, you’re going to run into all the same issues you have with any seasonal forecast. Also, we’re finding out more and more that ENSO events are not happening in a vacuum. It’s not the only thing that’s going on. You also have the Pacific Decadal Oscillation, the Madden-Julian Oscillation, the Arctic Oscillation. I call it an alphabet soup of different things we have going on in the oceans and atmosphere.

But, of these, the strongest single events are ENSO events, which I think is one of the reasons they get so much attention. But they don’t happen in that vacuum. So sometimes these other things make the ENSO events stronger, or they might subtract from the impacts.

So not only do we have to forecast what the ocean temperatures are going to be along this fairly narrow swathe of the equatorial Pacific. You really have to consider what’s going on in all these other places – looking at pressure patterns in the Arctic or what’s going on in the North Pacific. It’s a complex puzzle. If you forecast one piece out of place, all the other ones aren’t going to fit right together.

Then we also have to discuss the fact that you have climate change DNA in everything that’s going on. The atmosphere and the oceans are warmer, so that’s going to add into the complexity of what’s going on.

Water Deeply: Much of the West is grappling with long-term water shortages. How should we manage our expectations around El Niño and avoid any ‘hype’?

Null: I don’t think it necessarily is El Niño hype. There is always the hope that the next winter is going to be wet. People fixate on the idea that “This is an El Niño storm.” Well, you also have big storms in years that are not El Niño.

Historically, the way we get our “normal” precipitation is typically by having a lot of years that are a little bit less than normal. And that’s really what the drought in 2011–15 was. So that means you have a deficit over those four years. So to make up that deficit, you not only have to have a normal year. You almost have to have a year that would be twice as wet as normal. But something we have learned is that we can recover without making up all the deficit. And I think we saw that with the water supply after what happened in 2016–17, which was a wet year.

It’s really important that water managers, the media and the public get out of the old mindset from 1982–83 and 1997–98 that El Niño means a wet winter for California. I think the attention is appropriate. You just have to put it in context.

I’ve often used, over the years, the analogy of a baseball team. You may have this one player who’s a superstar who helps you get more wins than any other player. But on any given day, somebody else might have a hot day and be the one who’s going to be the star. El Niño is not the only player on the team.

This article originally appeared on Water Deeply, and you can find it here. For important news about the California drought, you can sign up to the Water Deeply email list.

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The Sand is Shifting in the Housing Market: Understand the “New” Boundary Lines

 

Anyone who has been in the real estate industry for more than a few years has seen some dramatic changes in the market. Over time, the average square footage of single-family and apartment homes shrinks and expands to accommodate economic and family unit size fluctuates. Area property values rise and fall based on regional expansion and net migration. Federally-controlled interest rates often define the winners and losers in the investor pool. Through all of these changes, city planners have delineated locations within greater metropolitan areas as cities and suburbs. Today, there is a new dynamic that shouldn’t be ignored, the gradually disappearing line between city and suburban property lines.

Redefining the City vs. Suburbia Boundaries

Since the late 1940s, when William J. Levitt built the first planned community just outside New York City for WWII veterans and their families, we have thought of suburbs as mostly an area detached from the business district. In the early decades, when most women stayed home, and the husband commuted into the city, there were few businesses beyond a grocery, drugstore, gas station and a few shops in these primarily residential areas. When we hear the word “suburbia,” a picture of the white picket fence surrounding a single-family home with flowers lining the path to the front door pops into our head. This quintessential image is pleasant, but no longer the norm.

The twenty-first-century reality, where millions of people work from home – about 43 percent of all working adults work remotely today – means that fewer people feel pressure to live close to the office. That doesn’t mean multifamily housing is losing market share in the city. Hundreds of US cities report more than 50% of residents rent. However, the face of suburban living is changing; suburbia is no longer primarily furnished with cookie-cutter single-family homes. You’ll find sprawling malls, hospitals, commercial tenants, and both detached single-family and apartment homes all within the same area.

Demarking where the city ends and the suburbs begin is very complex today. Market analysts suggest it’s time to cease using geography as the basis for defining markets and embrace density as a more reliable housing intelligence driver. Using this alternative framework provides a more nuanced method of understanding what modern renters need and expect from multifamily housing providers.

Viewing the Changing Landscape Through a New Lens

Rather than continuing to use city limit boundaries to establish metropolitan statistical areas, it’s time to view housing stock with a fresh lens. By defining areas based on density, market analysts get a clearer picture of the true market share of multifamily housing versus detached single-family dwellings. Urban and suburban areas tend to share many common characteristics today, including a growing multifamily housing presence in areas traditionally viewed as suburban. City planners and developers armed with this “new” information can create more realistic development and expansion plans.

Not every renter is looking for a nest in the center of the city, although that will always be an attractive location for some. Likewise, everyone who wants to escape the city, isn’t looking for the white-picket-fence American dream of the 1950s. Some want a well-managed apartment home in a community close enough to visit the city if they chose, with convenient access to everything they need from entertainment and shopping to medical care and work opportunities.

The sands are shifting in the housing market. It’s time for real estate professionals to embrace a new way of studying it. Arbitrary lines on a zoning map are no longer delivering the data we need to respond to the changing multifamily landscape.

Thousands of Californians Live in Cars. Will This Man’s Lawsuit Stop Cities From Impounding Them?

Sean Kayode says he watched his whole world roll away from him at 3:00 a.m. Kayode had been living in his car in San Francisco for about two years. During the early morning of March 5, traffic police towed and impounded his black 2005 Mercedes Benz — for having too many overdue parking tickets.

“I wake up at 3 o’clock in the morning and there was a guy behind me. And I’m like, ‘What are you doing behind my car?’” Kayode said while standing in the lobby of the Next Door homeless shelter in downtown San Francisco. “He says, ‘I’m just waiting for the tow truck to come get you.'”

For Kayode, who now lives at Next Door, his car wasn’t just a place to sleep, it was how he earned a living, he said, delivering food through Uber Eats. He shakes his head in disbelief at where he was, and where he is now.

“I am a homeless guy that worked my way out of homelessness,” Kayode said. “Bought my own car. Now you’ve taken my car, taken my job and now you’re giving me food stamps. It doesn’t make sense.”

Is it Unconstitutional to Impound a Car for Unpaid Tickets?

An estimated half million cars a year in California are impounded, unclaimed and sold, according to Jude Pond of the Lawyers’ Committee for Civil Rights in San Francisco. He said many of those cars belonged to poor people living in them.

Pond helped file a lawsuit on Kayode’s behalf to challenge the California law that allows cities to tow a car away if that car has five or more overdue parking tickets. Many cities follow that policy, and Pond said it’s unconstitutional in several ways.

The government should not be allowed to take someone’s property without any notice and without a warrant, he said. That’s doubly true because these vehicles weren’t used in a crime, but were towed simply for financial reasons — just to collect fines.

Cities do not issue warnings, outside of the fine print on a parking ticket, that they’re coming to impound a vehicle. Parking officers just show up and take it away. And in the case of the homeless who live in their cars, city officials are taking their temporary home from them, which raises the stakes above the taking of a vehicle, Pond said.

“We’re hoping that this case sets the precedent that the city should not take people’s only asset — in this case their car — for the purpose of satisfying a debt, based on just outstanding parking tickets,” Pond said.

In San Francisco, officers towing a car with a homeless occupant will contact the police department and social services to help that person get services, according to Paul Rose, spokesman for the San Francisco Municipal Transportation Agency, who responded by email.

“There will be times when the [Homeless Outreach Team] will not be available to respond. If there is no urgency regarding the towing of the vehicle we will make an effort to delay the tow to allow services to respond,” Rose said. “We cannot completely avoid the removal of the vehicle as this would create an unintended exemption for vehicles that are in violation of city or state law.”

Sean Kayode, outside the Next Door homeless shelter in San Francisco on July 26, 2018. Kayode is suing the city, saying he lost his means of food-delivery employment and his home when his car was impounded in March — for having too many parking tickets.
Sean Kayode, outside the Next Door homeless shelter in San Francisco on July 26, 2018. Kayode is suing the city, saying he lost his means of food-delivery employment and his home when his car was impounded in March — for having too many parking tickets. (David Gorn/CALmatters)

A Tipping Point Toward Homelessness

Tens of thousands of Californians are living in their cars. Because losing those cars to impoundment can mean the loss of work and home, it can be a tipping point into a life on the streets.

For many people, having their car towed for overdue parking tickets is a major annoyance and life disruption. But for homeless people, it’s a permanent loss, because most of them cannot afford to recover their cars.

The costs escalate quickly.

Offenders must reimburse the tow charge, roughly $500. They also need to pay off their original tickets and the accrued fines on those tickets, which can be $1,000 or more. On top of all of that, it usually costs $71 for each day the car is stored at the tow yard.

In Kayode’s case, more than five months after his car was impounded, it would cost him more than $21,000 to get his car back.

That’s about $20,000 more than he paid for it.

Ostensibly, the city is towing the car to collect a debt, but in many cases where cars are unclaimed and eventually sold, the city doesn’t make much money on the sale, if anything. That’s because the tow yard has first dibs on any cash collected.

For the cities, though, it’s not about the money, according to UCLA political expert Zev Yaroslavsky.

“It’s the credibility of the restrictions,” Yaroslavsky said. “If the restrictions were not enforced, then no one would comply with them. The reason you and I rush out to the parking meter when it’s about to expire, to put another quarter in there, is because we don’t want to pay $80 for the privilege of having overstayed our welcome by a minute.”

The quickly escalating costs of having a vehicle impounded usually mean poor Californians can’t afford to get their cars back. Including original tickets, accrued fines and charges for towing and impounding, it would now cost Sean Kayode more than $21,000 to get his car back.
The quickly escalating costs of having a vehicle impounded usually mean poor Californians can’t afford to get their cars back. Including original tickets, accrued fines and charges for towing and impounding, it would now cost Sean Kayode more than $21,000 to get his car back. (John Moore/Getty Images)

Yaroslavsky spent four decades in local government in Los Angeles, most of it on the county Board of Supervisors. He said he understands why cities hold onto their impound power with both hands.

“As a local elected official I was never concerned about the revenue stream we were getting out of the parking,” Yaroslavsky said. “It was motivated by getting turnover in the limited parking spaces we had available at curbside.”

At the same time, he said, there has to be a middle ground when towing cars from the homeless.

“It makes absolutely no sense to take a homeless person’s car, confiscating it, impounding it. If you take away their car, they’re going to be on the street. That’s not a benefit to society. Common sense has to be in play.”

At the moment, though, the middle ground is hard to find.

Homeless advocates say cities could make exceptions for extremely low-income citizens — maybe let them hold onto the car, but pay off the tickets in installments.

Some cities, including San Francisco, have a payment-plan program — but nothing in place to return cars to the homeless or restrict impoundment of those cars in the first place.

A federal district court judge in San Francisco is expected to hear Kayode’s motion in September for a preliminary injunction to get his car back. A hearing on his lawsuit would be scheduled after a ruling on the injunction.

Of course, if the preliminary injunction is granted and San Francisco has to return Kayode’s car, he will still technically owe that $21,000 in parking, towing and storage fees until the case is decided.

Kayode, who has been homeless for the past six years, looks back on the incident and its aftermath with a mixture of anger and despair.

“If I have my car, I have my phone. That’s all I need. I can earn money,” Kayode said. “But right now, they are holding my car hostage. What I want to know is, does taking my car from me help the city budget in one way or another? Is my car going to make them or break them?”

He stops a moment, looks around the crowded and chaotic lobby of the homeless shelter he now calls home.

“I am back in the same hole,” Kayode said. “And I don’t have any way to get out.”

The California Dream series is a statewide media collaboration of CALmatters, KPBS, KPCC, KQED and Capital Public Radio with support from the Corporation for Public Broadcasting, the James Irvine Foundation and the College Futures Foundation.

What Do Renters Really Want?

 

What do renters really want? As property managers and other real estate professionals look for solutions to boost closing and retention rates, this question comes up all the time. Most industry experts agree that authentic, personalized customer service ranks high on the list. Happy customers who feel valued are more likely to stay in a relationship.

Considering that about 60 percent of renters move in planning to relocate within the next 12 months, “wowing” them at the closing is a great first step toward increasing retention rates. What else do renters want that your team isn’t giving them?

Ask Renters About Their Needs And Expectations

Did you know that research shows only 25 percent of apartment seekers who view a property are asked to sign the lease? If your leasing team isn’t confident they are offering a best-fit rental home for a prospect, why should the renter be motivated to take the next step? When you ask what amenities and community characteristics are most important – in-unit laundry equipment, pet-friendly policies, high-end appliances – they will tell you. Ask your current residents what they like most about their current living arrangement and what improvements would convince them to renew the lease when the time comes.

Provide Communication Options That Complement Renters Lifestyles

When surveying your current residents, make sure to use their preferred communication method. Does your team ask new residents if they prefer paper, email, text, or tenant portal notices and updates as part of the welcome home interview? You should.

Keep your survey simple. A form that is easy to fill out, and anonymous, will usually generate more returns, and more accurate responses.

Creating a pre-move-in questionnaire and a follow-up in a couple of months, allows you to identify ways your property is meeting renter expectations, and discover clues for improving community experiences. Consider these questions as a starting point for survey design.

  • Which on-site amenities are your favorites?
  • What could property managers add, change or remove to make the property feel more like home?
  • Do you feel valued and appreciated by the customer service team and policies?
  • How would you rate overall safety and security within the community?
  • Is the maintenance staff responsive and efficient?

Now That You Know What Renters Want …

Are you ready to respond? While 13 percent of Americans don’t have smartphones, the other 87 percent use their devices to manage daily life. Deploying modern, state-of-the-art property management software that responds to the thirst for instant gratification – like an instant confirmation the rent payment is being processed through the tenant portal – will simplify everything they do.

Be bold. Ask your tenants and prospects what they want and need. Modern property management software should enable you to send surveys directly to your renters and easily track responses. Make sure your technology enhances customer service with online maintenance requests, streamlined, efficient communication and tools that make it easier for your team to focus on developing superior customer service strategies to boost retention rates.

Reserve Funds: Six Tips to Improve Your HOA’s Returns

In a 2018 HOA budget survey, 72% of board members indicated that they weren’t confident in the returns they were getting on their reserve funds and/or operating funds. To help, we’ve outlined six ways to improve your returns with the guidance of your HOA management company. Read the full article and download a complimentary guide here > 

1. Only invest in money market accounts and CDs

Your responsibility as a fiduciary is to protect the assets of your association. That means only investing in FDIC-insured money market accounts and CDs and avoiding risky investment vehicles like mutual funds, bonds and stocks.

2. Trust HOA professionals for investment advice

Look to your California community management company and financial services provider to help your board make sound investing decisions. Some boards research investment information themselves via the internet or financial publications, which is time that may be better spent creating better HOA policies.

3. Learn HOA investment fundamentals

Board members should have a basic understanding of HOA financials and state legislation when it comes to managing reserve funds.

For instance, in California, the board must review the current reserve revenues and expenses on a quarterly basis.

4. Work with an HOA-specific financial services company

Work with an HOA financial services company that can help you get the most out of your reserve funds. They should have a large portfolio and existing relationships with banks in order to obtain competitive rates on your behalf.

By utilizing FirstService Financial, FirstService Residential clients typically earn rates that are 4 to 5 times higher than the national average.   In one case, FirstService Financial partnered with a Dana Point association to increase their annual interest by more than $27,000 by leveraging existing bank relationships and evaluating the association’s current investments.

5. Review HOA investments regularly

Reviewing your reserve fund investments on a regular basis is important. Banks often offer teaser rates to customers, which will go away over time. Review your portfolio quarterly to make sure rates don’t change.

6. Create an Investment Policy

Last but not least, create an HOA Investment Policy. Karla Chung, vice president of FirstService Financial said,

Can vacant mall stores alleviate homelessness?

Yesterday’s Sears is tomorrow’s transitional housing facility.

Closed Macy's store at Landmark Mall, Alexandria, Virginia

We already know that shopping mall anchors gone belly-up can serve plenty of purposes in a second life: community college campuses, medical facilities, mega-churches and even public libraries. Transforming a defunct J.C. Penney into a destination grocery store like Whole Foods has proven to be a particularly attractive method of adaptive reuse, so much so that numerous flailing malls are being resuscitated with supermarket-based life support.

And here’s another idea: Turn them into affordable housing hubs for the homeless.

It’s a magnanimous but somewhat radical idea, especially depending on the status of the mall. In a scenario in which the rest of the mall is still active, housing for at-risk individuals where the Sears used to be could potentially drive some shoppers away.

When Los Angeles Times columnist Steve Lopez asked readers last year for their thoughts on the best use for a dying mall, many suggested housing for the homeless with on-site social services. He responds:

I like the thought, but practical realities present some limitations. Some malls are doing fine as is, but even among those that are struggling, the land is still worth a fortune. Owners would want top dollar whether they sell or rent out their land, and I’m not sure a tent city would pencil out.
Plus, changing the use of the land could require zoning changes, and that’s fraught with bureaucratic and political challenges, as well as possible neighborhood opposition.

But in malls that are either truly dead or on their way out, really why not put an empty department store to the most big-hearted kind of use, at least temporarily?

Landmark Mall, Alexandria, VirginiaAlexandria’s Landmark Mall was a big deal when it opened in the 1960s. It’s now awaiting a dramatic makeover … and housing homeless folks in the meantime. (Photo: Mark Wilson/Getty Images)

Virginia shelter finds unique temporary home

To prove Lopez to the contrary, you needn’t look further than Landmark Mall in Alexandria, Virginia, where a shuttered Macy’s has been reborn as a homeless shelter.

As grand redevelopment plans for the property continue to be ironed out, the developer has opted to donate the old Macy’s to Carpenter’s Shelter, a local homeless nonprofit, for a year and a half. (One of the original anchors, Sears, remains open for the time being and the mall itself has been used as a filming location.)

Several years back, Carpenter’s Shelter faced a quandary: Larger modernized facilities, complete with adjacent affordable housing units, were planned to be built for the nonprofit across town on the same site of the 60-bed emergency shelter that the organization had operated for the past two decades. It was an ideal situation — Carpenter’s Shelter wouldn’t have to move, it would just get really nice new digs in the exact same spot.

Yet with the so-called New Heights redevelopment project due to take 18 months to complete, Carpenter’s Shelter was in need of an interim home, and the just-closed Macy’s at Landmark Mall fit the bill. In addition to the largesse of property owner the Howard Hughes Corporation, Carpenter’s Shelter wound up in a dead mall because it was one of the only available areas in affordable housing-strapped Alexandria zoned to allow a homeless shelter.

It took 12 weeks for the organization to transform a section of the mannequin-stuffed department store shell into a habitable space. Fifteen months after Macy’s rang up its last purchase, the first residents of Carpenter’s Shelter moved in.

It’s a temporary arrangement, true, but also one helping to make a huge difference for homeless individuals who will be moving out of the Macy’s once Carpenter’s Shelters permanent new home is complete. (Some Carpenter Shelter residents are former employees of the very same Macy’s store.) And, more importantly, it opens up the real possibility of turning vacant anchor stores into much-needed homeless shelters and transitional housing hubs.

Dying mall in ConnecticutOnce invincible stalwarts of consumerism, mall anchor stores are closing at an exponential rate. At the same time, homelessness is on the rise. (Photo: Spencer Platt/Getty Images)

Explains the Washington Post:

The idea that spurred this transformation represents a new way of thinking that is bringing together three economic phenomena: the collapse of the brick-and-mortar retail industry, the disappearance of affordable housing in America’s boom towns, and the struggle to reduce homelessness, which remains as intractable as ever.

As the homelessness crisis mounts across the country, there’s a growing chorus of those who believe that repurposing empty mall anchors and big box stores for transitional housing is smart — there’s certainly an ample (and growing) inventory of them. And even if many dead malls will eventually be redeveloped into new mixed-use retail destinations, a large number of these projects, like Alexandria’s Landmark Mall, are years off. (Eventually, as is the trend with many shuttered enclosed shopping malls, the Landmark Mall will be reborn as an open-air “live-shop-dine urban village” complete with apartments and beaucoup public green space.)

Why not make the best of a whole lot of vacant square footage in the meantime?

“The fact is that there will be millions upon millions of square feet of retail space that are not going to be used over the next five years . . . and they can be used for all kinds of things,” Amanda Nicholson, a professor of retail practice at Syracuse University, tells the Post. “I think it would be an inspired idea.”

Re-Habit retail plaza, KTGY Architecture + Planning.A dead anchor store reborn at a regional shopping mall, as envisioned by KTGY Architecture + Planning. (Rendering: KTGY)

A step in the right direction (where the cosmetic counters used to be)

Anticipating that other shuttered mall owners might follow in the same benevolent path of Landmark Mall, the research and development arm of Los Angeles-based KTGY Architecture + Planning has conceived a conceptual blueprint for future Macy’s-turned-transitional housing facilities.

KTGY calls the concept Re-Habit, a “plan for repurposing obsolete big-box stores into essential uses, including smaller retail spaces, housing, employment, and support for homeless individuals.”

“With big box stores such as Macy’s, J.C. Penney and Sears closing in record numbers, repurposing such vacant spaces becomes increasingly necessary,” says Marissa Kasdan, a senior designer with KTGY. “At the same time, the housing affordability crisis and other factors are driving up demand to house and service homeless individuals. Re-Habit offers one adaptive-reuse solution for multiple problems.”

In the Re-Habit space envisioned by KTGY, an 86,000-square-foot anchor store has given way to a dynamic facility centered around a spacious courtyard and dining hall. There’s also a rooftop garden for resident use and three different sizes of “bed pods” — sleeping rooms of various sizes that become less communal in nature the longer a resident stays in an integrated support program. For example, a new arrival would start in a large bed pod shared by as many as 20 other residents. As the transition process continues, that resident can graduate to a smaller two-person bed pod that offers greater privacy and independence.

And in the true spirit of its retail roots, Re-Habit would feature a “retail plaza” including upscale thrift boutiques, coffee shops and other establishments staffed by residents as a means of providing job training and meaningful employment.

Re-Habit sleep pods, KTGY Architecture + Planning.Re-Habit includes a small handful of different sleeping arrangements for residents including communal ‘sleep pods.’ (Rendering: KTGY)

In conceiving Re-Habit, KTGY consulted with the Long Beach Rescue Mission to glean insight on how such a cavernous raw retail space could best redesigned to accommodate low-income and homeless individuals. What would a housing nonprofit want and need from it?

Robert Probst, the mission’s executive director, considers himself a fan. “I’m very excited about this idea,” he says. “Re-Habit, if run correctly, can be a self-contained environment, with people living, working and then moving into affordable housing. It would be a reward for people who are ready to change their lives.”

Kasdan of KTGY admits that many developers won’t be entirely gung-ho about the potential of resurrecting a dead anchor store as “self-supporting mixed-use transitional housing.” Still, as she explains, the idea has potential.

Re-Habit rooftop garden, KTGY Architecture + Planning.At a Re-Habit facility, residents would grow their own produce grown on the roof of an erstwhile department store. (Rendering: KTGY)

“For most big-box owners, this would not be their first choice for reuse. But on the flip side, many have asked us about new concepts for incorporating residential units into their developments. Re-Habit expands the reuse possibilities and allows everyone to consider communities’ larger needs.”

She adds: “Such a project does not need to appear as a ‘homeless shelter.’ By partnering with the right team of developers, social services, government entities and community groups, it’s possible to create an attractive environment that transforms obsolete space into a real asset.”

Just think, the same Sears appliance department where you bought a washer and dryer for your very first home could someday serve as the sleeping quarters for someone who has experienced a rough patch but is on the road to one day owning their own washer and dryer, too.

HOA Maintenance, Capital Improvements and Useful Life: Are You Prepared?

“Should we fix this component…or replace it entirely?”
“Is this maintenance job becoming a capital improvement?”
“How can we extend a component’s useful life?”

Do these questions sound familiar? The truth is everyone in your homeowners association (HOA) wants your property’s components to continue to function smoothly and look good. That requires undertaking necessary routine maintenance and repairs as well as capital improvement projects. Properly funding these two types of activities depends primarily on your knowledge of how they differ and how they work together and a deeper understanding of useful life and reserve studies.

To learn more about the importance of budgeting for maintenance and capital improvements, read on and complete the form below to download our helpful white paper,Pay Now or Pay (More) Later? Making the Most of Your Reserve Study and Maintenance Budget.

If you’re like many residents (and even board members) who live in HOAs across California, you may not understand every single thing about maintenance, capital improvements and useful life. Not to worry! We’re here to explain the relationship between maintenance and capital improvement projects and how you should partner with your California HOA management company to budget for them. And to make sure your management company is on the same page with you in terms of maintenance and budgeting projects, read our article, “React, Outsource, or Prevent? Find Your Association’s Maintenance Style.”

What’s Considered Maintenance?

As a refresher for you, day-to-day and preventative maintenance are activities that are meant to restore components to their original condition and prevent them from deteriorating any further. These activities should be funded in your budget as expenses under the “Repairs & Maintenance” (R&M) line item.

With proper maintenance, components have a better chance of reaching their expected useful life. For example, activities such as making repairs to your irrigation systems, landscaping, touching up the paint in your hallways, regular cleaning of your pool, changing lightbulbs and other tasks that your HOA property management company attends to frequently or on an ongoing basis are classified as maintenance jobs.

What’s Considered a Capital Improvement?

A major replacement or repair that will increase a component’s market value beyond its original or current state should be categorized as a capital improvement. Generally, you will undertake this type of project to reduce future operational costs (such as utility or maintenance costs) or to enhance your residents’ quality of service. For example, if you replace your building’s roof, upgrade to a more energy-efficient ventilation system or install LED lighting throughout your community, you are undertaking a capital improvement project.

Capital improvement projects should be funded from your reserves rather than from your operational budget. Since these projects are costly, your HOA management company needs to plan for them and collect money over time to pay for them. That’s where a reserve studycomes in. Having a qualified reserve study specialist conduct a study helps you determine which components will need to be replaced, how much more useful life they are likely to have, the estimated cost for the project and the annual amount of money your association needs to put into your reserve fund to pay for it.

How Do You Determine “Useful Life”?

The amount of time that a component will serve its original purpose is referred to as its “useful life.” “Every component has a useful life given to it by the manufacturer,” said Rodney Riepenhoff, reserve study specialist and corporate engineer for FirstService Residential.

Manufacturers estimate useful life based on certain assumptions about a component. However, factors like additional wear and tear, regulatory changes, environmental conditions or unexpected obsolescence can affect its actual useful life.

How Do You Make Sure Maintenance and Capital Improvements Work Together?

How closely your management company adheres to the manufacturer’s recommended maintenance schedule will significantly impact a component’s actual useful life. Riepenhoff points out, “Many communities do not do all the required maintenance, often because of the cost.”

In the long run, however, this can wind up costing the HOA more because it reduces the component’s useful life. The need to replace a component sooner than expected not only means reducing the return on investment (ROI) of that component, but it also means having an unexpected expense for the new component. More than likely, your HOA will not yet have enough in your reserve if the amount you’ve been putting aside was based on a later replacement date.

The lack of an updated reserve study is often to blame when an HOA is unaware that its preventative maintenance has been inadequate. “Or the HOA hires a third-party vendor that is not doing the necessary work, and they have no checks and balances in place,” said Riepenhoff.

How Do You Extend “Useful Life”?

Diligent maintenance can actually extend a component’s useful life. For instance, if replacing certain parts on a component allows it to function more efficiently or if your materials are of a higher quality, the component is likely to last longer than expected.

One Los Angeles high-rise association learned about the relationship between maintenance and capital expenditures the hard way. Inadequate guidance and support from its community management company resulted in years of neglected preventative maintenance at the 228-unit high-rise. This included unresolved water drainage issues from the pool and surrounding area, which caused numerous leaks into the parking lot below. Riepenhoff evaluated the issue when FirstService Residential took over the HOA management services. While resolving the drainage problem did require a $120,000-capital improvement project, this was $280,000 less than a previously recommended improvement. Additionally, the association now has a maintenance plan to help prevent costly damage to the community in the future.

Riepenhoff does warn that it’s possible to overdo maintenance. Some communities continue to maintain a component when it would be more cost effective to replace it. How do you know when it’s time to replace rather than maintain? Riepenhoff said, “When the yearly cost outweighs the replacement cost, it’s time to replace it.”

Can a Maintenance Job Become a Capital Expenditure?

There are definitely times when your HOA receives the unexpected news that a maintenance job is not enough to resolve an issue. A deeper look into the problem might uncover surprises that turn the job into a capital improvement project. For example, you may have had a leak in your roof that you assumed required a simple patching. However, when your roofers examined the problem, they found more widespread damage that requires a roof replacement. Originally, the maintenance job would have been funded out of your operational budget. Now, your HOA will need to pay for the project out of your reserve fund. (Hopefully, you have the necessary money in your reserves.)

Which Criteria Differentiates Maintenance From Capital Improvements?

When to categorize an expenditure as a “maintenance job” versus a “capital improvement project” is a case-by-case determination. Some factors you should consider include:

  • The component’s value
  • Your goal in performing the work
  • The scope of the work
  • The actual result
  • How the work will affect the component’s value, equity return and depreciation

Now that you have a better understanding of the purpose of maintenance and capital improvement work at your community, you can budget for your projects more effectively. Matching your maintenance plan to your capital improvements will help improve your community’s property value and enhance the comfort, safety and enjoyment of every resident.