Contributed by Jeff Westendorf, CMCA, AMS
Generating adequate reserve funding in your community can seem like a daunting task, but doing so is a necessary step in providing for ongoing preventative maintenance, funding structural inspections and repairs, and safeguarding your community’s future.
Take, for example, Cobblestone Owners Association, a 157-unit townhome community in Urbandale, Iowa. The community was forced to tackle their reserve funding head on when faced with severe maintenance challenges they couldn’t afford. Homeowners learned important lessons about maintenance and reserves, overcoming their challenges with communication, collaboration, planning, and persistence.
In July 2021, the suburban Des Moines community had more than 100 deferred maintenance requests, roofs at the end of their useful life, and rotten cedar shake siding that was more than 35 years old. Water intrusion was causing damage in many homes.
The community’s operating fund was nearly depleted. There was no finance committee and very little owner participation. The association never had a reserve study. The board implemented austerity measures and voted to borrow from reserves to pay outstanding operational repair bills.
Understanding the dire situation, Cobblestone conducted its first reserve study in October 2021. A month later, the board adopted a reserve study charter and formed a five-member finance committee. The community kicked off a detailed process to educate homeowners to build consensus and develop a broad financing plan and reserve study policy.
Cobblestone faced more than $8 million in immediate capital replacements, and it needed more than $9.2 million in reserve funding. With only $410,000 available in reserves, they were only 4.4% funded with a per unit deficit of over $56,000.
Most homeowners were shocked, angry, and disbelieving about the poor physical condition of the property and the lack of financial resources available. Most accepted the reserve study and recognized significant changes in assessments were needed. The finance committee recommended an increase in monthly assessments. Owners ultimately voted down the proposal, leaving the board unable to fix the property.
In 2022, more than 20 units went on the market for sale. Then, the finance committee presented three new options that combined increased assessments with a corresponding special assessment. Town hall meetings in fall 2022 vetting the three plans were often angry and unruly. Finally, at a special owners’ meeting in December 2022, a 69% super-majority of owners approved increases to monthly assessments.
Recently, with just over $1 million in reserve funding and growing at more than $62,000 monthly, Cobblestone qualified for a loan of up to $6 million with a 15-year repayment plan to replace siding throughout the property. Despite the volatile emotions and anxiety caused by the situation, the Cobblestone community was ultimately able to put aside differences and unite to raise assessments and fund reserves.
“Not properly representing and disclosing the true cost of living here is unethical,” Cobblestone Board President Zac Parry said during one of the contentious community meetings. “We must break the cycle of under-representing what it costs to live here.”
Jeff Westendorf is with West Management Group in Urbandale, Iowa.
>>Read more about Cobblestone and how it overcame its maintenance challenges and budget shortfalls in “Wake Up Call” from Common Ground September/October 2024.
>>Learn more about reserve studies and funds in CAI’s new Reserve Studies and Funds: How and Why Community Associations Invest Their Assets.
