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DBO ResponseJun 05, 2009


Hi,

We have 111 units with 11 rentals left (which we own) and sell when they become available. We also have almost 3/4 of a million in reserves. When we had an engineering study done, we realized that out reserve level is not enough and we are looking to add to it. A reserve fund can give a board a false sense of security. We are looking at a Capital Funds Replenishment Fee (like a transfer tax) of 2-3 % off of gross however that means a super-majority for us which may not be obtainable for you.

I agree that 'doing it right' with the repairs is the best way to go and will be cheaper in the long run. My suggestion is to use the current reserve funds since you have them and then either phase in additional maintenance increases (putting the excess in reserves) or a lower annual assessment over three years to replenish the fund. Conceivably, you will need more in the end than just the 'mortgage reserve' as new repair needs will become evident.

Also, the tax credits of which you speak may lag the actual expenditure so that you may have to pay 100% for the repairs before you see the cash flow from any tax credits. Also, if you are seeking J-51 credits, all violations must be cured before the city approves the credit.

In my opinion, when the mortgage comes up, I would suggest buying out the sponsor. This puts your destiny into you own hands.

Finally, I would like to see you move towards sustainable finances. An engineering study of needed replacements within the next 5 years (incase the city/insurance company list is not comprehensive) and then establishing a 5-10 financial plan off of that for funding would be a start (for example: 5-year plan cash needs times two and a ten year plan to pay for it).

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