Maintenance Management Systems for Condominium Owners’ Associations

Maintenance Management Systems for Condominium Owners’ Associations under the German Condominium Act Prof. Dr. Andreas Saxinger, Miriam Hansel B.Sc.

Maintenance Management Systems for Condominium Owners’ Associations Prof. Dr. Andreas Saxinger Miriam Hansel B.Sc. Agenda • Introduction – definitions and questions • Calculation models • Sample calculations of practical examples • Review of the results • Conclusions

Maintenance Management Systems for Condominium Owners’ Associations Prof. Dr. Andreas Saxinger Miriam Hansel B.Sc. Introduction (1) • Current challenges for the property management • Most residential buildings were built between 1965 and 1986 • Average construction age of 67% of the German property portfolio is over 50 years • Technical defects of buildings or lack of technical knowledge of the property managers • Current situation is unsatisfactory regarding maintenance planning due to a lack of legal provisions and appropriate strategy

Maintenance Management Systems for Condominium Owners’ Associations Prof. Dr. Andreas Saxinger Miriam Hansel B.Sc. Introduction (2) • Condominium Owners´ Association • The rights and obligations of the Condominium Owners´ Association are defined in the German Condominium Act (Wohnungseigentumsgesetz - WEG) • Owners establish an association with partial legal capacities in order to maintain the property held in joint ownership • Condominium Owners´ Association is justified by ensuring the creation of common areas held in common ownership and individual unit held in individual ownership • Property manager • The property manager is elected by the Condominium Owners´ Association by simple majority • The property manager does not need to fulfill special professional qualifications • Obligatory tasks are the current maintenance and repair of the common areas and building up sufficient maintenance reserves

Maintenance Management Systems for Condominium Owners’ Associations Prof. Dr. Andreas Saxinger Miriam Hansel B.Sc. Introduction (3) • New maintenance management systems are required • Ageing buildings and rising construction costs lead to reconsideration of maintenance planning • Maintenance managements systems need to react at an early stage to pending costs and repairs • Proactive maintenance planning can not only be seen as a refurbishment, but also as a possibility to enhance property values

Maintenance Management Systems for Condominium Owners’ Associations Prof. Dr. Andreas Saxinger Miriam Hansel B.Sc. Calculation models (1) - Peters‘ formula - • The formula was developed by the architect Peters in 1984 • One of the few formulas, but most commonly used for calculating the maintenance reserve • Formula: Construction costs x 1.5 x 65 / 80 x floor space x 100 • Key determinants: • Building age: 80 years • Maintenance costs: One and a half times of the construction costs, applied to 65% - 70% of the floor area of the building

Maintenance Management Systems for Condominium Owners’ Associations Prof. Dr. Andreas Saxinger Miriam Hansel B.Sc. Calculation models (2) - Second Calculation Regulation - • Formula was initially designed to calculate the maintenance charges per unit for publicly-subsidized housing (not for the private sector) • Also used by property managers to calculate the maintenance reserve • Figures must be adjusted to the differing building standards and exclude individual units • Key determinants: • Maintenance charges per unit dependingon the building age • Maintenance charges per unit arecontinuously adjusted to theunderlying consumer price index Source: Own diagram based on the II. Calculation Regulation, The development of the maintenance flat charges, December 2016

Maintenance Management Systems for Condominium Owners’ Associations Prof. Dr. Andreas Saxinger Miriam Hansel B.Sc. Sample calculations (1) - Approach - • An overview of the three sample properties provided by a leading property management company in Munich, Germany • Presenting the property management company’s original calculated expenses • Calculating the reserve by using Peters’ formula and the Calculation Model of the Second Calculation Regulation • Making adjustments to the well-known formulas by preparing a 5-year-forecast of the expected maintenance and repair measurements required on the basis of the building condition • Reviewing the results and evaluating the different calculation modules

Maintenance Management Systems for Condominium Owners’ Associations Prof. Dr. Andreas Saxinger Miriam Hansel B.Sc. Sample calculations (2) - Overview of the three example properties-

Maintenance Management Systems for Condominium Owners’ Associations Prof. Dr. Andreas Saxinger Miriam Hansel B.Sc. Property number 83 (1965; 8,177 m²) • Peters’ formula (Peters´sche Formel) • II. Calculation Regulation (II. BV)

Maintenance Management Systems for Condominium Owners’ Associations Prof. Dr. Andreas Saxinger Miriam Hansel B.Sc. Property number 83 (1965; 8,177 m²) • Demand-oriented maintenance planning

Maintenance Management Systems for Condominium Owners’ Associations Prof. Dr. Andreas Saxinger Miriam Hansel B.Sc. Property number 83 (1965; 8,177 m²)- Results - • Peters‘ formula (Peters´sche Formel): • Maintenance reserve only covers the maintenance costs for the first year • Construction costs were very low in 1965, therefore maintenance measures can not be financed without extra special payments • The reserve calculated by the formula will not be sufficient to cover the rising maintenance costs and repairs of older buildings • II. Calculation Regulation (II. BV): • Maintenance reserve only covers the maintenance costs until the end of 2018 • Annual maintenance reserves are too low in to cover the rising expenses of old buildings without extra special payments • Demand-oriented maintenance planning (Bedarfsorientierte Planung): • Maintenance reserve covers the maintenance costs of all years, by determining the annual reserve to nearly 150,000.00 €

Maintenance Management Systems for Condominium Owners’ Associations Prof. Dr. Andreas Saxinger Miriam Hansel B.Sc. Property number 39 (1972; 10,770 m²) - Results - • Peters‘ formula (Peters´sche Formel): • Maintenance reserve covers the maintenance costs until the end of 2020, • The initial calculation in 2017 is already sufficient with an amount of 305,000.00 €, therefore the maintenance measures can be financed • II. Calculation Regulation (II. BV): • Maintenance reserve covers the maintenance costs until the end of 2020 • Maintenance reserve would be high enough to break even the costs except for the modernization measures in 2021 • Demand-oriented maintenance planning (Bedarfsorientierte Planung): • Maintenance reserve covers the maintenance costs of all years, by budgeting the annual reserve with 400,000.00 € • Exceptional case because modernization planned in 2021 with estimated costs of 2,000,000.00 €

Maintenance Management Systems for Condominium Owners’ Associations Prof. Dr. Andreas Saxinger Miriam Hansel B.Sc. Property number 31 (2004; 10,032 m²) - Results - • Peters‘ formula (Peters´sche Formel): • Annual maintenance reserve is sufficient to cover all maintenance measures • Construction costs were very high therefore the amount of the reserve at the end of 2021 is almost as high as at the beginning of 2017 • The reserve calculated by the formula for new buildings turns out to be very high in comparison to the low maintenance costs • II. Calculation Regulation (II. BV): • Maintenance reserve covers all maintenance costs • It might be reasonably to assume that the maintenance charges per unit can be considered as too low in order to cover all maintenance costs without sufficient reserve at the beginning of 2017 • Demand-oriented maintenance planning (Bedarfsorientierte Planung): • An annual maintenance payment of 150,000.00 € enables the implementation of the current and the preventive maintenance measures

Maintenance Management Systems for Condominium Owners’ Associations Prof. Dr. Andreas Saxinger Miriam Hansel B.Sc. Conclusions • The pure application of the well-known, strict and short-term formulas does not fully meet actual needs. Dynamic elements are important for a better adaption to changing needs and strategic planning. • Proactive maintenance planning enables to reduce the financial burden for the owners and gradually less maintenance backlogs. • Extra special payments can be avoided and contingencies can be financed in advance. • Demand-oriented maintenance planning is based on long-term views and establishes a common basis for developing strategies and decisions making. In addition it can greatly enhance property values.

Thank you for your attention! • Prof. Dr. Andreas Saxinger • Nurtingen-Geislingen UniversityParkstraße 4D-73312 Geislingen • Tel.: 0049 / 7331 / 22 - 584 / -543 • e-mail: andreas.saxinger@hfwu.de • Miriam Hansel, B.Sc. • Nurtingen-Geislingen UniversityParkstraße 4D-73312 Geislingen • Tel.: 0049 / 171 / 3255/ -876 • e-mail: miriam.hansel@t-online.de

Maintenance Management Systems for Condominium Owners’ Associations