Asset Management Orientation for PHA Boards - PowerPoint PPT Presentation

Asset Management Orientation for PHA Boards

Section 1: Overview of Asset Management

Section 2: Asset Management Building Blocks

Section 3: The Central Office Cost Center

• Designed for PHA Board members
• Based on the curriculum presented at live, regional training sessions conducted in 2007
• Features include:
• Fully narrated presentation slides
• Ability to navigate between slides
• Exercises in each section
• Ability to download the training to your computer
• Access to reference materials and websites

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Section 1: Overview of Asset Management

• Provide a brief history of the events leading up to Public Housing’s conversion to asset management
• Identify key dates associated with the transition to asset management
• Define asset management
• Distinguish asset management from property management
• Describe key roles and responsibilities under asset management, particularly the PHA Board’s role as owner

• 1998: Quality Housing and Work Responsibility Act
• 1999: Negotiated-Rulemaking I, Funding of Harvard Cost Study
• 2003: Cost Study Completed
• 2004: Negotiated-Rulemaking II
• 2005: Final Rule on Operating Fund Program
• New Operating Subsidy Formula
• Asset Management Requirement for PHAs with 250+ Units
• 2006: PIH Notice 2006-33 (Interim Guidance/Financial Reporting)
• 2007: PIH Notice 2007-09 (Final Guidance/Financial Reporting)
• 2008 Appropriations Bill (Include full name here)

Data is based on the “Operating Fund Annual Report Calendar Year 2007,” October 31, 2007.

Data is based on the “Operating Fund Annual Report Calendar Year 2007,” October 31, 2007.

“PHAs shall manage their properties according to an asset management model, consistent with the management norms in the broader multi-family management industry. PHAs shall also implement project-based management, project-based budgeting, and project-based accounting, which are essential components of asset management.”

Revisions to the Public Housing Operating Fund Program; Final Rule

HUD, September 19, 2005

• Determination of Asset Management Projects (AMPs) – Calendar Year 2006
• Implementation of new Operating Fund Formula – Calendar Year 2007
• Project-Based Budgeting/Accounting (PBB/A) – Fiscal Year 2007
• Cost Reasonableness Standards – Fiscal Year 2008
• New Public Housing Assessment System – Effective Second Year of PBB/A
• Full implementation of Asset Management – Fiscal Year 2011

*Extension through 2011 on case-by-case basis

Asset management…is a process of making investment decisions for a collection (portfolio) of assets, based on the mission, goals, and objectives of the owner, lender, sponsor, or regulatory body.

• Asset Management
• Mission/goals/policies
• Strategic decision making
• Property Management
• Day-to-day management/operations

Entity

Role

Function

Owner

Asset

Management

PHA Board

PHA Staff

or Mgmt

Company

Property

Management

Operator

Oversight

and

Monitoring

Regulator

PIH

Field Offices

• Who to serve
• Quality of housing
• Standard of affordability
• Social goals

• PHAs with fewer than 250 units are not required to convert to asset management. Still, they will be:
• Subject to new funding formula
• Required to use the new year-end financial reporting template (FDS, or Financial Data Schedule)
• Affected by change in PHAS
• Small PHAs may choose to implement asset management and follow the key business rules like any larger PHA

• Review activities for conformance with missions and goals
• Evaluate progress and recommend corrective action
• Monitor performance
• Stay up-to-date on industry information
• Foster relationships with key stakeholders

The Consolidated Appropriations Act of 2008 contained two provisions which pertain directly to asset management. The two provisions are:

• PHA election to be exempt from asset management for PHAs with 250-400 units
• Use of Capital Fund proceeds to pay for central office costs

The first provision is only effective for CY 2008. The second is considered permanent legislation.

• For the purpose of being exempt from asset management, the size threshold increased from 250 units to 400 units
• Does not change small PHA threshold for other program areas
• PHAs between 250-400 units that elect to convert will not have option of “alternative asset management model” (available only for PHAs of less than 250 units)
• Exemption only authorized for CY 2008
• PHA must notify HUD via CY 2008 operating subsidy submissions by April 25, 2008

• Will not implement fee for service model, and will not create a COCC
• Will not receive the $4 PUM asset management add-on
• All units will be combined into one AMP, possibly affecting Project Expense Levels (PELs)
• Refer to PIH Notice 2008-16 for additional implications

• PHAs may transfer Capital Funds to Operations for payment of central office costs
• In implementing this provision, PHAs must maintain cost allocations for overhead costs (in lieu of fee-for-service/management fees) and, therefore, not establish a COCC
• Overhead costs must still be considered reasonable and necessary
• Large PHAs may still only transfer up to 20% to “Operations”

• How might asset management change the way your PHA does business?

As a group, please discuss and provide an answer to the question above.

End of Section 1

Section 2: Asset Management Building Blocks

• Introduce the five building blocks of asset management

Project-based

performance assessment

Project-based management

Project-based accounting

Project-based budgeting

Project-based funding

Project-based funding

• Separate subsidy form for each project
• Project Expense Level (PEL) is a major component
• Ensures appropriate resources are allocated to each AMP

$

OLD

HUD

PHA

NEW

HUD

PHA/COCC

$ Fees

$ Subsidy

AMP

• Property Management Fee
• Asset Management Fee
• Bookkeeping Fee
• Fee-for-Service
• Program Mgmt. Fees.

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

• Model-generated estimate of cost to operate a project on a per unit basis, exclusive of taxes, utilities, and add-ons
• Amount expressed in PUMs (per unit month)
• Major coefficients that have a large impact on PEL
• Unit Size (Bedroom Mix)
• Local Market
• Age of Property
• Occupancy Type (Family vs. Elderly)
• National average was $ 325 PUM in 2007 (excluding New York City Housing Authority)

• Represents the average utility consumption for a project over the past three years, multiplied by recent utility rates
• Amount expressed in PUMs
• National average was $125.95 PUM in 2007
• Assigned UEL will vary by project

• Equal to a project’s rental income reported on 2004 financial statements, adjusted for changes in utility allowances
• Effective for 2007 through 2009
• National average was $181.09 PUM in 2007

• Each year, total subsidy eligibility is compared with appropriations for the Operating Fund program; the difference is proration
• Expressed as a percentage
• Example:
• Eligibility = $4.0 billion
• Appropriation = $3.6 billion
• Proration = 90%

Effective Income

- Operating Expenses

= Net Income

Project Expense Level (PEL)

+ Utilities Expense Level (UEL)

+ Add-ons

= Formula Expenses

- Formula Income

= Subsidy Eligibility

- Proration

= Actual Subsidy

+ Rental Income

+ Other Income

+ Transfers

= Effective Income

Project-based budgeting

Project-based funding

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

What are project-based budgets?

• Itemized projection of income and expenses over a specific period
• Guideline for operating the project

Gross Potential Income (GPI)

- Vacancy and Collection Loss

+ Miscellaneous Income

= Effective Gross Income (EGI)

- Operating Expenses

= Net Operating Income (NOI)

- Reserves for Replacement

- Annual Debt Service (ADS)

= Cash Flow

Operating Expense

Ratio (%) =

Operating Expense

per Unit ($) =

• Several variables may impact benchmarks
• Expense benchmarks can be used to compare efficiencies across properties

Operating Expenses

Income

Operating Expenses

Number of Units

• Consider data from two similar apartment buildings shown on the next slide
• Calculate the Operating Expense Ratio and Operating Expense/Unit Ratio
• In groups, identify the project with the lowest costs
• What other factors should be considered when evaluating the results of this cost comparison?

86%

91%

$7,500

$14,500

Hamilton Place:

Operating Expense Ratio:

$150,000 (Operating Expense)/$175,000 (Income) = 86%

Operating Expense per Unit:

$150,000 (Operating Expense)/20 (Number of Units) =

$ 7,500

Southside Apartments:

Operating Expense Ratio:

$145,000 (Operating Expense)/$160,000 (Income) = 91%

Operating Expense per Unit:

$145,000 (Operating Expense)/10 (Number of Units)=

$ 14,500

• Project Expense Levels (PELs)
• Project Level Data
• IREM Income/Expense Analysis® Reports
• www.irem.org
• Housing Finance Agencies
• NeighborWorks (small properties)
• Rural Development
• Local and Regional Market Studies

Project-based accounting

Project-based budgeting

Project-based funding

• Year-end project statements submitted to HUD
• Can only charge projects for services actually received
• Fees must be considered reasonable

• For conventional properties, the financial performance of each property is tracked individually and reported to the owner
• This allows the manager and owner to make the best possible decisions for each individual property
• Similarly, PHAs will assemble project level financial data

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

• Revenues, expenses, balance sheet
• To be included with the Financial Data Schedule (FDS)
• FDS will also be revised to include a column for the COCC

Project-based

management

Project-based accounting

Project-based budgeting

Project-based funding

• Arrange services in the best interest of the project
• Assign management personnel to each project

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

24 CFR 990

• Maximizes performance at all levels
• Local staff are closer to market changes and community issues
• On-site staff can monitor the project
• Response to resident issues is faster and more personal

• Each project has an operating budget to be approved by the owner
• The project is assigned dedicated management and maintenance personnel who frequently work on site
• If a project is too small to afford full-time staff, the project may have part-time or shared staff

• Site personnel have significant authority and responsibility over the day-to-day operations
• Most project management tasks are handled or coordinated by the on-site staff
• Procurement is done by on-site management and reviewed by supervisor
• The person primarily in charge of the project on a day-to-day basis, including maintenance, is the site manager

You own a group of restaurants.

• Would you have a budget for each restaurant?
• Would you hire a manager for each restaurant?
• What roles would you assign to on-site staff vs. central staff?

• The table on the following slide list tasks commonly associated with managing Public Housing
• As a group, determine whether each task should be performed on-site or centrally under project-based management

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Project-based

performance assessment

Project-based management

Project-based accounting

Project-based budgeting

Project-based funding

• Revise PHAS to emphasize AMP performance
• Development of internal PHA monitoring mechanisms

• Each project will be evaluated on financial, managerial, and physical aspects in addition to use of Capital Funds
• New system will:
• Be consistent with the norms in multifamily housing
• Avoid PHA self-certifications
• Rely on existing data sources
• Emphasize on-site management reviews

• Develop mechanisms to collect data to measure actual AMP performance against goals
• Goals must be clearly articulated in annual plans and budgets. For example, budget goals may include monthly income and expenditures.

• In order to measure performance, goals must be articulated
• Annual budget preparation includes goals:
• Rent collections
• Vacancies
• Unit turnarounds
• Inspections
• Maintenance services

• 5th of month: Financial statements made available
• 7th of month: Manager’s monthly Project Report due to Regional Manager
• 9th of month: Meeting with Site Manager and Regional Manager to review performance
• 10th of month: Regional Manager forwards narrative variance report to Director of PM and ED, accompanying monthly financial report
• 12th–15th of month: ED reviews performance with Board and Committees

Key information needed:

• Physical needs assessment
• Market data
• Asset value
• Funding sources

Asset strategies:

• Hold/defer
• Hold/modernize
• Refinance
• Sale/disposition/demolition

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

End of Section 2

Section 3: The Central Office Cost Center

• Explain the concept and requirements of the Central Office Cost Center (COCC) under the Final Rule
• Describe the allowable fees charged by the COCC

• Owners of Multifamily properties employ property management companies for the day-to-day operation of properties
• The Central Office Cost Center will operate like a property management company
• Final Rule requires all large PHAs (250 or more units) to establish a COCC

• Business unit within the PHA that earns income from fees and/or by overseeing other business activity
• Simplifies administrative requirements
• Provides greater flexibility to support mission of PHA

$

OLD

HUD

PHA

NEW

HUD

PHA/COCC

$ Fees

$ Subsidy

AMP

• Property Management Fee
• Asset Management Fee
• Bookkeeping Fee
• Program Management Fees
• Fee-for-Service

• Property management fee
• Bookkeeping fee
• Asset management fee
• Program management fees and other business activity
• Fee-for-service (e.g., centralized painting or extermination)

• Fee charged to AMPs for oversight provided by COCC
• Replaces traditional PHA overhead allocations
• Based on occupied units and HUD-approved vacancies (not including limited vacancies)
• Average management fee in HUD’s multifamily housing programs was $35 PUM (2004)

• 80th percentile of fees paid by market
• Local HUD multifamily fee schedules
• Other compelling local market data

• COCC is permitted to charge a bookkeeping fee for the project accounting function of $7.50 PUM
• Based on occupied units and HUD-approved vacancies (not including limited vacancies)
• Average bookkeeping fee in HUD’s multifamily housing programs was approximately $3.50 PUM (2004)

• Fees charged to AMPs for those tasks that would be residual if all property management functions were contracted to a third-party ($10 PUM)
• Subject to the availability of excess cash
• Based on total number of ACC units

• Fee charged to the Capital Fund Program for management related to capital activities
• COCC may charge up to 10% of total Capital Fund Program grant as management fee

• Fees charged for all administrative work performed by COCC staff related to the operation of HCV program
• Two different fees can be charged:
• HCV Management Fee – Higher of either 20% of annual administrative fee or $12 PUM based on number of vouchers leased
• HCV Bookkeeping Fee – $7.50 PUM based on number of vouchers leased

• Public Housing Development
• Other HUD Programs (ROSS, HOPE VI, etc.)
• Other business activity

• PHAs may choose to centralize various front-line expense activities and charge AMPs a fee for these services
• Examples
• Maintenance
• Legal Services

PHAs must adhere to the following:

• Fees must be based on the market rate for the work received and not the actual cost
• PHAs must use the fee for service approach for centrally provided maintenance
• Centrally provided front-line services must be in the best interest of the AMPs and cannot cost more than if performed on-site
• PHAs must maintain documentation for the fees charged to the AMPs

• Unlike in the past, front-line expenses and administrative expenses, called fee expenses, will need to be separated

• Front-Line Expenses:
• An expense of the AMP
• Paid for by AMP income (e.g. subsidy and rent)

• Fee Expenses:
• An expense of the COCC
• Paid for by fee income generated by COCC

• Certain personnel costs, including:
• Executive Director
• Regional Managers
• Human Resource
• Finance and accounting
• Equipment, furniture, and services necessary to sustain COCC
• Central servers and software supporting COCC
• Refer to Table 7.2 of the Supplement to PIH Notice 2007-09

• Onsite personnel
• Housing Manager
• Maintenance Technician
• Resident Services
• Equipment, furniture, and services required to maintain site-based office
• AMP utility costs
• Refer to Table 7.2 of the Supplement to PIH Notice 2007-09

Summary and Online Resources

• Improved services provided to each AMP
• Organizational structure allows for greater efficiency
• Onsite staff provide greater service to tenants
• System enhancements will allow PHAs to operate more efficiently

• Revisions to the Public Housing Operating Fund Program; Final Rule - 24 CFR Part 990
• Preparing for Asset Management Under the New Public Housing Operating Fund Rule (24 CFR 990): A Planning Document
• Demonstration of a Successful Conversion to Asset Management (Stop-Loss) Submission Kit Year 2
• Demonstrating Successful Conversion to Asset Management: A Site Visit to the Charlotte Housing Authority

• PIH Notice 2007-09, Changes in Financial Management and Reporting for Public Housing Agencies Under the New Operating Fund Rule (24 CFR Part 990), issued April 10, 2007
• Asset Management Help Desk
• Email: AssetManagementHelpDesk@hud.gov
• Toll-Free Telephone: 1-800-511-8478

End of Section 3