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Journal of Property Management
July/August 2021 Vol. 86, No. 4
A deep dive
into budget
forecasting
Invaluable
predictions
› Managing
distressed
properties
› T
okyo prepares to
host the Olympics
› A
preview of the
2021 IREM
Global Summit
in Las Vegas
For those who manage
to make a difference.™
Contents July/August 2021
Features
06
06 From struggling
to prospering
By Regina Mullins, CPM, CCIM
12 Invaluable predictions
By Salvatore Dragone, CPM, ARM, CCIM
18 Rural spotlight
By Barbara Jaco, CPM
24 Together we thrive:
2021 IREM Global Summit
By Lucinda Lilley, CPM, CAPS, GRI
Sustainability certification
for your entire portfolio
The IREM® CSP Volume Program allows Why certify your property?
04
Dashboard
Departments
28 Global practices
you to certify the environmentally- Hotel reuse, tips for retaining talent,
• Get recognized as a sustainable property by IREM. and the growth of discount stores
friendly conventional and medical office
buildings, multifamily and senior housing • Get credit for portfolio-level sustainability 30 Technology
communities, and shopping centers in programs and gain access to customized
your portfolio. You can also obtain a certification materials
32 IREM Foundation
gap analysis on corporate sustainability • Enhance external sustainability reporting, such as
programs through the Volume Program programs like GRESB, CDP, and RobecoSAM CSA,
enrollment process, which results in for your company or clients 34 Committee central
streamlined CSP applications for you and
your team. 32
REM-016
36 New certifications
To learn more and enroll, visit irem.org/csp-volume-program.
Cover image: iStock.com/Drazen_ irem.org/jpm | | 1
President’s letter
Welcome to the July/August edition fundamentals remain the same. In the feature on P18, IREM
July.August 2021 / Vol. 86, No. 4
of JPM! In this issue, we’re going to Federal Housing Administration Board Member Barbara
start off with a quick refresher of Jaco, CPM, highlights these differences and similarities
the fundamentals. As professional as she shares her passion for managing affordable rural
President | W.A. “Chip” Watts IV, CPM, CCIM real estate managers, we are driven housing in the U.S.
President-Elect | Barry Blanton, CPM to meet the goals and objectives
Secretary/Treasurer | Renee M. Savage, CPM, CCIM
of the property owner. That’s Real One of the advantages of holding IREM certification is the
Estate Management 101, right? level of professionalism that the designations signify: There
CEO/Executive Vice President
Denise Leduc-Froemming, CAE, MBA, CPA | dfroemming@irem.org But how do we do it? Throughout is no way to earn certification without first meeting strict
Vice President, Knowledge Solutions this issue, we’ll explore ways that requirements in the areas of education and experience and
Wendy Becker, J.D. | wbecker@irem.org Chip Watts, CPM, CCIM
property managers can meet and pledging to adhere to a code of professional ethics. This
Vice President, Marketing and Business Development exceed owners’ goals and expectations, as well as identify unwavering commitment
Donna August | daugust@irem.org
new opportunities to drive value. to professionalism is
Production Manager
supported by IREM’s
Jared Kimball | jkimball@irem.org
The theme of this edition is financial management. In Membership &
Director, Corporate Business Development/Advertising Sales
Brian Lozell, CPM | irempartners@irem.org addition to managing the physical site, one of our primary Credentialing Committee.
We can observe
responsibilities is to apply financial controls to manage The committee ensures an emerging
JPM ®, Journal of Property Management (JPM ® ISSN 0022-3905) is published
bimonthly by the Institute of Real Estate Management, 430 N. Michigan Ave.,
funds and accounts. And whether math was our favorite we remain aligned with trend of real
subject in school, excelling in our profession means being the times and places
Chicago, IL 60611. Internet: www.irem.org. This publication is provided as a
medium for the expression of individual opinion concerning management
good with numbers. In fact, we can observe an emerging in which we’re living
estate managers
practices and procedures. The articles and advertisements printed herein
do not necessarily represent the endorsement of the Institute of Real Estate
Management or of the majority of its members excepting such statements that are
trend of real estate managers increasingly taking on asset and managing. In the increasingly
so designated. The editors exercise only a general supervision of the material and
assume no responsibility for claims made in advertisements or for opinions and
management functions, further expanding their toolkits. Committee Central column taking on asset
IREM® Skills statements expressed in articles.
IREM ®, Certified Property Manager ®, CPM ®, Accredited Residential Manager ®, With each beautiful summer day that passes, we move
on P34, you can read how
IREM’s Membership &
management
On-demand Courses
ARM ®, Accredited Management Organization ®, AMO ®, Income/Expense Analysis ®,
Expense Analysis ®, MPSA®, and JPM ® are registered marks of the Institute of a little closer to everyone’s favorite time of year: budget Credentialing Committee functions, further
Real Estate Management.
Reprints: Material in this publication may not be reproduced in any form
season! All kidding aside, the administrative operation continues to move our expanding their
without written permission of the publisher. For volume reprints or e-prints,
email jpm@irem.org.
and maintenance of properties are just a couple of the organization closer to the
toolkits.
many ways we meet the goals and objectives of property more “normal” end of our
Copyright ©2021 by the Institute of Real Estate Management. All rights
reserved. Periodical postage paid at Chicago, Illinois, and at additional owners. Successful real estate management involves new normal.
mailing offices. Subscription rates: $62.95 for one year; single copy $8.53.
Remittances, undeliverable copies, and subscription orders should be sent to diligently planning a property’s future by developing and
the JPM ® offices.
implementing operational and fiscal programs to enhance Last year we switched gears and entered a whole new world
Build property management Postmaster: Send address changes to JPM ®, Journal of Property Management,
the asset’s value. Join Sal Dragone, CPM, ARM, CCIM, as of remote gatherings when the 2020 IREM Global Summit
Fifth Floor: 430 N. Michigan Ave. Chicago, IL 60611. Printed in U.S.A.
skills and get up to date on Institute of Real Estate Management Diversity Statement | IREM practices
he takes us on a deep dive into the world of budget became the 2020 Virtual IREM Summit. This year, we’re
emerging topics in as little as diversity. We are an inclusive organization that embraces and values differences
and welcomes individuals of all races, genders, creeds, ages, sexual orientations,
forecasting on P12. back in person as we head to the desert oasis of Las Vegas
gender identities, and national origins and individuals with disabilities, providing for the 2021 IREM Global Summit. Read all the exciting
an hour. an equal opportunity environment among its members, vendors, and staff.
Bringing to life the untapped potential of a struggling details for this year’s Summit on P24. I look forward to
Institute of Real Estate Management Sustainability Statement |
The Institute of Real Estate Management (IREM) is dedicated to supporting property can also be an exciting and rewarding seeing you there!
real estate management strategies that advance an environmentally sustainable
and economically prosperous future.
opportunity to drive value. Last summer, IREM launched
a new certificate program on how to manage distressed Until Vegas, I’ll catch up with y’all in the next issue of JPM!
properties. In our feature on P6, instructor Regina Mullins,
Visit irem.org/ondemand to learn
CPM, CCIM, explores the unique circumstances that go into
more and register today!
managing these often-misunderstood assets.
Around the world, IREM members manage different types
of assets in different geographies. Managing a residential
building in a city center may require a different approach
Publication Management W.A. “Chip” Watts IV, CPM, CCIM
847-205-3000 | glcdelivers.com than managing a property in a more rural setting, yet the IREM President
irem.org/jpm | | 3
dashboard
Retaining
Hotels reimagined talent Strength of
Image: iStock.com/NicolasMcComber
Because of the demands of the the dollar
An undersupply of housing and high hotel vacancy rates have property management profession,
made multifamily housing an obvious reuse of hotel and motel the field is no stranger to While some
space. According to a recent National Association of Realtors employee turnover. According
(NAR) report reflecting projects that its members were involved to figures from the National retail chains
with, of the 187 hotel or motel conversions Apartment Association, the
from 2018–2020, 60% were redeveloped annual turnover rate of multifamily employees stands at 33%, continue to
as market-rate multifamily housing, Other conversions were
workforce housing, housing for for health facilities, such
higher than the average national rate of 22% across all industries.
For employers, turnover can be stressful, time consuming, and
struggle,
veterans, or housing for healthcare as hospitals or quarantine
workers. How about the rest of those facilities, retail establishments,
expensive. AppFolio interviewed various real estate experts about
how to make employees happy and retain your best talent.
discount stores
hotels? Around 12% of the conversions
were for homeless shelters, 11% were
industrial use, or, in some
cases, the structures were even
• Identify what motivates them. Beyond salary and benefits, get to in the U.S.
know your employees individually to see what makes them feel
for senior housing or assisted living, and
8% were for student housing.
converted into ranch land or
other types of developments.
valued and seen, such as praising them publicly or giving them are thriving.
a few extra hours off work for priorities in their personal life.
• Be a mentor. Take time to get to know about each of your Nearly half
employees’ career goals, and see what guidance they need from you.
• Adapt to changing expectations. Learn more about generational of the 3,597
differences. Millennials and Gen Z employees may value different
things than Gen Xers.
large retail
Image: iStock.com/Julia Garan
• Let them be heard. Prioritize open and effective communication
so that issues are caught early and motivation remains high.
chain store
• Prevent burnout. Property managers have a never-ending openings
to-do list. Invest in these employees by offering professional
Source: National Association of Realtors, “Case Studies on Repurposing Hotels/Motels into Multifamily Housing” development to help them meet the needs of the day-to-day in announced
an effective and healthy way.
this year are
“As long as retail tenants
Sublease slowdown Source: AppFolio, “Five ways to boost employee retention in property management”
for Dollar
are willing to change Compared to 2020, sublease space is entering Securing leases General, Dollar
the office market this year at a much In real estate, few topics are more top-of-mind than lease
and adapt to the slower rate, according to a new report from securitization. For expert advice, IREM's “From the Front Lines“ Tree, and
podcast team talked with Marissa Limsiaco, co-founder and president
new buying habits of Cushman & Wakefield. of financial services company Otso. The episode covers issues like risk Family Dollar
Americans, the right About 11.7 million square feet of vacant
and reward in the post-COVID-19 world, how landlords can mitigate
the risks, and maintaining existing tenancies.
stores, the
retail will not die. sublease space was listed in the first quarter latest figures
“Real estate is pretty simple, right? It’s filling up that
People want to have of this year. This was a decrease from the
space, and what are you doing to fill up from Coresight
16.4 million square feet of subleasable space Listen
a shopping To
added in the fourth quarter of 2020, and an
that space? Sometimes I think you get lost to the Research show.
read
experience.” more of Mindy’s even steeper decrease from the 19.4 million
in the Excel sheet and, at the end of the
day, you forget that the most important
whole interview
at irem.org/ Source: CNN, “Nearly 1 in 3 new
—Mindy Gronbeck, CPM, IREM insights, visit square feet in the third quarter. learning/ stores opening in the US is a
senior vice president the IREM blog. thing is having that tenant occupy that from-the-
Dollar General.”
Source: GlobeSt.com, “The rate of sublease space entering the market is slowing.” space,” Limsiaco says during the episode. front-lines.
4 | ®
| July.Aug 2021 irem.org/jpm | | 5
feature | distressed properties
Property managers
From struggling to
prospering
can stabilize distressed
properties and turn them
into high-value assets.
By Regina Mullins, CPM, CCIM
Managing distressed properties can be rewarding
for a dedicated and professional real estate manager who seeks a challenge. No
one-size-fits-all solution exists, so the manager’s role never becomes stale. Each
asset is unique, and every aspect of that asset’s operations, including marketing,
leasing, staffing, and financing, needs to be reviewed, analyzed, and coordinated
with the owner.
Image: iStock.com/scanrail
6 | ®
| July.Aug 2021 irem.org/jpm | | 7
feature | distressed properties
be in a location with poor visibility, or a multifamily • Accountants
property may have only studio and one-bedroom units in a • Appraisers
multigenerational neighborhood. An asset that was properly • Brokers
designed for the market when developed can become • Vendors
obsolete as users’ needs and preferences change and new • Local government officials
trends and amenities are introduced. (economic development offices
and real estate tax authorities)
Properties that are neglected and poorly maintained, with • Local judges
excessive deferred maintenance, or those where customer • Developers
service to their tenants/residents is considered a low
priority, will lose their ability to compete in the market. “If a real estate manager or
“Sometimes owners get in a situation where deferred management firm wants to get Properties
maintenance was much more than anticipated,” Forsyth involved in managing distressed
says, “causing the property to become distressed.” properties, I’d recommend can become
getting in touch with financial distressed by
Assets can also become distressed when the property has institutions, banks, and being either
a large debt service and experiences difficulty in making mortgage lenders,” John Hatton,
loan payments, with the NOI declining due to drops in CPM says. “I’d also consider
over- or under-
rental rates and/or unexpected vacancies. “Properties can attorneys who specialize in leveraged.
become distressed by being either over- or under-leveraged,” distressed real estate.”
—Richard Forsyth,
Image: iStock.com/sl-f
Forsyth adds. CPM, CCIM
Owners of distressed
Potential indicators of difficulties that may signal an properties
asset’s decline include job layoffs, plant closings, retail Distressed properties can have several
store closings, and a slowdown in the sales of single- types of owners. They could include
One aspect that all distressed properties have family homes. From a real estate management viewpoint, the existing owner of the asset, the
in common is the planning process necessary indicators may include higher vacancy rates, a slowdown existing owner and a representative
to turn them around. A distressed property Some distressed properties have in rent collections, and unexpected move-outs and/or of the owner’s lender, just the lender
requires a comprehensive management plan inherent flaws in their original evictions. Construction of new properties may be put (in the case of either a deed in lieu
that will address all the challenges inherent on hold or cancelled. of foreclosure or an uncontested
in transforming the property into a viable
product concepts or designs. A foreclosure), court-appointed
investment for its owners and a valued asset multifamily property may have only Managing distressed properties receiverships, or investors seeking to
to the community. Regardless of the various reasons that lead to properties buy distressed properties and turn
studio and one-bedroom units in a becoming distressed, qualified real estate managers can be them around for a profit.
What is a distressed property? multigenerational neighborhood. assigned the responsibility of developing a plan to restore
Distressed properties often result from a these assets to financial stability. Effective and open communication
downturn in the real estate market or an is critical for owners of distressed
economic recession. One example is the 2008- There is opportunity in managing distressed properties. properties, who can be challenging
2009 financial crisis. “There was an oversupply of product,” Properties also become distressed when they are developed Owners are looking for seasoned real estate management clients. “Highly leveraged properties
Richard Forsyth, CPM, CCIM, explains. “Leasing activity in neighborhoods with insufficient demand, the wrong professionals to offer solutions and provide value in the in a down market are particularly
declined. Developers and investors couldn’t meet their demographics to support them, or when the property’s midst of challenging circumstances. The professionalism, difficult,” Forsyth says. “Owners
debt obligations, which led to lender foreclosures—and design does not meet the needs of the intended users. attitude, and education that these property managers want to reduce operating expenses,
receivership business for property management professionals.” Developers will often use the land they own to develop display may end up being the deciding factors that position including property management fees,
buildings because of easy access to financing, rather them for success in managing distressed properties. and defer needed maintenance in
Even when the economy is thriving, there are other reasons than because of validated demand for the proposed order to preserve some cash flow.”
that a property can be classified as distressed. Overbuilding improvements and diligent rental surveys. Experts in managing distressed properties have a large
can still prevent some properties from achieving lease-up network for sources of business opportunities. This network Creating a plan and identifying
projections, and they may become nonconforming with the Some distressed properties have inherent flaws in their to source management opportunities for distressed the problem
parameters of their financing agreements. This could result original product concepts or designs. For example, an properties may include First, you need a multidisciplinary
in the buildings becoming distressed properties, with a risk office building in an up-and-coming neighborhood may • Local real estate attorneys team to address various elements of
of takeover by their lenders. have the wrong size floor plates, a shopping center may • Commercial loan officers a property’s construction, operation,
8 | ®
| July.Aug 2021 irem.org/jpm | | 9
feature | distressed properties
marketing, and overall market some challenges? How are the amenities and parking at the results that can be achieved with per window was 30 minutes. By utilizing
conditions. This group will also help the property? Are operational policies and procedures in such a plan. A 19-story office building this method versus the traditional window
define what actions are needed to place and being followed? Is the staffing adequate—too built in 1974 was acquired by a large replacement method, a savings of $5 million
achieve the owner’s goals. The team many or too few? Does the property have a leasing plan institutional company in 2016. was achieved. Since making the upgrade,
could involve an internal operations in place? The occupancy was 52% with energy costs have been reduced by $0.60 per
squad of architects, contractors, seven tenants. Very few upgrades square foot.
consultants, leasing brokers, and Once these questions have been answered, it’s time to had been completed. The property
mortgage brokers. tackle the ownership and financial issues. These can include had a 550-space garage attached Restroom and floor elevator lobbies were the
• Lack of operating capital to the building with elevator next issue to tackle. The action plan outlined the
A real estate manager will begin the • Diversion of cash flow transportation to all levels. Windows completion of four floors per year. The number
planning process for the distressed • Lack of clear directions were the original single-pane glass of restrooms and lobbies renovated increased
property by defining the problem. • High tenant delinquencies installed during construction, which during the COVID-19 pandemic, as most tenants The next
There may be more than one challenge. • Below-market rent affected the energy efficiency of were working remotely. The fitness center and
few years
It could be that inadequate cash flow • High operating expenses the property. The roof was 22 years its equipment have been upgraded. A conference
might be the result of low occupancy. • Inadequate cash flow old, and none of the restrooms had center has been added, along with a tenant will be huge.
Upon further • Reduced market value of property been renovated. The property had socializing area. The roof was also replaced, Landlords
investigation, the low • Overpayment for existing asset enough cash flow to pay all operating as major leaks were developing. Even all the haven’t been
occupancy could be • High interest rate on debt expenses with some money for elevator cabs have been renovated.
With a forward- due to deferred distribution to ownership.
collecting
maintenance that Once the issues have been identified, prioritization becomes Initial asking rents were $36/sf, while the rents, so
thinking owner has resulted in poor key to beginning a path back toward meeting the owner’s An action plan was created, and market rents were $42/sf. After all the there will be
and a team of curb appeal or even goals. It doesn’t make sense to prioritize addressing an implementation began in earnest improvements, current asking rents are
mortgage
poor visibility of issue that will have little or no impact in achieving in 2017. The garage was updated $44/sf. Although the COVID-19 pandemic
professionals, the property. financial stability. with paint, signage, new elevator slowed some of the leasing progress, current defaults.
much can be lobbies, new insulation, and asbestos occupancy is expected to be at 83% by the end
—John Hatton, CPM
accomplished, Are the challenges
related to physical
The seasoned professional will concentrate resources—
money, effort, and time—on those issues that will make
abatement. In addition, a new pathway
was created to enhance the route into
of 2021. Turnaround of the distressed property
is well underway.
and a distressed issues? Are they the biggest impact on the distressed property. Physical the building.
property can be structural or and operational problems may be the quickest and easiest With a forward-thinking owner and a team of professionals,
design issues? issues to resolve, provided cash is available for the action At the same time, the second entry much can be accomplished, and a distressed property can
turned into a Environmental issues items. However, money must be spent wisely to achieve from a plaza at the fifth-floor entry be turned into a viable, stabilized investment. It takes time,
viable, stabilized such as asbestos or the greatest return on the investment. Management was created with pavers, landscaping, money, patience, and a group of visionaries.
mold can cause major and leasing issues can involve an assessment of the and outdoor furniture. The following
investment. challenges. Is a poor effectiveness of the staffing in place, marketing programs, year, the fifth-floor elevator lobby If you’re up for the challenge, there will always be
tenant mix creating and other areas. was renovated with glass, stone, opportunities to manage distressed properties. Those
and marble flooring. This renovation opportunities will only grow amidst the long-term recovery
Ownership questions are best discussed eliminated an awkward entry that from the impacts of the COVID-19 pandemic. “The next few
in one-on-one meetings, which can in turn included stairs and one broken years will be huge,” Hatton says. “Landlords haven’t been
become an opportunity for the manager door. There is now a revolving door collecting rents, so there will be mortgage defaults.”
to discover previously unknown issues. with two side entry doors for
Financial issues may involve negotiating handicap entry. While the economic circumstances accompanying this
with the lender to seek mortgage category of opportunity are unfortunate, real estate
forbearance or a temporary loan adjustment. Window replacement was of the managers who excel at communication, work well with a
This could allow time for filling vacancies utmost concern. Ownership did diversified team, possess the ability to analyze a problem,
or increasing property cash flow so that the not want to inconvenience existing and make a game plan are in a position to benefit from
Image: iStock.com/Rossella De Berti
property can meet debt service coverage or tenants with long-term moves. A taking on the challenge.
any other requirements of the lender. new product was located that could
be installed on the interior without Regina Mullins, CPM, CCIM, is a director at Cushman & Wakefield,
Making the case utilizing scaffolding on the exterior AMO, in the D.C. metro area and served as IREM president in 2008.
The following is an example of a distressed and without removal of the original In addition to leading courses as an IREM instructor, she is also a
property with an action plan outlined and windows. Average replacement time director of the IREM Foundation.
10 | ®
| July.Aug 2021 irem.org/jpm | | 11
feature | budget forecasting
Image: iStock.com/SARINYAPINNGAM
Invaluable
Each year, we as real estate
managers spend countless hours
perfecting our budgets for the coming
year. We pour over contracts and
leasing projections, trying to estimate
material costs and staffing needs.
For the most part, the results are
straightforward and respectable, but
then the inevitable happens: real life.
predictions
A deep dive into budget forecasting
By Salvatore Dragone, CPM, ARM, CCIM
12 | ®
| July.Aug 2021 irem.org/jpm | | 13
feature | budget forecasting
In 2020, real life became somewhat based on a variety of factors such as leases in place, future method will result in expenses. Applying a percentage to
unreal, and most budgets weren’t absorption, economic climate, inflation, general services, a competent budget, those expenses for future years isn’t
worth the paper they were written on. taxes, and financing. Over the years, or at least the recommended, as the expense likely
But not every year is like 2020. I have estimated beginning of one. won’t reoccur.
In other years, a bad winter or hot “If I had to pick one line item that new managers
summer can wreak havoc on any struggle with when it comes to budget forecasting,” that projects run In either situation, A better option is to look at historical
budget. When you encounter such Wendy Dutenhoeffer, CPM, says, “it‘s understanding about $0.15/sf. I always perform data based on a grouping of projects
a year, as we all did in 2020, you the revenue line items and how vacancies, concessions, the calculation and instead of a particular line item. For
quickly understand why forecasting— escalations, other income, and lease renewal dates factor I use this then step back to example, I oversee the management of
and reforecasting—your budget into the correct calculations for budgeted revenue.” information to compare the entire about 15 million square feet of office
is an important aspect of any forecast to prior space. Over the years, I have estimated
well-run property. Jay Kacirk, CPM Emeritus, CCAM, with Eugene Burger
better gauge periods. This is that projects run about $0.15/sf. I
Management Corporation, sees new managers struggle the number of how we can see the use this information to better gauge
First, the basics with expense considerations. “Areas related to budgeted big picture. Simply the number of projects that I can
We’ll start with the terms. maintenance are a challenge for many. This usually
projects that I applying percentage accomplish in any given year. I also
improves with time as you get to know a property, but can accomplish increases or know that it represents about 2% of
decreases may seem my operating expense budget—a good
A forecast is typically associated with
the first attempt of predicting income
a new manager doesn‘t always have that perspective.”
in any given year. reasonable based metric to remember. If during the year
and expenses based on historical or Assuming historical information is available, the first on a trend at the my expenses begin to trend higher or
known data of a specific property steps typically are to look back 12 to 24 months and account level, but lower, the number of projects can help
or budget. A reforecast is typically begin the process of evaluating past expenses to forecast sometimes when everything is added up, the results are me bring a budget back in line.
associated with updating the forecast future expenses. This can be done by using methods such skewed. “Budgeting requires both a view from 10,000 feet,
for the same specific property or as percentage trending. With this method, you analyze or big picture, and one from ground level, in the weeds,” Now that your budget is done, and
budget. My experience has been the year-over-year or period-over-period increases and/ Dutenhoeffer says. “If new budget managers fail to look you have forecast the expenses for
that most managers use the term or decreases in certain expenses. Having identified the from both altitudes, they cannot clearly see where they are the coming year, your job is done,
“forecast” when creating budgets and “trend” in these changes, you can then apply it as either a going.” right? Of course not, you’re a property
“reforecast” when projecting a budget’s percentage or whole number to future periods of the same manager—the job is never done. Over
changes over the course of a year or corresponding length. Many repairs and maintenance items are one-time projects the next few months (typically on a
other time period. or at least not completed annually. One example is electrical quarterly basis), you should perform
Examples of line items where this method is effective infrared testing, which is generally completed every three to a reforecast of your budget to ensure
The first time that a manager may be include property taxes, landscaping, fire protection, and five years. Your historical expenses may have one-time large your management efforts are resulting
required to forecast is when they’re other non-occupancy-related expenses. If these expenses projects, such as seal coating a parking lot or renovating a in income and expenses representative
creating a budget for any future have increased by 2% on average over prior years, then cooling tower. A very snowy winter may also create anomalous of your original budget.
period. While the term “zero-based it would be reasonable to assume that the trend would
budgeting” can sound smart or clean, continue. You can inflate current-year expenses by 2% to
the reality is that almost nothing is create a future-year budget.
zero-based. At a minimum, you’ll
have pricing for services in place If these expenses are related to occupancy, there will be
that you’d most surely rely upon. some variability, and extracting simple trend lines will
Still, when creating a budget, you’re not work. For example, suite cleaning, utilities, and even
forecasting income and expenses management fees involve other factors that will affect
their future values. Simply applying a
percentage increase could result in a
significant under- or over-forecasting
of expenses.
If I had to pick one line item that
new managers struggle with when Image: iStock.com/PeopleImages
In this case, apply a percentage
it comes to budget forecasting, it's multiplier to base costs, and then
calculate a variable amount related to
understanding the revenue line occupancy. When taken together with
items. —Wendy Dutenhoeffer, CPM leasing absorption assumptions, this
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| July.Aug 2021 irem.org/jpm | | 15
feature | budget forecasting
original budget, it is a beginning, and any results should “Communicate regularly next year. Most tenants close their
be communicated to the ownership as part of your regular with your clients about books on Dec. 31, and unless they
Considering that projects updates. No matter what reforecast you’re creating, you’ll these variances, and get anticipated a year-end reconciliation,
typically require higher cash need to pay particular attention to leasing and occupancy, them to understand the they will not have accrued for it. When
as they will greatly influence many of your expenses, need to fund important they get that big bill, they are not too
needs or capital, planning and particularly management fees and utilities, which can make projects. That may mean happy. In most cases, they will have to
executing them is critical to up as much as 30% of your overall expenses. capital contributions in find the money in their current year
some cases, which property budget, taking away from some other
cash flow projections. Stage 2: Second-quarter reforecast managers generally don‘t planned expenses. Giving your tenants
The next milestone, and a very important one, is the second- like to ask for, but it is an a heads-up may seem hard at first,
quarter reforecast. For many, this is the basis of next year’s important aspect of the but trust me when I tell you, it is a lot
We can break this process down into budget. Unlike the first-quarter go-round, this reforecast The key is job when necessary for better than surprising them later.
four stages. should be considered a “hard“ reforecast.
communication. the preservation of the
asset or for stabilizing an Stage 4: Year-end reconciliation
Stage 1: First-quarter reforecast I require my managers to not only reforecast income and all When emergency investment‘s performance The year-end reconciliation is no
I call this the “soft” reforecast, as expenses, but to submit a full-blown report. Time is set aside situations or over time.” longer a forecast or reforecast,
it’s early in the year and you have with ownership to dive deep into the forecasted income and any unbudgeted but rather the final stage in your
only limited information. “The first- expenses to ensure we’re on track, make decisions that will Other frequently forecasting or reforecasting exercise.
quarter reforecast is always the most get us back on track, or simply approve any large variances.
expenses arise, overlooked items with It’s the scorecard for the work that
challenging since there is not a lot notify your great cash-flow was done throughout the year, both in
of history for the current year,” says Those large variances can lead to difficult conversations owner as soon as consequences are tenant operating and adjusting your income
Lynne Miller, CPM, RPA, LEED AP with owners. “Be prepared, do your research, review the improvements and leasing and expense projections. If you stayed
O+M, with Charles Dunn Real Estate numbers, and consider the effect of alternatives,” Miller says.
possible to avoid commissions, specifically on top of your income and expenses,
Services. “In addition, unanticipated “The key is communication. When emergency situations or surprises. when the latter are your year-end actuals shouldn’t be
increases might occur, but notices of any unbudgeted expenses arise, notify your owner as soon scheduled to be paid out. a surprise for your ownership, your
— Lynne Miller, CPM, RPA,
the increases might not be provided as possible to avoid surprises.” LEED AP O+M, Charles Dunn tenants, or yourself.
until later in the year.” Real Estate Services We use the current year
Particular attention is given to operating projects and capital budget and second- In the end, forecasting and
The key to the first-quarter reforecast projects. The second-quarter reforecast is critical in deciding quarter reforecast as benchmarks for the future budget reforecasting your budget is a critical
is to set yourself up for the remainder whether remaining projects are still feasible or must be (for example, 2021 budget vs. 2021 reforecast vs. 2022 part of managing your property, along
of the year, allowing you to easily pushed to the next year. Doing an analysis of whether you budget). Over the course of the next few months, the with your stakeholders’ expectations.
update the actuals, while reforecasting can complete projects is frequently overlooked. Projects can reforecast and the next period’s budget are updated A diligent process builds confidence in
the remaining months of the year. take time to develop and, in many cases, are delayed due to simultaneously, ultimately resulting in a new budget and your relationships with ownership and
It’s probably been about six months outside forces, such as material costs or lack of labor. the third-quarter reforecast. your tenants, allowing you to make
since you created the budget. By now, Considering that projects typically require higher cash needs proactive adjustments rather than
although the picture isn’t entirely clear, or capital, planning and executing them is critical to cash Stage 3: Third-quarter budget reactive excuses.
you should have a better handle on flow projections. The third-quarter reforecast and the months following
leasing and other income generators. it are critical for a few reasons. First, it’s your last chance Salvatore Dragone, CPM, ARM, CCIM,
You may want to make a case with your owner for moving to make changes before the end of the year. It’s also your is the senior vice president and director
While this exercise may not result in a forward on some projects, “even when net operating last chance to communicate to ownership any anticipated of property management for Rubenstein
reforecast greatly different from your income is significantly lower than budgeted,” says Kacirk. variances that may greatly affect cash flow. Finally, it’s Partners in Philadelphia. In addition to
your last chance to communicate any large variances serving IREM as both a course instructor
to your commercial tenants in preparation for the and webinar presenter, he is on the board of
year-end reconciliation. directors of BOMA
Philadelphia and is
Areas related to budgeted maintenance are a challenge For me, the ability to communicate with my commercial an adjunct instructor
for many. This usually improves with time as you get to tenants any anticipated year-end reconciliation is critical at Drexel University,
know a property, but a new manager doesn‘t always have in ensuring strong landlord-tenant relationships. There where he sits on
are not many things worse than having to tell a tenant that the Real Estate
that perspective. they owe a substantial amount of year-end reconciliation and Development
—Jay Kacirk, CPM Emeritus, CCAM, Eugene Burger Management Corporation payments when we’re already two or three months into the Advisory Board.
16 | ®
| July.Aug 2021 irem.org/jpm | | 17feature | rural housing
What’s at
Rural
stake for these
spotlight
affordable
housing
communities
across America
By Barbara Jaco, CPM
Social gatherings
can be awkward,
even for extroverts. When I meet
someone new, the topic of what we
each do for a living is the question
that follows the formal introduction.
When asked, I respond with a large
enthusiastic smile: “I manage
affordable housing in rural areas
across the Southeast!” Next comes
the predictable pregnant pause, the
head tilt, and the forced smile.
I am familiar with the preconceived
notions that people have when they
picture affordable housing. While they
usually envision the distinctly urban
housing projects that for many years
represented the public’s idea of what
public affordable housing looked like,
I am proud to educate them on the
wonders of rural affordable housing
and the many unique characteristics
of these homes. Most of my adult
life has been spent developing and
managing these communities, and I
am passionate about the government
programs that make them possible.
Image: iStock.com/georgeclerk
Our properties are special and
home to amazing people with
unique life stories. My career has
been dedicated to the management
18 | ®
| July.Aug 2021 irem.org/jpm | | 19feature | rural housing
and ownership of such affordable mortgages made in the 1960s with their expiring terms? • Transfer ownership (which
communities, with a heavy emphasis An increase in rents and a displacement of residents. In the then obtains amortized
on one housing program: Farmers 1980s, owners of Section 515 loans started prepaying their financing)
Home Administration Section 515, mortgages, converted their communities to market-rate • Recapitalize with additional
now known as the USDA Office of housing, and were no longer restricted to the RD rules and and/or refinanced debt from
Rural Development (RD). RD 515 regulations. By the 1990s and into the 2000s, properties were a new lender
is among the few rental housing clearly showing their age and needed funds for renovation. • Foreclosure
production programs specific to
rural communities. To understand Realizing the affordable housing crisis was only getting worse, Past, present, future
America’s affordable rural housing federal agencies including RD contended with owners to The Housing Assistance Council
communities in 2021, we first must stop mortgage payoffs. Owners fought back through filing performed a study in 2018 that
look at their history. lawsuits. While these owners did not have their prepayment estimated that by the year 2027,
rights restored, a 9–0 ruling by the U.S. Supreme Court stated 815 properties and 20,000 units
Deep roots that Congress had abrogated the contracts that had been will leave the program due to
In 1946, following the effects of The signed by the government and owners (Franconia Associates v. maturing mortgages. After
Great Depression, the Farmers Home United States). Owners could sue for damages to seek monies 2027, maturities will continue,
Administration (FmHA) was approved that they could have received if the properties had been sold. putting another 93,000 units
by Congress as a financing tool Properties with RD 515 mortgages prior to Dec. 15, 1989 were at risk.
Image: Boyd Management
designed to reestablish self-sufficiency. determined eligible for mortgage prepayment, leaving the
The FmHA was renamed several existing housing stock at risk of rapid loss. While Section 515 has financed
times before becoming USDA Rural over 533,000 units across Woodside — Bishopville, SC
Development (RD). In the 1960s, the Adaptative response 28,000 properties since its
War on Poverty brought In the late 1980s, stakeholders joined forces to preserve inception, its current portfolio
about new ideas on how affordable and subsidized housing for low-income households has shrunk to just 13,000 properties. Tenants living within the residents and/or community, the owner then has
to provide housing for by utilizing available refinancing structures and the Low- these properties are some of the most vulnerable renters four options
the poor. This included Income Housing Tax Credit (LIHTC). The LIHTC has stood in the nation—67% are disabled or seniors, and the average • Prepay the loan (subject to RD use restrictions)
moving away from the test of time and proven to be a triple-win proposition household income is $13,600. • Appeal RD’s decision through USDA’s appeals process
government-owned housing by (i) providing developers with an additional “source” of • Keep the property in the RD program
and toward public-private project financing, (ii) securing for investors a dollar-for-dollar To begin the process of prepayment, the owner must make • Offer the property for sale at market rate to a nonprofit
partnership arrangements reduction on future federal tax liability, and (iii) requiring a formal request to RD, and the agency in turn notifies the or public agency, which must in turn keep the property
in which the private sector that affordability be maintained for upwards of 30 years. tenants that the owner has applied to remove the property for low- and very low-income tenants for the property’s
would build and manage from the program. Understandably, tenants often react with remaining useful life
affordable housing, and in From a policy perspective, the initiative—spawning out panic. Some take steps to move even before discussions
the process, crucially, benefit of President Ronald Reagan’s 1986 tax reform—has been begin. RD also provides notices to the public and nonprofits If an owner wishes to keep a property in the RD affordable
To date, we have from federal tax incentives. the most successful and bipartisan affordable rental that have asked in advance to receive such notices on its housing stock but needs to recapitalize or request the
redeveloped and housing production program in U.S. history, assisting in Preservation Information Exchange website. If the property reamortization of existing 515 debt, there are options to
preserved 369 Section 515 Rural Rental the development and preservation of nearly 3.5 million is eligible for prepayment, RD must offer owner incentives consider. These include Section 538 guaranteed rental
Housing was established affordable units across America’s vast countryside. to remain in the program. These incentives can include housing loans, Multi-Family Preservation and Revitalization
properties [13,000 in 1963 and has financed additional project-based rental assistance, an equity loan, (MPR) demonstration program financing, the RD
units] across 12 nearly 28,000 rental Conversely, industry headwinds are multi-layered and permission to obtain a third-party equity loan, and an Preservation Revolving Loan Fund (PRLF), and additional
states, investing properties consisting troubling. No new USDA-RD direct-financed rental housing increase of the return on the owners’ investment (which is project-based rental assistance. Reamortization under
of over 530,000 affordable has been developed in a decade, and the existing housing otherwise restricted by the program). If the owner accepts new rates and terms for the existing 515 loan provides
over $1.6 billion in units. Also included under stock is reaching the end of the affordable road. In fact, a the offer, they must maintain affordability for at least a significant advantage over replacing the debt because
development costs RD’s financing umbrella whopping 90% of all RD 515-financed properties are now 20 more years. the RD loan remains in place and the property retains its
with an average of are general water and more than 20 years old. eligibility for project-based rental assistance. RD is willing
sewer projects as well as If the owner rejects RD’s incentive offer, then RD must to amortize even small loans reaching the end of their
$35,000 per door housing for non-farmers When an RD 515 loan nears maturity or is eligible for make two determinations: Will minority residents (on the maturity date.
in hard costs. in rural areas. prepayment, an owner has several options to choose from waiting list or in the community) be disproportionately
—Tanya Eastwood, • Pay off at maturity affected by the loss of the affordable units, and is there RD has the authority to make deals work, in good faith,
Greystone Affordable Fast forward a bit: What • Pursue RD’s prepayment process (resulting in myriad adequate comparable replacement housing available for with the objective to move the needle toward longer-term
Development happened to those outcomes) current residents? If RD finds there is an adverse impact to preservation. Therefore, the recent reorganization of RD
20 | ®
| July.Aug 2021 irem.org/jpm | | 21feature | rural housing
owners of RD 515 properties in the country, was faced with BJ: What was the ultimate goal of RD’s recent for thousands of families
Sandy Bay — daunting preservation roadblocks and a large portfolio of major restructuring? across the country. They
Kingstree, SC
RD assets. What began as a happenstance meeting between NB: The objective was to modernize a program built on provide activities for
Greystone Bank President Bob Barolak and BMI President a 1970s servicing model, and to do so in a way that would children, socialization for
Ken Wheat turned into a long-term partnership of 515 provide agency flexibility to attract capital into our rural seniors, and a sense of
preservation and good business. markets. With aging owners and maturing mortgages, the community for everyone.
agency had to restructure in order to evaluate the portfolio, For example, when COVID-
I recently caught up with Tanya Eastwood, president and and then place our focus where needed most. 19 caused school closures,
CEO of Greystone Affordable Development. Under her many children in our rural
leadership, Greystone helped pioneer the preservation BJ: What changes will impact management agents properties were faced with
of rural affordable housing and has closed more RD and owners in the near future? a lack of access to reliable
preservation deals than any other organization in the NB: Our goal is to streamline and simplify rather than internet access for online
Our goal is to
streamline and
Image: Boyd Management
United States, with no signs of stopping. I asked her about burden management agents and owners with meaningless classes. Our properties
the success of this RD partnership and where she sees it work. This is a federal program, and requirements should reacted with mobile Wi-Fi, simplify rather
heading in the near future. be standardized and each have a purpose. We use the making online school
“no worse test“ in our decisions, which means if a new possible for countless
than burden
“To date, we have redeveloped and preserved 369 properties requirement places a burden that is worse than before, children who may have management
has matched those negotiations and [13,000 units] across 12 states, investing over $1.6 billion in we won’t do it. otherwise missed out on agents and
development costs with an average of $35,000 per door in hard an entire year of education.
loan processing with well-trained,
experienced RD personnel. Prior to costs,” Eastwood says. “We have active pipeline transactions in BJ: The average RD 515 property is only 32 units,
owners with
restructuring, negotiations and loan various stages in 15 states.” which isn’t a typical model for attracting capital. Among their many other meaningless work.
processing resided with RD state What ideas are being discussed to energize the essential functions, property —Nancie-Ann Bodell, USDA
and county personnel, who may Voices from the field flow of preservation capital? managers throughout our Rural Housing Service
or may not be equipped to handle The question for all of us to consider, then, is how do we NB: We want everyone to know that RD is open for business rural portfolio are dedicated
complex transactions. Restructuring preserve Section 515 rural housing and protect vulnerable and open to all ideas. RD 515 is the only program dedicated to the resident experience. Whether
is designed to eliminate the learning residents while being fair to owners, investors, and any solely to rural rental housing, and our mission is to preserve it’s potluck dinners, holiday parties,
curve and make all possible servicing other stakeholders? this very special market of rural affordable housing. or a simple hello, they treat these
tools available for preservation. RD properties as more than just apartment
is making it known, “We are open for Nancie-Ann Bodell, deputy administrator of Multifamily communities; they embrace them
business. Let’s make a deal!” Housing at USDA’s Rural Housing Service, has a plan and was I also spoke with Colleen M. Fisher, who has been the as homes.
quick to positively respond to my inquiry for an interview. executive director of the Council for Affordable and Rural
Businesses have heard the Housing (CARH) since 1996. CARH represents the interests Better understanding
call, even before the RD Barbara Jaco: We love the Rural Development 515 of stakeholders in the building, development, management, Now when you hear the term
restructuring. Large and program and the residents we serve. That said, our and ownership of housing in rural America. “affordable housing,” do you still think of
small, property managers industry is on edge with concern that government your nearest major city’s massive
and owners alike have restructuring will gobble up the RD 515 program, BJ: Colleen, what can members of our industry public housing projects developed
continually been able to merging it into—and managing it like— the U.S. do that will help wave the flag for preservation? back in the ‘60s and ‘70s? Or do you
identify and capitalize on Department of Housing and Urban Development Colleen M. Fisher: Congress needs to understand picture rural neighbors gathering
the many solid investment (HUD). Are these concerns merited? the complexities of and fund housing for rural areas. for a Thanksgiving meal, judging a
opportunities present Nancie-Ann Bodell: We recognize RD 515 is a unique Preservation is expensive and takes money from both the Halloween costume contest, or sitting
in the rural affordable program, and that is important to preserve. This program private and public sectors. The best thing our industry can for a game of backgammon? That is
housing market. will not be merged with HUD. We see a bright line drawn do is to get members of Congress to visit the RD properties, what is at risk as we face the many
Preservation is between these two housing programs, and it would be so they can see firsthand the quality housing and the very aforementioned challenges. It is
expensive and One of the most successful very difficult if not impossible to actually merge them. special bond between the residents, site managers, and undoubtedly an uphill battle, but one
takes money from RD 515 preservation models However, there are processes that HUD adopted that can maintenance technicians. worth fighting.
began as an experiment in be duplicated to gain efficiencies and solve problems. As
both the private 2006 in a small conference stakeholders see these implemented, they respond with Home, safe and sound Barbara “Babbie” Jaco, CPM, is vice
and public sectors. room at Boyd Management, the merger concerns. One example where we can utilize a Once we understand the underlying programs that make president of CAHEC Management, Inc. in
—Colleen M. Fisher, Inc. (BMI) in South Carolina. HUD practice at RD is through the utilization of third-party these projects possible and the challenges facing our Columbia, South Carolina. She also serves
Council for Affordable and WWJ, LLC, an affiliate of inspectors, whereby the process is more efficient and industry, it is then most important to recognize what is as a member of IREM’s Federal Housing
Rural Housing BMI and one of the largest cost-effective. at stake. Our properties provide more than just shelter Advisory Board.
22 | ®
| July.Aug 2021 irem.org/jpm | | 23feature | Global summit
O IREM will
ne of the foremost benefits of belonging to While the face time in Las Vegas will
Together
IREM is the chance to connect with real estate be invaluable, committee and board
management professionals who know what you’re members who are still unable to travel continue
dealing with and understand the highs and lows of being for business, or are uncomfortable to consult
a property manager. traveling, will have the option of with the
joining their meetings virtually.
I have found that being a part of this community is an
Red Rock
indispensable part of my IREM experience, lifting me Note that this virtual option is Casino
we thrive
through the most difficult times and leading to growth available only for committee and Resort &
as a real estate manager, leader, and person. board meetings. Other essential
elements of the Summit, including
Spa on our
That’s why coming together live and in person at the 2021 keynote speakers and education procedures,
IREM Global Summit at the Red Rock Casino Resort & Spa sessions, will be exclusively in person. as we all
in Las Vegas from Oct. 11–14 will be so special.
2021 IREM President Chip Watts, CPM, CCIM, has rightly Recovery is coming. According
know how
The 2021 IREM Global seized on a theme of resiliency through togetherness. He's to officials, we’ll have made great quickly
called on us to realize the importance of our work as real progress in vaccinations by the time guidelines
Summit heads to Las Vegas estate managers, which has become even more evident over we meet in Las Vegas. Your safety and can evolve.
the course of the global pandemic. well-being are a top priority, and we
By Lucinda Lilley, CPM, CAPS, GRI are committed to putting additional
The 2021 IREM Global Summit in Las Vegas is our safety measures in place to ensure a
opportunity to recapture that sense of togetherness as we smooth on-site experience.
lead the organization through an exciting period of rapid
industry change. The Summit is our chance to thrive. IREM will continue to consult with
the Red Rock Casino Resort & Spa on
Influence our procedures, as we all know how
As always, the business of IREM has a prominent place quickly guidelines can evolve. The
on the agenda, as all of our committees and boards resort has a strong commitment
will convene. to guest safety, with standards and
protocols that meet or exceed the
The Summit helps put IREM on firm footing
for what lies ahead. Today, the industry is Red Rock Casino Resort & Spa
Image: iStock.com/Onfokus
at a critical point, with so many changes
rapidly brought about by the pandemic, the
acceleration of automation technology, and
other underlying factors. We invite you
to seize this opportunity to connect with
like-minded individuals who are passionate
about real estate management and to take
the chance to put your best volunteering foot
forward to help shape the future of IREM and
the real estate management industry.
I’m constantly reminded, particularly at
the Global Summit, that we can extend
our influence from the local level to
the national—and all the way to the
Image: iStock.com/Onfokus
Image: iStock.com/4kodiak
international—level. I get such inspiration
connecting with my global IREM friends
as we work together to shape the industry
around the world.
24 | ®
| July.Aug 2021 irem.org/jpm | | 25You can also read
