Asset Managing Your Portfolio:
Best Practices of
Asset Management
Presented by: David Fromm,
NeighborWorks® America
Creating Value as an Asset Manager
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 The top ten asset management tasks
 Top ten indicators valued by asset managers
 Most common problems in affordable housing
 Most valued partnerships and why
 How to get the most from your property
management firm
 How to participate in pre-development as well as
workout/disposition strategies
NeighborWorks® America
September 2012
Top Ten Monthly Tasks
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1. Tickler File/Planning
2.
3.
4.
5.
Schedule
Operating Budget
Variance Review
Balance Sheet
Review
Portfolio Review
Property Manager
Review
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6. Staffing the Board’s
7.
8.
9.
10.
Asset Management
Function
Evaluate New
Projects
Monitor Owner Fees
and Incentives
Gather and Interpret
Key Data
Initiate Work Out
Plans
1. Tickler File/ Planning Calendar
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 Annual Budget
 Reports
 Annual Audit
 Tax Returns
 Real Estate Tax
Agreements
 Owner
obligations/loan
requirements/
warranties
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1. Tickler File/ Planning Calendar
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 Capital Plan
 Income Certifications
 Property Inspections
 Corp. report to
Secretary of State
 Contracts
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2. Operating Budget: Variance Review
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 Evaluate performance
against benchmarks
 Revenues
 Expenses
 Make
recommendations in
MAJOR revenue and
cost drivers
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3. Balance Sheet Review
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 Changes/size of
Cash balances
 Accounts receivable
 Accounts payable
 Reserve Balances

 Ratios
Working capital
 Current ratio
 Owner’s equity
 Debt to equity

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4. Portfolio Review
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 Pick ways to analyze
PUPY, PUM, PBR, %
 Type, Location, Size

 Monitor for compliance
(debt service coverage
ratios, cash flow)
 Analyze trends
 Link mission,
obligations and
opportunities
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5. Property Manager Review
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 Evaluate based on annual
management plan and
budget
 Meet formally, monthly or
quarterly
 Specific areas:




Financial
Compliance
Physical
Social (“double bottom line”)
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6. Staff the Board’s Asset Management
Function
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 Property and portfolio




NeighborWorks® America
performance against
Board’s goals
Economic performance
of properties
Impact of properties on
organization: $ +
Overall performance of
property manager
Current trends effecting
properties
7. Evaluate New Projects
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 Realistic operating









assumptions: NOI
Design
Reserve requirements
Cash flow expectations
Debt structure
Reporting and compliance
requirements
Market conditions
Service programming
Fees: prop and asset mgmt
Staffing
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8. Monitor Owner Fees and
Incentives
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 Asset management
function often covered
by these fees
 Communicate
expectations clearly to
property manager
 Alert ED and Board to
any change in
projections
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9. Gather and Interpret Key Data
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 Public laws
 Regulations and
programs
 Real estate market
conditions and
opportunities (refi
opportunities)
 Adequacy of insurance
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10. Initiate Workout Plans
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 Identify key players
 Create plan
 Identify “workout
team”
 Select workout
leader
 Monitor progress
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Top Ten Indicators
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1. Debt Service
2.
3.
4.
5.
Coverage (DSC)
Rent Increase
Implemented
Cash Flow
Compliance with
Annual Budget
Stakeholder
Satisfaction
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6.
7.
8.
9.
10.
Unit Turnovers on
Schedule
Rent Collection
Portfolio Review and
Board Requirements
Capital Needs and
Reserve Balances
Property Standards
1. Debt Service Coverage (DSC)
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 Debt Service Coverage (DSC)





Indicates how well the property
can meet its hard debt
requirements. A DSC of 1.2 is
good. May be less in higher cost
markets
DSC Calculation = NOI/Annual
Hard Debt (Principal + Interest)
Key indicator tracked by investors
and lenders
Anything over 1.0 indicates
positive cash flow
Is a work out needed?
NeighborWorks® America
2. Rent Increase Implemented
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 Rent Increases
Annual
 On time
 Track with pro forma
 Increasing rents 2%
has TWICE the
impact of reducing
ALL costs

NeighborWorks® America
3. Cash Flow
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 Cash Flow
Defined in partnership
and/or regulatory
agreement; definition is
not universal; good asset
managers hit the cash
flow targets
 Often only source of
asset management fees
 Often source of deferred
developer fees

NeighborWorks® America
4. Compliance with Annual Budget
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 Annual Budget
Reflects annual financial
plan for the property
 Review monthly or
quarterly, depending on
property
 Make adjustments to
meet NOI target; don’t
wait until the end of the
year
 Watch revenue and
expense changes with
greatest impact

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5. Stakeholder Satisfaction
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 3rd Party
Relationships
Accurate and timely
reports, budgets
 Successful physical
and financial
inspections
 No audit findings
 No mortgage defaults
 Positive resident
survey

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6. Unit Turnovers On Target
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 Unit Turnovers
High turnovers increase
vacancy losses and increase
operating costs (double
whammy)
 Slow re-occupancy is
unrecoverable revenue
 Indicator of potential
problems:

Property condition/safety
 Stiffer competition/more
attractive alternatives
 Deteriorating economy
 Poor management

Quick turns and low
vacancies add revenue:
occupancy is KEY
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7. Rent Collection
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 Rent Collection
MUST be consistent, fair
and timely
 Once residents get one
month behind, very
difficult to catch up
 Create realistic collection
TARGET and check
collections weekly (even
daily) until in line
 Bad debts are rarely
collectible and rarely
budgeted in pro formas

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8. Portfolio Review and Board Requirements
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 Portfolio Review
Analyze performance
and trends in entire
portfolio as well as
individual properties
 May be meeting Board
goals for properties
but some stronger
properties could help
weaker ones
 Goals for residents

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9. Capital Needs and Reserve Balances
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 Capital Needs and
Reserve Balances
 Capital Needs Assessment
(C N A) is current and on
track with plan
 Reserve and operating
balances in line with needs
 Operating reserve target:
3 - 6 months of operating
expenses
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10. Property Standards
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 Property Standards
Curb appeal
 Professionalism and
appearance of staff
 Common area upkeep
 Signage
 Private area upkeep
(patios, balconies)
 “Look Up” test

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Most Common Problems In Affordable Housing
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The Market
The Management
• Property not
competitive
Unresponsive
• Combative
• Not skilled enough
•
The Financing
Physical Condition
Functionally
obsolete
• Hazardous
• Deferred
maintenance
•
• Overleveraged
• Subsidy and/or
other restrictions
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Most Valued Asset Management Partnerships
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 Property Manager
Has most impact on a
day-to-day basis
 Affects portfolio capacity
of the asset manager


If asset manager can not
handle 15 - 20 properties
because of property
management demands,
consider doing your own
management unless there’s
an independent resource to
pay for asset management.
NeighborWorks® America
 Lenders & Investors
Best financial terms
don’t always make the
best partner; evaluate
long term compliance
and oversight
relationship & costs
 Have significant
influence on your
reputation (pro and
con)

Most Valued Asset Management Partnerships
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 Board of Directors
Set property goals
 Evaluate disposition
strategies

 Finance Managers

Negotiate property vs
organizational financial
needs
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 Housing Development
Staff
 Influence new project
design, budget, staffing
plan, resident mix,
marketability
 Other
Getting the Most from Your Property
Management Firm
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 Understand what it
costs to operate a
property management
firm to better evaluate
whether or not you’re
getting your money’s
worth. 63% to 75% of
fee revenue goes to
support non-site
staffing, including
supervisory and
accounting.
NeighborWorks® America
 Understand that a
management company
seeks long term
relationships. A
management company
loses money in the
first year, breaks even
in the second and
begins to make some
money in the third
year of a contract.
Getting the Most from Your Property
Management Firm
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 The Management
Contract should detail
expectations of
management company re:




meetings,
overseeing capital projects,
reporting, staffing.
If you want reports
different than standard
reports, specify. If you
want a say in who the staff
is, specify.
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 Dealing with residents:
clarify how resident
complaints will be
handled.
Getting the Most from Your Property
Management Firm
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 Meet monthly and have
a standing agenda that
includes
budget variance review,
 resident issues,
 capital projects,
 upcoming
compliance/inspection
activities.
 Walk the property and
look at all vacant unit

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Getting the Most from Your Property
Management Firm
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 Test early and often for
redundancies of effort
by property and asset
managers.
 Appreciate that this is
very hard work and it is
very easy to fail.
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 Cultivate a long term
relationship(s). The more
you shop around and
make management
company changes, the
fewer “good” managers
will want to work with you.
 Communicate,
communicate,
communicate.
How to Participate in New Developments
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 Help develop “standards” for new or
redeveloped developments based on portfolio
experiences and best practices:
Number of units
 Management and other fees (bookkeeping, asset mgmt)
 Number of bedrooms/unit
 Operating costs (per unit and as a percentage of
revenues)
 Geography (property without a site office must be within
a 30 to 45 minute drive of another property)

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How to Participate in New Developments
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 Help develop “design standards” for new/
redeveloped properties
Site office location and size
 Unit mix (what works in the market)
 Materials used (durability)
 Maximizing energy efficiency
 Safety
 Parking and trash removal (two major problems hard to
cure if you don’t get it right the first time)

NeighborWorks® America
5. SKILLS REQUIRED
 Ability to evaluate reports
 Financial Analysis:
spreadsheets, comparisons,
variances; knowledge of
standards (pupy, pum, %)
 Functional knowledge of
property management
operational benchmarks
of third party professionals
re: physical condition;
reasonably knowledgeable
about physical standards;
ability to identify and
prioritize maintenance
deficiencies
 Ability to analyze property
documents (eg - be able to
determine mortgage loan
requirements and monitor
for compliance)
5. SKILLS REQUIRED (cont)
 Ability to evaluate adequacy
 Knowledge of local real
estate market (be able to
evaluate ability to increase
rents)
 Ability to monitor changes
in public laws that impact
property operations; follow
newspapers and industry
publications
of insurance coverage,
exposure posed by
outstanding law suits,
potential claims not yet
filed (eg. Safety locks on
windows)
 Ability to monitor third
party property contracts for
responsibilities, payment
schedules, deadlines, term,
default, termination
provisions
5. SKILLS REQUIRED (cont)
 Ability to comply with or
monitor compliance
accuracy and timeliness of
reporting requirements to
state and local governments,
investors, private and public
lenders. Also must monitor
completion and submission
of annual audit to
appropriate parties.
 Understand property’s
position vis a vis an entire
portfolio
 Ability to evaluate the
Property Management Agent
objectively within market
choices
 Ability to determine whether
property results are acts
performed exclusively by
Property Management Agent
or other forces are involved
5. SKILLS REQUIRED (cont)
 Ability to motivate and
 Ability to see a property’s
“big picture” by identifying
major cost and
performance drivers: not
just variances between
budgets and actuals
 Ability to negotiate
performance standards
appropriate for property
and Board goals
provide incentives to
Property Manager
 Ability to summarize
analysis succintly, in
writing and graphic form,
and in person for Board
 Technical skills to prepare,
usually with Property
Management Agent, annual
budget and capital schedule
KNOW THY DEAL:
DEAL BOOK summarizes:
 Structure of ownership
 Partners
 Fees & Incentives
 Liabilities & Warranties
 Sponsor guarantees
 Structure of Debt
 Compliance Requirements
 Underwriting & Operating
Assumptions
 Cash Flow Expectations
 Key Dates
 Cliffs
 Disposition Plan
KNOW THY DEAL:
 Sponsor
 Developer
 General Partner
 Limited Partners/




Investors
Property Manager
Lenders
Regulators
Residents
KNOW THY DEAL:
 Equity Sources

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Low Income Housing Tax
Credits
Public Investment
Private Investment
Grants
Cash Reserves
 Debt Sources

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

Banks
State Housing Finance
Agency
HUD
CRA pools
KNOW THY DEAL:
 Partnership Agreement
 Regulatory Agreement
 Loan documents, promissory

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
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
notes and mortgages
Subsidy contract(s)
Programmatic contracts
Management Plan
Operating Pro Forma
 Initial Budget
 Multi-year Projections
Investment Pro Forma (sources
and uses)
Property Management Contract
Ground Lease (if applicable)
KNOW THY DEAL:
 KEY document that
summarizes how asset is
projected to perform
financially
 Identifies projected
benchmarks for




Annual rent increases
Modest annual operating
increases
Debt service coverage
requirements
Reserve funding
The End Game
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 Be pro-active: have an asset management
plan for each development







Know Thy Deal
Trend and re-project the pro forma every few years
Perform Capital Needs Assessments every 5 years
Monitor/manage investor capital accounts – they do!
Trend and re-project the pro forma every few years
Demonstrate to stakeholders that you are planning for the
future
Leave plenty of time to assemble the work-out team and
necessary resources
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