Village Palos Verdes Homeowners Association
August 28, 2008 – Presentation to Homeowners
Post-Presentation Questions and Answers
Budget:
Q: Of the last five projects of each of the consultants hired for this project, how many have been on-budget?
A: DBA – Over the last 20 years, none have gone over budget.
Professional Services – All their projects have been on-budget and on-time.
If there is money left over, it will be used on items that, due to budgetary constraints, could not be included in the construction project or it will be returned to the Reserves account to fund future capital improvements.
Q: Who set the target for a $75,000 assessment?
A: Over the last two plus years, the Board hired construction experts to do destructive testing and develop preliminary repair estimates that ranged from $75,000 to over $135,000 per homeowner. Subsequently the Board set a target for $75,000.
Q: Do we have protection for cost overruns? What assurance do we have from the construction company that their bid will hold true and that the budget is sufficient to cover unexpected problems?
A: The budget includes Contingency funds to protect against cost overruns. That is why this budget line item is as high as it is. There will be “unknowns” and issues discovered during the project that will need to be paid out of those Contingency funds. We believe the amount budgeted for Contingency is reasonable. The contractor’s current budget numbers are based on the scope of work as described and presented to the homeowners, and he is confident that he can get that work done for the budgeted amount. He has already received some bids for some of the items and has priced out completing some of the work with his own crews. When bids are released with the working drawings, the numbers should be the same if not less than those presented in the budget given the same scope of work for labor and we are aggressively seeking fixed prices on major materials to mitigate the cost impact from escalation.
Q: How will we be kept abreast of the construction budget (expenditures)?
A: Monthly reports will be available from Horizon Management and the Board may post a construction information newsletter on the HOA’s website.
Q: Where is Plan B?
A: There is no Plan B. This plan is the least costly, most intelligent and the appropriate resolution. Professionals in this industry have advised us that piece-meal partial replacement will not provide the intended and required results, and will not be as cost effective.
Q: If we did a Plan B, would we be able to convince the real estate market that our building issues are behind us?
A: No, we would not.
Financing:
Q: What does the six hundred dollars ($600.00) per month payment cover?
A: It includes interest payments to the bank as well as other costs associated with managing the assessment loan, and a small allowance for bad debt. Homeowners are encouraged to arrange for their own individual financing, which may be more cost effective.
Q: Is the HOA assessment loan an interest only loan for eight (8) years?
A: The assessment loan is 1) a 24 month line of credit (interest only at a variable interest rate), and 2) the loan converts to a (7 year) term loan at a fixed rate at that time.
Q.: How can we make a decision on a loan if we do not know the interest rate?
A: The interest rate will be prime, plus 2%, which is less than what other institutions specializing in this type of loan offer. The HOA loan is offered as a mechanism to legally manage the assessment and to provide a financing option for those who cannot qualify for their own individual standard financing for the full value of the assessment. It may also be a reasonable option for those who can manage the additional impact to monthly cash flow obligations and plan to only retain their property for a shorter term, predicting that the renovation will improve property values adequately to obtain the balance of the assessment during re-sale negotiations. Each homeowner is encouraged to seek financial advice from a professional.
Q: How can I get the information for my CPA? What document can I take to my consultant (financial advisor)? Where can I get it?
A: The project budget summary was mailed with the ballots. The slides regarding financing options, which were presented at the August 28th meeting, are available on the website: HYPERLINK "http://www.villagepalosverdes.org" www.villagepalosverdes.org. This Q&A also provides applicable information.
Q: Of all the financing scenarios, what it the least expensive?
A: The least expensive scenario is probably one in which the homeowner arranges financing on their own. The HOA financing is for homeowners who do not have access to any financing alternatives or want to time withdrawal of personal investments to pay their assessment. The $600 per month will only pay down $10,000 in principle. Therefore, the sooner a homeowner obtains their own financing and can pay off the balance of the assessment, the less they will pay to the HOA in financing and administrative fees.
Q: What assurances are there that the monies collected will still be there when the bills come due.
A: All assessment funds collected from the homeowners will be placed in FDIC insured Certificates of Deposit and/or Treasury Bills that are backed by the government. Merrill Lynch acts only as a broker. The funds are not invested in Merrill Lynch.
Q: How will the interest income earned on the project funds collected be used?
A: It will be applied to bank loan fees and/or used for construction contingency, helping to off-set the need to increase the assessment.
Q: Is there a prepayment penalty (if a homeowner decides to pay off their assessment)?
A: No, there is no prepayment penalty. Homeowners may make escalated payments and may pay off the balance at any time. Doing so will likely reduce the cost of the overall assessment.
Q: What else is required of those homeowners who choose the payment plan set up by the HOA?
A: You will be required to sign a loan guarantee and if your property changes ownership before the loan is paid, then the loan balance must be paid off in its entirety at that time.
Construction:
Q: What is the estimated start date (for construction)?
A: The first week in January, 2009.
Q: Do the consultants know how the work (buildings) will be sequenced?
A: Yes. Since our meeting on 8/28/08, it has been decided that construction will begin with the Phase I buildings at the South end of the complex and will move systematically through the remaining phases.
Q: What is the time frame per building?
A: One the average, one month per building.
Q: During construction, how much of the complex will be encumbered at any given time?
A: A series of three to four buildings will be under construction at any given time.
Q: Are we reroofing or repairing the roofs?
A: The existing roofs will be torn off and a new roof will be installed.
Q: Are double pane windows required by the City of Torrance?
A: Yes, dual glazed windows are required under title 24 (California State Energy code).
Q: Can a homeowner pay for windows that open that are now fixed in place?
A: The HOA is in the process of determining if this is feasible. If it is, the homeowner would have to pay the Association the difference in cost between the fixed and active window.
Q: I (homeowner) replaced my windows four years ago. Does the HOA have to again replace my windows?
A: Yes. Most of the retrofit windows currently in the complex were not properly flashed for water proofing, as this requires the siding to be removed. We will replace all of the windows for warranty purposes and so that all windows are of the same quality for all homeowners.
Q: What is the length of the warranty?
A: The base construction warranty is one year from completion. However, there are a series of material and labor warranties for specific assemblies, e.g., roofing, in which the warranty period is longer, etc.
Q: Will we get a list of the warranted items before we vote?
A: Yes.
Q: Have we investigated offsetting the disposal cost of the cedar siding that is being removed?
A: Yes, and there does not appear to be a market demand for it.
Design Concept:
Q: At the July presentation there was a discussion concerning new shed roofs added to the “E” and “F” Units, are those roofs still part of this plan?
A: In order to meet the target budget of $75,000, this improvement was not included in the project scope.
Q: What is Hardie siding?
A: It is a building material that is mostly made of cementatious fibers that make it fire and dryrot resistant. This type of material is standard in the industry and cost effective.
Q: Where are the materials manufactured?
A: The siding, roofing and window materials are manufactured in the United States.
Q: Are we not getting a gated community?
A: Perimeter gates were not considered as part of the building repairs.
Q: Ten years from now, how is the Association going to maintain consistency?
A: At the conclusion of the repairs, the HOA will be given complete close-out documentation of the project, including all the plans and specifications that were used during the construction. The Reserves account will be re-set to allocate funds for regular painting and associated costs.
Balloting:
Q: If the HOA can impose an “emergency assessment”, why bother to take a vote?
A: Because of the Board’s diligence in identifying the issues, the present circumstances do not meet the minimum requirements of the California Civil Code for an emergency.
Q: What will happen if the vote fails?
A: The Board will have to continue to uphold its fiduciary responsibilities and make repairs as necessary until Reserves could finance a more thorough plan. This “band-aid” approach would increase regular monthly dues and would cost the Association much more in the long run. The result would be that some owners would gain the benefit of improved property values, at the expense of the entire Association.
Q: Can we get a copy of the (PowerPoint) presentation?
A: Yes. It will be posted on the Association’s website: HYPERLINK "http://www.villagepalosverdes.org" www.villagepalosverdes.org and also be available for viewing at Horizon Management.
Q: Because of the economy, does the HOA feel this is the best time to start a project?
A: Because of the slowed economy, this is a good time to buy construction labor, and materials. The cost for construction labor and materials are projected to increase in the coming years.
Miscellaneous:
Q: If I pay the entire assessment up front, yet I live in the last building to be repaired, what guarantee do I have that there will be enough money to complete my building? What assurances do we have that the project will be completed? Is there a completion bond?
A: The Association is obligated to abide by the governing documents, treating all homeowners fairly and consistently. Once the project is approved and repairs are started, they will be completed. The cost of a completion bond was not included in the budget as it would have added $120,000 to $240,000 to the project. Our Construction Managers do not recommend that we spend this amount of money on a completion bond, because in their experience they have never had a job of this nature that would have benefited by purchasing a completion bond. We have hired a well-qualified contractor that has been in business over 25 years and is financially strong. We will pay for work as it is completed, with a10% retention, and therefore, we will never be extended financially beyond the work in progress.
Q: What if someone goes bankrupt during construction?
A: The Association will implement its delinquency policy.
Q: What if the assessment passes and one-half of the homeowners default?
A: The HOA will exercise its existing delinquency policy and place a lean against the delinquent homeowner. The HOA then has the option to foreclose but will pursue this process as a last result, to protect the HOA.
Q: After the renovation, can we expect dues to go down?
A: Probably not. As indicated in the presentation, there are other improvements and repairs that will need to be done following the renovation. The Board is working to hold monthly dues at the current rate rather than escalating them proportionately.
Q: On what date will we receive a hardcopy project plan that identifies the scope of the project, a list of components to be included and excluded, a budget that lists components with estimated quantities and costs, and a construction schedule that identifies the start and completion dates for each phase?
A: A copy of the Budget Summary was distributed with the Special Assessment ballots, which provides a detailed list of the items included in each budgetary line category. The components included in the project were displayed at the meeting and will also be available for review at Horizon Management’s office. The estimated quantities and costs for each individual line item and specific components will be made available after all sub contracts have been signed (this protects the HOA’s financial interests). Releasing this detailed information prematurely will jeopardize the bid process. A finalized construction schedule will be posted as soon as it is agreed upon between the Board and the Consultants. This schedule will be updated regularly and provided to the homeowners as part of the project progress updates.
VPV Questions and Answers 8.28.08.doc