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HomeMy WebLinkAboutBackgroundAttachment 1 Background Falkenberg, Gilliam and Associates (FGA) has been the property management company for the Morgan and Kimball Towers since 1995. Each year, an operating budget for each building is prepared by the management company and is reviewed and approved by the Community Development Commission. Morgan Tower Morgan Tower is a 152-unit complex located at 1415 D Avenue. Of the 152- units, one unit is reserved for property management staff and 151 are rented to qualified households. Of the 151 rental units, 149 receive Section 236 rental assistance from HUD. Two units are market (unsubsidized) rate and do not receive rental subsidies. Pursuant to HUD regulations, Morgan Tower is projected to receive a $10 or 1.48% increase in rent using HUD's automatic Annual Adjustment Factor (AAF). Rents cannot be increased beyond the HUD allowed AAF. The current rent per unit per month is $677 and the proposed rate is $687 per unit per month. The $10 rent increase will be covered by Section 236 rental subsidies for those households (149) receiving rental assistance. The two market rate units will receive an increase to their rent payment, unless the rent increase causes their housing costs to exceed 30% of the household's monthly income. Should this case arise, the FGA property management office may evaluate the household's eligibility to receive Section 236 rental assistance. Notable items of the Morgan Tower budget are: • Rent increase (1.48%) of $10 per month as allowed by HUD's Annual Adjustment Factor. • Office Assistant wasn't budgeted under (GL#6310) and therefore costs went down in this line item. • Morgan Tower required to transition from old HUD Occupancy Software to web -based system at $1,500 per year and thereforebookkeeping fees/accounting services line item (GL#6351) increased. • Worker's Compensation insurance (GL#6722) increased by more than 30%. • Health Insurance Benefits (GL#6723) increased by more than 17%. • Management rate increase (GL#6320) of 0.25%. • Even though the budget reflects a ($72,023) shortfall primarily due to increased costs of Worker's Compensation and Health Insurance, HUD administers a residual receipts account with a balance of over $227,000 which may be used to fund periodic shortfalls. • Capital Improvement Budget includes the removal and replacement of roof budgeted at $250,000 paid from replacement reserves. For the fiscal year ending June 30, 2012, the projected annual income is $1,232,396 and total cost of operations total $1,311,288 which includes loan principal payments of $218,492. After a HUD required deposit of $37,524 into a 1 replacement reserve fund, the property has a shortfall of ($72,023). The shortfall will be paid from a residual receipts account held by the U.S. Department of Housing and Urban Development. As of April 30, 2011, the balance of the replacement reserve fund is $357,362. This building has a mortgage balance of approximately $2,294,461 with the final payment due August 1, 2019. Kimball Tower Kimball Tower is a 151 unit complex located at 1317 D Avenue owned free and clear by the Community Development Commission. Of the 151 total units, two (2) are reserved for property management staff and 149 are rented to qualified households. Of the 149 rental units, 134 units receive rental subsidies from HUD through the City of National City's Section 8 program. For the fiscal year ending June 30, 2012, the projected annual income is $1,056,788 and the total cost of operations total $1,054,539. Although this presents an income of $86,249, the property management company is required to place $84,000 in the replacement reserve account ($7,000 per month). Replacement reserves are funds that are restricted for the replacement of appliances, carpeting, or other unbudgeted building maintenance charges. As of April 30, 2011, the balance of the replacement reserve fund is $1,116,839. After funding the reserve account with the additional $84,000, the net income of the Kimball Tower is estimated to be $2,249. Due to overall increases in projected expenditures, FGA is recommending an increase of $15 (2.63%) per month/per unit from $570 to $585. Households receiving a Section 8 subsidy will not feel the impact of this rental increase, since the proposed rental increase will be covered by the rent subsidy. The 15 market rate units will receive an increase to their rent payment, unless the rent increase causes their housing costs to exceed 30% of the household's monthly income. In this case, the City's Section 8 program staff may evaluate the household's eligibility to receive Section 8 rental assistance. Highlights of Kimball Towers' Budget are: • Rent increase (GL#5120) of fifteen dollars (2.63%) per month from $570 to $585. Federal rent subsidies will pick up rent increase for those families being subsidized. • CDC Asset Management Fee (GL#6204) of $20,000. • Management rate increase (GL#6320) of 0.25% from 7.25% to 7.5% • Capital Improvement Budget (Kimball Tower office roof, $60,000) paid from replacement reserves. Staff recommends adopting the Morgan Tower and Kimball Tower budgets for the FY 2011-2012.