Beyond Monitoring Performance: Creating a “Watchlist” September 24, 2010 Vermont Housing & Conservation Board

Due Diligence Checklist The following are key actions in an Asset Management Plan for a property requiring Executive Team and Board monitoring.  Review of owner’s broad goals for the property, and the degree to which the property succeeds in meeting those goals  Review of conformance with initial multiyear proforma projection  Approval of annual operating budget and management plan 1

Due Diligence Checklist (cont)  Compliance with established property performance benchmarks –Financial –Physical/Sustainable –Social/Mission  Compliance with CDC obligations and warranties such as cash flow performance, reserve balances, tax credit compliance 2

Due Diligence Checklist (cont)  Approval of any deal revisions, major capital expenditures  Approval of any change in property management  Review and approval of any potential financial restructuring of the property 3

4 What is a Watch List? It is a list of properties that are under scrutiny based on their performance in one or more identifiable indicators Different stakeholders are likely to focus on different indicators Being on a watch list can trigger events or consequences that pose difficulties for a property or an organization

5 Stakeholder Watchlists What are likely to be on these stakeholders’ watchlists? Lender Investor Regulator Board of Directors Property Manager Residents

6 The Asset Manager’s Watch List Make the criteria SMART –Specific –Measurable –Attainable –Realistic –Timely First, identify the key indicators for your portfolio Secondly, establish the criteria you will use to evaluate each indicator Lastly, decide on a ranking system

7 Watch List Example INDICATOR: May be one discrete indicator, such as vacancies, or a combination of one or more (rent loss which equals vacancies plus uncollected rent) CRITERIA: Rent Loss 0 = > 7% 1 = 5% - 7% 2 = 3% % 3 = 1% % 4 = < 1% RANKING: 0 Troubled, Watch List 1 Watch List 2 Watch List 3 Performing 4 Performing

8 Evaluating a Watch List Your materials include – A sample of a non-profit asset manager’s “portfolio status report” of a portfolio that is a combination of owner/managed and third- party managed properties –A sample of an intermediary’s quarterly portfolio summary –Both “rank” or “rate” properties Critique these report as follows: –Evaluate the indicators What do you like What’s missing –Evaluate the criteria Are they SMART? What would you change? –How much of the portfolio is ranked Troubled Watch List Performing –What indicators are weakest?