Optimizing Portfolio Performance Through Asset Management NCSHA Nashville, September 28, 2015

Optimizing for whom? Lender? Investor? Owner/sponsor? Community/taxpayers?

Long term sustainability and affordability is the goal

Budgets Are you budgeting to ‘get by’? Or, to get to recapitalization event? Or to support organization?

Goals 1.Management companies set minimum goals!! 2.Owners set optimum goals. 1.Asset management fees 2.Developer fees 3.Support for resident services 4.Successful re-fi and exit strategies

Property management is only the means to get you there! So, how good is your asset management?? Optimization is a function of asset management

Good? Compared to what? Sample goal statements 1.Cash flow: $1000 per unit/year 2.Cut expenses 10% 3.All properties sustainable to exit

1.Pass all REACs: 95% of prior year 2.Delinquent rents charged off monthly 3.3% improvement in cash flow Incentive bonus plan

Section B Bonus Calculation Income To Budget 8 10% better than budget = 10, 0% to 9.99% better than budget = 8, Up to 10 % worse than budget = 4, More than 10% = 0 Operating Expenses to Budget 4 10% better than budget = 10, 0% to 9.99% better than budget = 8, Up to 10 % worse than budget = 4, More than 10% = 0 Capital Expenses to Budget Over budget = 0, Not over budget and all budgeted capital items completed = 100 Vacancy Loss Score 4 Less than 1% = 10, 1% to 2.5% = 8, 2.6% to 5% = 4, Greater than 5% = 0 Collection Rate Score 8 Greater than 99.9% = 10, 97.0% to 99.9% = 8, 93.0% to 96.9% = 4, Less than 93.0% = 0 Turnover Score 10 Less than 10% = 10, 10% to 20% = 7, 21% to 50% = 4, greater than 50% = 0 Average Days Vacant Score 10 Less than 10 = 10, 10 to 20 = 6, 21 to 30 = 2, greater than 30 = 0

Key tools 1: asset management plan 1.Narrative 2.Internal Watch list 3.Asset plan by property 4.Cash flows by property – to/from parent 5.Debt schedule for portfolio 6.CNA’s –reserve management 7.Deal books – cash waterfalls and exits

Managing that plan Does narrative set portfolio goals? Are asset plans consistent with narrative strategy? Is watch list consistent with cash flows? Are major capital needs reflected in asset plans? Are asset plans consistent with investment cliffs?

Key tools 2: Organizational Cash Flow Link portfolio results to organizational audit Line of business profitability

interventions Culture failure Business strengthening clinic: balance sheet building. ED/CFO /Board Board oversight training – Whole board Real estate failure Portfolio strengthening clinic and grants ED/ Asset Mgr/Board Systems – Software – Portfolio Mgmt. clinic – CHAM classes