Century Management: Capital Planning

THE BIG PICTURE

With money being cheap in the last decade, long-term capital planning and budgeting by boards became the norm as buildings turned their attention to a flow of capital investment projects. Over the last 10 to 15 years, boards certainly got smarter about looking at these capital projects and capital budgets, developing 5-, 10-, and 15-year capital plans.

BE SMART

The smart boards bring in engineers or architects as soon as they begin planning. Many even do this before refinancing their underlying mortgage. Some of our boards have added capital contributions to their maintenance structure or their common-charge structure. Those are the buildings that, after a decade, are the most financially healthy because they realized that they couldn’t just keep going back to the well of assessments. They had to come up with a plan.

For instance, there is a 120-unit, prewar co-op that’s going to spend somewhere between $1.5 to $2 million every 10 years. That’s $150,000 to $200,000 a year that should be going into the reserve fund. The buildings that have recognized facts like that are much healthier. The buildings that don’t will be behind the 8-ball. The smart board member always looks to the future, not just at the time that he or she is on the board.