Recognizing Risky Reserves

The article discusses the challenges of predicting reserve fund requirements for major projects in condominiums, especially in a volatile construction pricing environment exacerbated by the COVID-19 pandemic. Reserve Fund Studies are required every three years to collect funds for major projects and ensure the financial and physical assets of the corporation are balanced. However, accurately determining the amount of risk in the study is complex and requires considering various factors, such as budgets, phasing of projects, and inflation rates.

The article highlights the importance of realistic project phasing, accurate interest and inflation rates, and realistic project cost estimates. To avoid underfunding, boards may need to adjust the funding plan, possibly through increasing annual contributions over a short period or implementing special assessments. The risk of unforeseen items and concealed conditions leading to special assessments can be mitigated through condition assessments and updating the Reserve Fund Study accordingly.

Boards are encouraged to assess the sensitivity of the study to changing assumptions and to make adjustments at each update to incorporate market changes gradually. Communication-focused professional engineering and project management firms can assist boards in developing repair plans and Reserve Fund Studies aligned with their objectives and financial constraints.