Honolulu Property Services- Property Reserve Studies

As your local reserve study resource, Honolulu Property Services is committed to bringing our diverse experience to your planning efforts to provide property owners, property managers, and board members with the necessary data and tools for ensuring Act 62 514B compliance.

Protect your investment & Plan for the future

Are you a property owner or manager in Hawaii?

If so, it’s essential to perform a reserve study to ensure that your building’s long-term maintenance needs are adequately funded.

The 2023 law increased the planning horizon from 20 to 30 years, with the intent to capture and adequately plan for more of the components that must be planned for.
A minimum annual level III reserve study update is still required annually to complete the operating budget (in-house or third party for setting reserve amounts each year).
At a minimum, a board that performs their own reserve study must have an independent review performed every three years.

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To maximize the benefit of the reserve study, it should be evaluated each year in tandem with the creation of the annual operating budget. Keeping the reserve plan updated and tied to current market conditions including construction cost, and inflation can have significant impact on the usefulness of the reserve study as your primary planning tool for long term financial health. The larger more complex properties may want to consider Level 1 studies on a more frequent basis.

Level 1 Reserve Study

Level one is the most comprehensive study and requires a site visit to assess firsthand the condition of the components. Required time onsite will vary based on size of property and number of different style of buildings, number of components and historical information for organizational purposes. The goal of all our plans is to allow for well planned cash flow, timely repair and maintenance and the avoidance of special assessments or other “catch up” sources of funding.

We will meet with your management and maintenance staff, quantify scope and assess the condition of components. A photo inventory will be created to also document conditions.

With a complete component list, we will contact your service providers to develop an updated replacement or repair cost estimate.

The computing and analysis of the Reserve Funding plan will be assessed. We will work to show you the most conservative approach as will as what is required by law so that you have the data to set a level that is the most appropriate for your needs.

Level 2 Reserve study update with site visit

At a minimum, the Level 2 reserve study update with a site visit should be performed every 3 years.

Our time onsite will vary, based primarily on how long it has been since the last site visit. We will take new pictures, and evaluate previous assumptions on the lifespan of each component based on the current conditions and velocity of change in that component.

We will meet with your management and maintenance staff, to get updates on what work has been completed since the last site assessment and re-assess the conditions of components. The current photo library will be compared to the previous photo library to assess component life estimates where feasible.

Current data and observations will be used to update costing all deliverables.

Level 3 Reserve study update, no site visit

A Level 3 reserve study is an office only “update” of a previous report that is performed annually between site visit studies to account for changes in economic conditions, inflation, construction material pricing, labor pricing or other shifts that might significantly impact the projections. Based on information provided by management and maintenance, the component list will be updated with information provided, and the reserve study will be updated to reflect new data and conditions. No on-site assessments or photo libraries are generated with this option.

What is a Reserve Study?

A reserve study is an essential capitol planning tool for property owners, managers, and board members to ensure that the maintenance, necessary repairs , and replacement of community assets are accounted for in the financial planning efforts of the community.

It is a critical part of the yearly budgeting effort and a third-party review ensures that the fiduciary responsibilities of the property manager and/or board are being met including compliance with Act 62.

Why HPS?

Located in Oahu, David Fontenot is both a licensed Professional Engineer, and spent 20 years in the residential construction industry running a design build general contracting company in Boston, Ma. HPS draws on years of experience evaluating, designing, building, and repairing buildings to help you to expertly evaluate your buildings current condition and plan for your future.

Years of designing, scoping and pricing residential construction project projects provides a critical foundation for evaluating future costs in comprehensive reserve study planning efforts.

As a consulting engineer, David Fontenot has performed net present worth analysis on capital improvement projects for municipalities, which is a valuable skill for understanding the financial implications of future maintenance needs. This knowledge allows the analyst to accurately forecast future costs and ensure that the reserve fund is adequately funded to meet those needs.

David Fontenot also has extensive experience working with condominiums and property managers, which can have unique maintenance needs compared to other types of buildings. As a vice president of a building envelope firm specializing in condos, he has firsthand knowledge of the specific issues that can arise with condo buildings, such as water intrusion and building envelope failure. This knowledge is invaluable when developing a reserve study for a condominium complex.

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For most properties, you can expect to pay anywhere from a few thousand to around twelve thousand dollars. A rough ballpark price of 1% of the operating budget is a quick approximation. We provide a custom quote to each of our customers based on the specific property.

At Honolulu Property Services we offer comprehensive reserve study services at competitive prices. Our team of experts will work closely with you to assess your property’s needs and provide detailed recommendations for future maintenance and replacement costs.

How much does a reserve study cost?

Hawaii Legislation

In Hawaii, there are specific laws governing reserve studies, which are commonly used to help condominium and community associations budget for future maintenance and repair costs. The current legislation for reserve studies in Hawaii is outlined in Hawaii Revised Statutes (HRS) Chapter 514B, which covers condominium property regimes.
Of particular interest are:

514B-144(a) Assessments shall be made based on a budget adopted and distributed or made available to unit owners at lease annually by the board.
514B-144(h) The board, either directly or through its managing agent or resident manager, shall notify the unit owners in writing of maintenance fee increases at least thirty days prior to such increase. Association governing documents may require sixty-day notice.
514B-148(a) The budget required under section 514-144(a) shall include at least the following:
1) The estimated revenues and operating expenses of the association
2) Information as to whether the budget has been prepared on a cash or accrual basis
Note that the operating budget can not be completed without a reserve study or reserve study update, to determine the reserve contribution that is included in the operating budget.

In June of 2022, The Hawaii legislature passed Act 62 (HB 2272 HDI, SD1, CD1) Relating to condo associations. The following was included:
1. Specify that a condominium declaration may be amended at any time by the vote or written consent of unit owners representing at least sixty-seven percent of the common interest;
2. Require the developer’s public report to include annual reserve contributions, based on a reserve study, as part of the breakdown of the annual maintenance fees;
3. Clarify time and date requirements for petitions to amend bylaws and calls for special meetings; time frame for approval of minutes; and board meeting participation;
4. Clarify the conditions for use of electronic voting devices;
5. Specify that the use of electronic meetings and electronic, machine, or mail voting are to be at the sole discretion of the board of directors and expand the circumstances under which such use is authorized;
6. Specify that a board of directors may make rules for owner participation at board meetings available on the association’s website;
7. Require that the reserve study be performed by an independent, study preparer who shall not be affiliated with the managing agent of the association and require that the reserve study be prepared or updated at least every three years; and
8. Specify that an association’s cash flow plan be based on thirty-year projections and prepared by an independent reserve study preparer and reviewed or updated at least every three years.

§514B-148 Association fiscal matters; budgets and reserves. (a) The budget required under section 514B-144(a) shall include at least the following:
(1) The estimated revenues and operating expenses of the association;
(2) Information as to whether the budget has been prepared on a cash or accrual basis;
(3) The total replacement reserves of the association as of the date of the budget;
(4) The estimated replacement reserves that the association will require to maintain the property based on a reserve study performed by the association; provided that the reserve study shall be reviewed by an independent reserve study preparer; provided further that the reserve study shall be reviewed or updated at least every three years;
(5) A general explanation of how the estimated replacement reserves are computed;
(6) The amount the association must collect for the fiscal year to fund the estimated replacement reserves; and
(7) Information as to whether the amount the association must collect for the fiscal year to fund the estimated replacement reserves was calculated using a per cent funded or cash flow plan. The method or plan shall not circumvent the estimated replacement reserves amount determined by the reserve study pursuant to paragraph (4).
(b) The association shall assess the unit owners to either fund a minimum of fifty per cent of the estimated replacement reserves or fund one hundred per cent of the estimated replacement reserves when using a cash flow plan; provided that a new association need not collect estimated replacement reserves until the fiscal year which begins after the association’s first annual meeting. For each fiscal year, the association shall collect the amount assessed to fund the estimated replacement for that fiscal year reserves, as determined by the association’s plan.
(c) The association shall compute the estimated replacement reserves by a formula that is based on the estimated life and the estimated capital expenditure or major maintenance required for each part of the property. The estimated replacement reserves shall include:
(1) Adjustments for revenues which will be received and expenditures which will be made before the beginning of the fiscal year to which the budget relates; and
(2) Separate, designated reserves for each part of the property for which capital expenditures or major maintenance will exceed $10,000. Parts of the property for which capital expenditures or major maintenance will not exceed $10,000 may be aggregated in a single designated reserve.
(d) No association or unit owner, director, officer, managing agent, or employee of an association who makes a good faith effort to calculate the estimated replacement reserves for an association shall be liable if the estimate subsequently proves incorrect.
(e) Except in emergency situations or with the approval of a majority of the unit owners, a board may not exceed its total adopted annual operating budget by more than twenty per cent during the fiscal year to which the budget relates. Before imposing or collecting an assessment under this subsection that has not been approved by a majority of the unit owners, the board shall adopt a resolution containing written findings as to the necessity of the extraordinary expense involved and why the expense was not or could not have been reasonably foreseen in the budgeting process, and the resolution shall be distributed to the members with the notice of assessment.
(f) The requirements of this section shall override any requirements in an association’s declaration, bylaws, or any other association documents relating to preparation of budgets, calculation of reserve requirements, assessment and funding of reserves, and expenditures from reserves with the exception of:
(1) Any requirements in an association’s declaration, bylaws, or any other association documents which require the association to collect more than fifty per cent of reserve requirements; or
(2) Any provisions relating to upgrading the common elements, such as additions, improvements, and alterations to the common elements.
(g) Subject to the procedures of section 514B 157 and any rules adopted by the commission, any unit owner whose association board fails to comply with this section may enforce compliance by the board. In any proceeding to enforce compliance, a board that has not prepared an annual operating budget and reserve study shall have the burden of proving it has complied with this section.
(h) As used in this section:
“Capital expenditure” means an expense that results from the purchase or replacement of an asset whose life is greater than one year, or the addition of an asset that extends the life of an existing asset for a period greater than one year.
“Cash flow plan” means a minimum thirty-year projection of an association’s future income and expense requirements to fund fully its replacement reserves requirements each year during that thirty-year period, except in an emergency; provided that it does not include a projection of special assessments or loans during that thirty-year period, except in an emergency.
“Emergency situation” means any extraordinary expenses:
(1) Required by an order of a court;
(2) Necessary to repair or maintain any part of the property for which the association is responsible where a threat to personal safety on the property is discovered;
(3) Necessary to repair any part of the property for which the association is responsible that could not have been reasonably foreseen by the board in preparing and distributing the annual operating budget;
(4) Necessary to respond to any legal or administrative proceeding brought against the association that could not have been reasonably foreseen by the board in preparing and distributing the annual operating budget; or
(5) Necessary for the association to obtain adequate insurance for the property that the association must insure.
“Major maintenance” means an expenditure for maintenance or repair that will result in extending the life of an asset for a period greater than one year.
“Replacement reserves” means funds for the upkeep, repair, or replacement of those parts of the property, including but not limited to roofs, walls, decks, paving, and equipment, that the association is obligated to maintain. [L 2004, c 164, pt of §2; am L 2005, c 93, §7; am L 2022, c 62, §8]

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808-347-9321

info@honolulupropertyservices.com

Honolulu Property Services- Condo Reserve Studies