The First Responders of Real Estate by Cinnaire

A publication of Great Lakes Capital Fund

the

Volume 19 | Issue 3 | 2012

First Responders Real Estate of

PROPERTY MANAGEMENT SPECIAL COVERAGE

Strategies to keep you one step ahead. Delivering solutions for the unique challenges facing today’s affordable housing developers makes us one of the nation’s top accounting and advisory firms. Having the experience to not only help you see the big picture, but also the industry know-how to keep you one step ahead is what sets us apart. With refreshing candor and clear industry insight, our affordable housing specialists have the expertise necessary to guide you through the development process, from funding applications to disposition or recapitalization. Want a more strategic advisor? The choice is right in front of you. Connect with us: bakertilly.com

> Audit and tax services > Cost certification > Market studies

Don Bernards, CPA, Partner 608 240 2643 donald.bernards@bakertilly.com

> Transaction consulting > Securing tax credit equity – Low-income housing – Historic – Energy

FE A TURES EMPOWERING FUTURE LEADERS................................ 10 PROACTIVE PROPERTY MANAGEMENT........................ 12 LET’S GET PHYSICAL................................................... 14 EFFECTIVELY USING ALL YOUR RESOURCES................. 17 BUDGETS: A PROPERTY’S MOST IMPORTANT TOOL...... 20 REDUCING BAD DEBTS............................................... 24 BED BUG PREVENTION STRATEGIES............................ 27

THE PREVENTATIVE MAINTENANCE PROGRAM............ 34

DEP A RTMENTS CEO’s Message.......................................................... 5 The First Responders

EFFECTIVE LEADERSHIP................................................. 6 Are You A Robert Redford MARKETING.............................................................. 30 Taking the Cold Calling Out of the Outreach

legal issues............................................................ 36 Collecting from a Non-Paying tenant events & happenings............................................ 40 Advertiser’s Index.................................................. 42

CEO’s MESSAGE GOVERNING BOARD Wendell Johns, Chair Retired Michael J. Taylor, Secretary/Treasurer PNC Bank James S. Bernacki Comerica Bank Catherine A. Cawthon Fifth Third CDC William C. Perkins Wisconsin Partnership for Housing Development, Inc.

THE FIRST RESPONDERS BY MARK MCDANIEL, CEO/PRESIDENT GREAT LAKES CAPITAL FUND

James W. Stretz George K. Baum & Company Donald F. Tucker Don Tucker Consulting Paul J. Weaver Retired

CORPORATE OFFICERS Mark S. McDaniel, CEO/President Christopher C. Cox, CFO James L. Logue III, COO Jennifer A. Everhart, Executive Vice President Rick Laber, Executive Vice President This magazine is published quarterly by the Great Lakes Capital Fund (GLCF) to provide readers with information on affordable housing and economic and community development resources.This publication is copyrighted. The reproduction of Avenues to Affordability is prohibited by law. For additional copies, comments, concerns or to be added to the mailing list, please contact the Great Lakes Capital Fund office at 517.482.8555 or visit www.capfund.net. Editorial and Advertising Mary McDaniel, CMP • Alternative Solutions, LLC 517.333.8217 • mcdaniel64@comcast.net Graphic Design Melissa Travis • Ink Ideas Graphic Design, LLC 989.272.3101 • www.inkideasgraphicdesign.com Cover Illustration Pam Coven • Coven Creative 989.834.2009 • www.covencreative.us Lansing Office 1000 S. Washington Lansing, MI 48910 Phone 517.482.8555 Detroit Office 1906 25th Street Detroit, MI 48216 Phone 313.841.3751 Indianapolis Office 320 N. Meridian St., Suite 516 Indianapolis, IN 46204 Phone 317.423.8880 Madison Office 2 E. Mifflin Street, Suite 101 Madison, WI 53703 Phone 608.234.5291 Tinely Park Office 18450 Crossing Drive, Suite C Tinley Park, IL 60487

This edition of Avenues highlights the importance of property management and the successful operations of tax credit communities. In all the years we have produced Avenues we have never fully recognized the impact that property management has on the performance of tax credit communities. Not to be self-serving, but I think this is one of the best in depth coverages of property management best practices that I have seen. I hope you find it the same. Unfortunately the property management company has historically been forgotten as a major member of a development team. They usually get handed a development after the

Millions of dollars in loans and equity are placed in developments and property management companies are entrusted to safeguard these investments. However, they seldom receive the respect and kudos they deserve for what they are charged with doing everyday. community has been designed and financed and even sometimes built. What they typically get is a community that they become responsible for; but they had little or no input on the design nor the budget. I look at the property management team (including the maintenance staff, the resident manager, the leasing staff, the regional managers and all the rest of the staff who are responsible for the financial and social success of their communities) to be the “first responders” of real estate. Just as fire and police departments are the first to respond to problems, property managers perform a similar role to protect lenders, investors, owners and most importantly the residents. It doesn’t make sense, does it? Millions of dollars in loans and equity are placed in developments and property management companies are entrusted to safeguard these investments. However, they seldom receive the respect and kudos they deserve for what they are charged with doing everyday. We hope that this edition will open people’s eyes to the critical role property managers play in the real estate world. It is very hard, thankless work. They truly are “first responders”who operate on the front line in the real estate world. We at Great continued on page 39 5

EFFECTI V E LE A DERS H IP

ARE YOU A

ROBERT REDFORD? BY DENISE STEIN GREAT LAKES CAPITAL FUND

We all know that great organizations are comprised of great people. It’s a pretty simple equation, yet, many leaders struggle with building and sustaining strong teams. When working with CEOs and management teams, I often hear “If only I could keep my team on track,” or “Even though my people have the skills to do their jobs, they don’t ‘get it’ when it comes to motivation, attitude, and the culture that I want to have on our team.” When considering your staff and their “greatness,” I would call your attention to your greatness. When assessing whether your managers and staff support can “live” the organization’s values and mission, I invite you to reflect on the example that you set. It seems that, if we want our people to support and demonstrate a particular culture and to help to achieve our missions, we have to first ensure that we set the bar high with our own behaviors, attitudes, and achievements. Last year, Deb Toby (GLCF VP of Human Resources) and I attended a training program in Utah. While we looked forward to the training itself, we were delighted to learn that the program would be held at the Sundance Resort in Provo, Utah. Almost everyone has heard of Sundance because of its famous founder, Robert Redford, and the Sundance Film Festival. What you may not know is that Sundance is also a resort, hosting a variety of events, programs, and activities for families, youth, businesses, and the community. From the moment that Deb and I entered the grounds of the Sundance Resort, we could tell that it was a special place. The facilities are impeccably kept, beautifully landscaped, thoughtfully designed, and built to complement the breathtaking surroundings. We received a warm welcome from the person at the front desk, and a friendly young man showed us to our rooms. After just one day at Sundance, Deb commented about the high level of service and professionalism displayed by the people who worked for the Sundance Resort. Not only was each staff person friendly and accommodating, each shared a story or interesting fact about the facility, the grounds, the program, or its history. It was obvious to us that 6

these people all shared a common trait.... they CARE about Sundance. When I asked one of the staff members about Sundance’s employee training programs, she told me about the organization’s expectations, mission, culture, and tenets. She said that they don’t “drill these things into you,” they simply expect that you will live up to them. When I inquired further about the organization’s structure and whether they had a CEO, she smiled brightly and immediately said, “I work for Robert Redford.” That one sincere, enthusiastic sentence said it all! Who wouldn’t want to do a GREAT job for Robert Redford? As business owners or managers, I invite you to ask yourself, how do people feel when they say, “I work for (your name)?” What do you suppose they think when they say, “I work for (your company)?” When YOUR people tell others about their work life, what is being communicated inbetween the lines? While we can’t all be Robert Redford, we can certainly learn from his wisdom, his leadership, and from his organization. Whether you are hiring a new employee, looking for ways to motivate and support existing staff, or trying to create a culture to retain your top people, shared values, vision, and a strong mission are essential tools. It all begins with a dream: every great leader has a vision and shares the vision with others in a way that creates a personal connection. The vision does not remain with the leader alone...others “take” the vision on as their own and, hence, become leaders themselves. If you want to build a great team, you must begin with yourself. If you want to have an organization of leaders, you must share the vision and mission in a way that each person can find his or her “place within it” and take it on as their own. Whether recruiting, motivating, or retaining amazing team members, it all begins with alignment of one’s core values and vision with the mission (or purpose) of the organization. This is called leadership. Below are some guidelines to help you identify, expand, or clarify your personal vision and your organization’s mission. Regardless of your position in the organization, you can use this simple guide to BE Robert Redford!! GREAT LAKES CAPITAL FUND

Art of Leadership model • Vision – Personal Life Vision (PLV) – the driving force for each individual. Identifying personal core values helps one to identify his or her PLV. • Mission – statement of purpose for an organization, a unified effort, a structure to fulfill on a PLV USING THE SUNDANCE EXAMPLE As we look deeper into the Sundance Resort example, there are many lessons to learn. Expectations are clearly articulated, and managers set the standard in each area. Take a few moments to reflect on your Vision and your organization’s Mission, Values, and Goals. Once these are clearly identified, you can begin to share them with others in a way that opens a dialogue in which they can reflect upon their own values and vision. VALUES AND PERSONAL LIFE VISION Our Culture — We are in the business of inspiring discovery and changing lives. Why we do it — We love people and want to help them create special memories. We love the land. We want to be a model for balancing Art, Nature, Recreation and Commerce. We constantly strive for a sustainable business. We are responsible members of our community. We want to honor and uphold the Sundance legacy and the values of our founder. To be the change we want in the world. Our Tenets — The promise of inspiring discovery and changing lives is something we each take personally, that’s why I promise to... • Own It! • Deliver! • Improve! • Be Inclusive!

AVENUES TO AFFORDABILITY

Expectations — Our guests expect the highest level of hospitality from our employees. Our employees want to work with the best. To this end, Sundance Resort sets high standards for employees. All guests, co-workers, and supervisors are to be treated with respect, dignity, honesty, and courtesy. Our standards also address personal appearance, attendance, dress code, performance, ethical conduct, with a requirement to follow procedures and exceed guest expectations in a positive manner. Sundance Resort’s culture, tenets, and expectations describe how they expect people to act with one another, with customers, and in their lives. These items outline the Core Values with which they expect associates to operate. • What are your personal Core Values? • What values do you expect from your employees, colleagues, team? MISSION Our Vision — To create a dynamic and significant experience for people, their voices, and ideas. We will build an intimate community preserve that maintains the balance of Art and Nature and Community and Individuality. We will be a haven for discovery and inspiration that celebrates the spirit of Sundance. Our Mission — Create the Sundance Experience! In the Art of Leadership terminology, these two statements comprise the organization’s Mission or Purpose. What is your organization’s Mission? As you review your Mission statement, consider these questions: • How clearly does your Mission statement reflect the “purpose” of your organization? • How well does your Mission statement evoke commitment and

EFFECTI V E LE A DERS H IP

passion for your purpose? • What could you RECRUITING TEAM MEMBERS Thank you for your interest in representing the Sundance Resort! At any given time Sundance Resort has a vari-

ety of jobs available from food & beverage and lodging to Mountain operations. Be sure to compare the position requirements with your availability, education and experience before selecting a position for which to apply. Each Sundance Resort employee

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plays a direct role in Creating the Sundance Experience for every guest. If you are interested in learning more about our organization and developing your career with Sundance, please click below. Please ask yourself these questions prior to applying: • Do you like people? • Are you friendly? • Will you go out of your way to make our guests feel welcome? • Will you smile and be proactively helpful to guests, co-workers, and supervisors? • Are you cooperative and positive, especially in stressful and busy situations? • Can you report to work on time, when scheduled, in proper uniform, prepared, and ready to perform your job responsibilities? • Will you uphold our guiding principles, service standards, environmental commitment, policies and procedures? • Are you excited to represent Sundance Resort in a positive manner? • Will you commit to leaving Sundance Resort better than you found it? If you answered “yes” to all of these questions, we are anxious for you to complete the application process. Here, the Sundance Resort leadership team actively engages potential employees in “self-selecting” for a position on the team. What questions would you invite a potential employee to ask of himself? Regardless of your position within an organization, you can always “lead” yourself and others to discover and pursue a Personal Life Vision and to create alignment between your vision and the values and Mission of your organization. Creating a culture of excellence begins with the inspiration of a close personal connection to the purpose, or Mission, of your organization. This, my friends, will help us all to “BE” Robert Redford.

GREAT LAKES CAPITAL FUND

LE A DERS H IP

EMPOWERING

FUTURE LEADERS BY DAVE GRINZINGER KMG PRESTIGE

At KMG Prestige we believe it is our mission “To become the best, most respected property management company in the industry.” During my tenure as a regional manager, I have been asked numerous times to share the importance of and my secrets for supporting and empowering an effective team. In order to thoroughly explain my approach, I will use the best analogy I can: I consider my position as a regional manager much like that of an Athletic Director. To build a successful team, I must first select great coaches. Without a great coach, the team will fail. The secret is to look for people who not only love to win, but perhaps more importantly, hate to lose. I recently read a book by Jeffrey Cohn and Jay Moran titled “Why Are We Bad at Picking Good Leaders, A Better Way to Evaluate Leadership Potential.” The book suggests there are seven vital attributes: integrity, empathy, emotional intelligence, vision, judgment, courage and passion. These are the building blocks for success. If I am the AD, I must invest the time and effort in my search to find the people who will truly make a difference. I must secure the best coaches for my teams. We need to stop complaining about bad leadership and re-evaluate the role that each of us play in selecting the starters. My secret for finding the best coaches for my teams is patience. I take the time to look for the right individual or team for each site. In addition to the attributes listed above, I use a lot of scenarios in my interviews. An example of a real life situation is posed to the candidate, and I talk through what that person would do to resolve the situation. An additional secret is that experience is not always the most important factor; intuition is also key. We can teach compliance to just about anyone. The person dealing with everything a site manager or maintenance person has to deal with needs good instincts and strong intuition.

Once I have my winning coaches in place, what do I do with them? I start with the basics. It is critical that we develop a comprehensive training regimen that is controlled, concise and covers all elements of property management. The effective leader must master the areas of managing outreach, marketing, leasing, curb appeal, collection of rents, compliance and comprehension of the software the company employs. These skills can be taught in a short period of time. The secret is to instill The Art of Leadership which includes a mentor, or coaching, relationship, so the training is continual. We all know experience = knowledge = power to be successful. Your challenge is to think about how to most effectively use The Art of leadership to manage your businesses and lead a team of people through empowerment and inspiration. First, make sure to clearly share your vision. Each person must share in the vision and know exactly what is expected of them. That means inspiring my team to achieve levels of excellence that have never been achieved before. One of the ways I try to inspire my team is to get the team members’ managers to break their belief barriers. Often people underestimate what they are capable of achieving. So we as leaders must constantly share the vision and must challenge people to believe that they can achieve more than they ever thought they could. The secret to this is you must have unconditional confidence. Unconditional Confidence People are attracted to it. It evokes trust. Team members sensing unconditional confidence in their leader will be led to action. According to Dustin Hillis, Motivational Speaker, there are three types of confidence. First, false confidence. It is when you say you can do something but deep down you don’t really believe you can actually

GREAT LAKES CAPITAL FUND

“There exists limitless opportunities in every industry. Where there is an open mind, there will always be a frontier.” — Charles Kettering, American Inventor achieve it. Second is conditional confidence. An example of conditional confidence is attaching self worth to an occupancy goal. When we are above 95 percent occupancy, we are confident in our ability as a team; if we are below, we are not confident. In this example, our confidence hits peaks and valleys and it becomes conditional based on our numbers. Unconditional confidence is basing self-worth on effort and doing things right. It is imperative that my team maintain this level of confidence at all times. This separates great performance from average performance. We often repeat to each other: “Failure is temporary and success will happen permanently with drive, desire and perseverance.” Next, we must keep our team members focused and organized. Onsite property management is a busy detailed job. Time management is critical to success. Different people have different styles for time management. To inspire my team members to develop their time management skills, I recommend Stephen Covey’s Time Management Matrix from the book “First Things First.” In Quadrant Two, Dr. Covey states: “Make sure we are dealing with things that are not urgent but are important. We must deal with things like building relationships, writing a personal mission statement, long range planning and preparation. All those things we need to do but somehow we never get around to doing because they aren’t urgent.” David Grinzinger states: “If you wait until it is urgent, it is probably too late!” Two tools I use to encourage continued leadership, vision sharing, unconditional confidence and effective time management are regular feedback and communication. I achieve this through monthly manager meetings. I bring everyone together on a monthly basis to review goals, celebrate successes, sharpen skill sets and focus on areas which need improvement. We always start with success stories. I believe it is absolutely imperative to recognize success publically because everyone is encouraged by success. Watching someone else celebrate the achievement of what you may think is impossible will help break belief barriers. Next on the agenda is a teaching segment. It is absolutely crucial for every manager or attendee to walk out of this meeting feeling they have acquired new knowledge to help them be a more effective member of the team. There are many opportunities out there to bring in outside speakers who, in turn, lend outside fresh perspec-

AVENUES TO AFFORDABILITY

tive to the daily tasks we perform. Often, I rely on team members to find fresh new ideas to present. This encourages people to be open to new ideas that they may someday be able to present. The final area of the managers meeting is an accountability tool. Each manager presents the site specific goals they set at the beginning of the year. Some of their monthly goals are economic occupancy, net operating income, delinquency and accounts receivable, debt service coverage ratio, past due resident recertification and physical occupancy. Accountability is the key in this exercise. If a manager achieved their goals, they explain to the team what action items they successfully employed to achieve their goal. If they did not reach their goal, they need to explain what planned action items will be used to get them back on track by the next reporting period. During this time, all other members of the team are encouraged to participate by offering solutions that have worked for them. This process not only creates an environment of individual accomplishments, but more importantly, total team achievement. Taking advantage of peer pressure and the managers’ enjoyment of healthy competition doesn’t hurt either. To be on our team you must contribute and be prepared to celebrate other people’s successes and to understand that everyone will be held accountable for their commitments. When a new manager or a potential manager comes to our monthly meetings they quickly experience our vision that every person in the room is there to help them achieve success and will help their teammate be successful. This process not only creates an environment of individual accomplishments, but more importantly, total team achievement. Last, I will add that company culture is also critical to empowerment and leadership. It is the environment that is created within your site team, your region, and the entire company that will allow the items described above to work so you have a high achieving team. Watching people grow and achieve things they never thought they could, makes coming to work every day exciting and fun. Empowering people not only gets great results but generates great human satisfaction for everyone involved. David Grinzinger is the Regional Manager at KMG Prestige. He can be reached at dgrinzinger@kmgprestige.com.

FE A TURE

proactive property management

By Evert Kramer,Michigan Asset Group

he American Heritage Dictionary defines proactive as “acting in advance to deal with an expected difficulty”. Everyone knows property management can be difficult at times so it only makes sense to be proactive. It is easy to anticipate problems, but to solve them in advance is harder. What can a property manager do to be proactive? First, know your property inside and out. Being proactive makes life easier for the manager and staff. This requires one to get dirty, crawl in the attic, and go into the dark corners of the basement. Learn every nook and cranny so that you will be able to notice if there are any changes that can be addressed in the beginning of an issue rather than later. Pay attention to the age of your property. As properties age, they will require more maintenance in order to keep up ap12

pearances to retain good residents and attract new ones. Whenever we acquire a new property we make a Comprehensive Needs Analysis of the entire project. This could also be done proactively on an annual basis to make sure you notice any concerns. Start at the roof and work your way underground looking for anything that needs attention. What is the condition of the roof? Look at the insulation. Most likely it’s settled after construction. High utility bills are not a resident issue, it’s our issue. High utility expenses are a top reason residents may choose to move out. By proactively working to keep costs reasonable, residents stay and everyone wins. Check to see if there are any utility company or government rebates in your area for making your property more energy efficient. Don’t wait until the snow is flying and costs are higher.

Perform a Pre-Winter check of your HVAC system. We all do routine inspections and filter maintenance, proactively add a few items to it. When they are changing the HVAC filters in the fall, have your staff fire up the furnace. Dust builds up on the heat exchangers over the summer and when they are ignited for the first winter heat they will smoke, smell up the apartment, and possibly alarm the resident. Doing this now lets the summer dust burn off and the smell will dissipate as the windows can be opened. If there is a problem, it’s much easier to resolve now instead of trying to repair numerous furnaces at one time when contractors are in short supply and swamped with heating problems across your city. While the maintenance technician is waiting for the furnace to heat up, they can replace the smoke detector batteries. They are inexpensive and there’s no labor cost involved in doing it while they are there. If the battery fails during the year, it produces a resident’s discomfort, a call to the office, a work order to be entered, a work order to be printed, a special trip to the apartment, etc. This avoidable cost is huge when you calculate that your property probably has hundreds of these devices all waiting to drain your maintenance staff ’s time. Also, check the Plumbing! Too often small leaks under the sinks and at garbage disposals can be stopped with the turn of a fitting. Water damaged bathroom and kitchen cabinets can cost hundreds of dollars to replace. A simple check during your furnace testing always turns up one or two of these leaks. Also, routinely look at the lawn sprinkler systems to make sure that they are GREAT LAKES CAPITAL FUND

operating efficiently and not spraying onto sidewalks and parking lots. If there has been, or will be, several days of rain, proactively suspend the sprinkler schedule to reduce watering grass that will be saturated in a couple days. Secondly, ongoing marketing and leasing of your property is a continuous proactive activity. Advertising is generally not increased until vacancy is high. Always review your lease expirations 120 days in advance and increase your advertising accordingly. Good residents don’t look for an apartment the month their lease is expiring; they will look on the internet 90-60 days ahead. Have your advertising sites updated with any specials you may be offering down the road (not just this month) and get that resident to your property first so you can sell it to them. Marketing is developing name recognition for the property that will pay dividends when a prospective resident is looking for a new home. Managers often overlook pre-leasing; in the end proactive leasing will greatly reduce your vacancy losses. Third, offering a bonus to maintenance staff for completely turning move outs within 5 days is a great way to incentivize and reward them. This will allow the office staff to offer an available home for move in very quickly and help reduce any vacancy losses. Let the team know if they have a large number of units to turn 30 to 60 days ahead, it helps them plan. Outside contractors can be brought in as needed through the coordination and approval of senior management. Once your maintenance staff learns the bonus structure and gets a few bonus checks they will rise to the occasion and make it happen. Empowerment is the name of the game and financial rewards always work well. Fourth, watch your water bills. Have Accounts Payable or your Accountant report any increase in a water bill to the community manager immediately. Most Water Utility companies have the previous month or year’s usage on their statements so it’s easy to notice. One quick e-mail can save you hundreds of dollars and immediate attention will stop this daily drain of your cash flow. As menAVENUES TO AFFORDABILITY

tioned above, the proactive inspection of the plumbing system will also help reduce the little leaks that can add up over time to increased water bills. Last, but by no means least, is resident satisfaction! Apartment managers need to create homes and communities for families, singles, and seniors. Look at your property as your own home! Most residents view managers as the owners and expect them to act accordingly. Don’t wait until somebody complains about the condition of common hallways or grounds. If you notice someone not taking care of their pet, not keeping their balcony or patio clean, or causing disturbances, handle it quickly. Residents will appreciate having these concerns dealt with promptly and with little effort on their part. Dealing with problem residents may be the hardest part of property management and 2 percent of your residents will give you

98 percent of your problems. Many times, no matter what procedures and rules are in place, there will always be difficult residents to work with. Many property managers fall into the habit of ignoring problem residents, instead of trying to correct them. The key is to treat their issue with respect and dignity. Many times their problems can be resolved simply by listening, talking, and getting to know them. Sometimes all it takes to turn a “problem” resident into a “good” resident is a listening ear and some honest and direct answers. If that does not work, get them out! One “bad” resident can make six “good” residents choose to not renew their leases. be proactive! Your good residents are counting on you to make the community the best they have ever lived in! evert kramer is the president of michigan asset group. he can be reached at 517.643.5015.

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FE A TURE

Let’s Get Physical

What You and Your Staff Need to Know About Section 42 Physical Inspections

By Ruth L. Theobald Probst, CPM®, HCCP™, SHCM™ The TheoPRO Group

Questions cross TheoPRO’s desks every day about tax credit compliance, but most are about file compliance. One aspect that is often set aside because it doesn’t ‘fit’ with compliance for a file audit is physical inspections. Unfortunately, some of us might discover the hard way how important physical inspections are when the state agency (or others) show up to review not just files, but also units. While ‘physical inspections’ is only one category listed as a possible violation on the IRS Form 8823: Report of Non-Compliance (Category 11c – Violation(s) of the UPCS or Local Inspection Standards), it packs an intense wallop. Not only is this a vast category capturing a wide scope of possible areas of non-compliance, it is also the one state agencies are required to scrutinize to an intense level of detail. If we’re not prepared, a physical inspection gone awry can wreak havoc with an owner’s tax credits — even though we promised to protect those benefits. Three areas are highlighted in this article: knowing what standards a state agency is going to use; preparing a property for inspection; and options for curing non-compliance. We’re going to say it now and again at the end of this article — make certain your maintenance team is up to speed and prepared for these inspections. Knowing what standards a state agency is going to use Here’s a common question: We are never quite sure how a state housing finance agency is going to judge the physical condition of our property when they come out to inspect. We understand the file compliance process, but we feel we have little or no control over how a unit looks when the inspection occurs. Any advice? TheoPRO’s answer: You bet. Your concern is a common one so let’s take a look at what you can do to anticipate a successful physical inspection. Remember that violations of physical condition standards are reportable on Form 8823 “Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition” and it’s not just the big maintenance issues that are written up. Your approach to managing compliance in this area is very important not only to the tax credit delivery of your project but to its viability into the future. The IRS, your state housing finance agency, your investor, your developer and others are very concerned about how you, the management agent, are caring for the property. If you feel like everyone is watching what you’re doing, you’re right. The words ‘safe, decent, sanitary and in good repair’ should be your maintenance staff ’s mantra. Here are some key points to consider regarding physical inspections: a. Know the standards under which your property will be evaluated. State agencies have the option of using what are known as UPCS standards (Uniform Physical Condition Standards) or local inspection standards. Most states use UPCS so make sure your maintenance staff is familiar with what that is and how it works. If you aren’t familiar with UPCS, simply type ‘UPCS’ into your search engine. You’ll find plenty of reading material. GREAT LAKES CAPITAL FUND

Be proactive about reading the state agency’s compliance requirements in their compliance manual and feel free to talk to your state agency about their process. In many states, sending a maintenance staff person along on the inspection is important. Issues that can be fixed in the presence of the state inspector can help you avoid 8823 violations. More information is available in the 8823 Guide which has a chapter devoted to physical condition standards. Read Chapter 6 which goes into excellent detail and even provides Exhibit 6-1 “Checksheet for the Physical Inspection of LIHC Properties” that your own staff can use in evaluating property and unit condition. There are six inspection categories: Site, Building Exterior, Building Systems, Common Area, Unit, and Health/Safety. There are three violation rating categories: Levels 1-3 with Level 3 being the most severe. You will also find some excellent information on the instructions relative to line 11(c) on the 8823 form. b. Know your property’s conditions and issues thoroughly before the state inspects. No one wants to take the state agency (or their 3rd party contracted inspector) into a unit where a disgruntled family produces a litany of defects, especially when it means that 8823s will be filed as a result. If a state agency finds non-compliance during an in-

spection, an 8823 must be filed. It can be corrected, but it must be filed. Many residents put off calling the rental office with maintenance issues for a variety of reasons. That puts the responsibility squarely on the shoulders of management to be proactive. Maintenance issues do not go away on their own. Here are a few tips to assure that your team is on the right track. Problems left unattended usually become bigger and more expensive. Preparing a property for a physical inspection Because tax credit properties are inspected fairly often by different groups—investors, lenders, other housing agencies involved in mixedfinance properties, state housing finance agencies and the property management company, you want to be proactive at all times with maintenance. But there are other great reasons to catch the issue before it gets worse: cost savings benefits and resident retention. Here are a few tips to assure that your team is on the right track: • Get your maintenance staff into each unit at least once each year to inspect for any problem areas. Twice a year is better. Take care of routine maintenance at this time, particularly replacing batteries in smoke detectors and installing new HVAC filters. Use the Checksheet from the 8823 Guide or something similar.

ENERGY CHOICE: IMPROVING CHARITABLE FUNDRAISING AND YOUR BOTTOM LINE The ART of Leadership Foundation, a non-profit organization dedicated to provide leadership training and mentoring for young people, was founded to assist our youth to learn and practice positive decision making while keeping focused on a bright future. In an effort to increase the financial stability of the non-profit to further support and develop their programs, the ART of Leadership has teamed up with Michigan Gas & Electric (“MIG&E”), a U.S. Gas & Electric company, in their Partners in Power program. MIG&E is a leading energy supplier in Michigan for residential and commercial customers and provides highly competitive pricing for natural gas. The state of Michigan has deregulated its natural gas industry, providing residents and businesses with the ability to purchase their energy from a supplier of their choice.

Not only is the switch to MIG&E seamless, but customers will still receive one bill from their utility which will simply list MIG&E as the natural gas supplier. Visit www.USGandE.com/ARTOFLEADERSHIP and help improve charitable fundraising and your bottom line with energy choice.

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AVENUES TO AFFORDABILITY

Through the MIG&E Partners in Power program, for every ART of Leadership supporter who enrolls with MIG&E, the non-profit will receive a residual payment for as long as the account remains active. Customers receive better natural gas pricing, and the ART of Leadership receives additional funding – a true win-win for all involved.

8/30/2012 5:34:44 PM

FE A TURE

• Remind your residents to report maintenance concerns to the rental office as soon as they discover them. • Send out a survey about half-way through a family’s current lease term to ask specifically about any maintenance concerns. If you have e-mail access to residents this becomes even easier. • When the family comes in to pay rent, ask again. “Are there any maintenance items in your apartment that we can take care of for you?” A tax credit property is not that much different from a conventional property in terms of what causes people to stay or vacate. Unhappy residents will look for someplace else to live. Using the four steps listed above will help you keep your residents, which by the way, is the single most cost-saving maneuver you can take to control expenses.

High end. Low cost.

Options for curing non-compliance We know that there is never enough money to do everything that needs to be done to maintain a tax credit property. Money is usually tight and many properties don’t have enough staff to deal with the issues of an aging structure. This means that priorities must be set. Some projects will take more time and money to deal with. If your property has such an issue, make sure you let your owners know. While the standard period for correction of a maintenance issue is 90 days (except for emergencies which must be cured within 72 hours—see next paragraph) the state agency has the authority to extend the cure period for up to six months on a caseby-case basis. If you think you have an issue that might take more than 90 days to resolve, contact your owners and advise them to re-

Our buying power makes high-end living affordable for developers and residents.

quest the extension before the end of the 90day correction. This allows the state agency to delay issuing the 8823 to the IRS. If the request is not made until after the 90-day period to request the extension, the 8823 will be issued to the IRS after the end of the 90day period. Here is a list of what the IRS considers to be emergencies to be cured within 72 hours after discovery: • Exposed electrical wires • Water leaks on or near electrical equipment • Propane/natural gas/methane gas detected • Emergency fire exits blocked • Unusable fire escapes • Gas or oil fired hot water heaters with missing or misaligned chimneys that pose carbon monoxide hazards • Missing or inoperative smoke detectors • Expired fire extinguishers • Window security bars preventing egress from a building On a final note, remember that the day you walk the property with the inspector, you might find some surprises waiting for you in spite of your diligence. Fix what you can and then focus on getting the balance of the issues that come up corrected as quickly as possible. Keep smiling—keep complying and make certain your maintenance team is up to speed and prepared for these inspections. Ruth Theobald Probst is President of The TheoPRO Group. She can be reached at ruth@theopro.com.

GREAT LAKES CAPITAL FUND

RESOURCIN G

EFFECTIVELY USING ALL YOUR RESOURCES BY HEATHER STANLEY CRESTLINE COMMUNITIES

As an industry we sometimes fail to branch out and optimize the resources we are using. It is vital to have a clear strategy that leads to taking advantage of all of the tools as we plan our work day. We have to change the way we think. We should be thinking: “How do I use my resources in the best possible way?” Instead of thinking, “How can I save on resources?” There is a big difference. To determine your strategy the best approach would be to realize exactly what the true definition of a “resource” is: Resource: 1) Stock or supply of money, materials, staff, and other assets that can be drawn on by a person or organization in order to function effectively, 2) Available assets, 3) An action or strategy that may be adopted in adverse circumstances, 4) One’s personal attributes and capabilities regarded as able to help or sustain one in adverse circumstances, 5) The ability to find quick and clever ways to overcome difficulties, 6) A teaching aid, 7) The possibility of aid or assistance. With that being said, there are many resources available that a manager has to effectively coordinate in order for the company to succeed. These resources may include federal, state and local agencies, non-profit groups, for profit companies, manpower, finances and information technology. There are a variety of resources that can help in different ways. GRACE HILL As the leading provider of multifamily apartment housing industry online education, Grace Hill offers the best in essential web based courses, management solutions and multifamily learning. This site is by far one of the most valuable resources out there. Once you sign up for Grace Hill, you will be provided with a username, password and a company training code. Below are a few of the Top Site Selections: • Learning Center – this section provides courses for office and maintenance staff. A few of the courses that are offered are, Fair Housing, Telephone Techniques, Business Etiquette, curb appeal, Conflict Resolution and Leadership. AVENUES TO AFFORDABILITY

• Career Center - offers property management professionals a forum to list their resumes and/or open positions, and to search for a job or job candidate free of charge. It’s not considered akin to a “headhunter”; they simply provide the place for employees and employers to find each other. • Super Vendors - if you are looking for a new service provider for your company or community, Super Vendors can help. You are able to search by keyword(s), such as a services or products you are looking for (such as painting or landscaping). You may also select “more search options” to use additional filtering such as industry or state. • Chat Room – this area allows you to hold your online meetings in a Chat Room, compliments of Grace Hill. Up to 350 people can join one meeting for a text-only discussion. There is also an option to enter a chat room and join in on an existing chat with your fellow colleagues. • Bulletin Board – everyone has an opinion, voice yours here. This board is an ongoing posting of issues, questions and comments from your peers and the ideas are shared around the country. BLUELINK This unbiased third party company assists with finding out exactly how the residents are feeling about the performance of everyone on the team and the amenities offered to them. This excellent resource is to assure we are providing our residents the best customer service and in return increase resident retention. BlueLink LLC provides unique insights into the quality of service for both members – participating service providers – and consumers. BlueLink continuously tracks the level of service and performance for real estate owners, homeowners, builders, or other types of customers. BlueLink gathers members’ performance data from the ultimate source for quality-of-service information – the customer. As feedback is gathered, BlueLink compiles the information in

RESOURCIN G

highly intuitive, comparative Performance Dashboards. These on-line analytical tools provide powerful, up-to-the-minute analyses from numerous perspectives. As a result, BlueLink Members have unparalleled insight into the performance of their organizations, from the corporate level to the employee level. CRAIGSLIST Like any other advertising medium, Craigslist requires some strategy, but it is worth it, the results can be phenomenal. To start, you need to determine in which city or cities you’re going to post an ad. Keep in mind that some regions overlap. Posting on Craigslist, either nationally or locally, requires an understanding of the rules. Craigslist has a set of rules in place that prohibit advertisers from over-posting or spamming users. You can follow these rules and still get excellent exposure. To start, develop unique ads for each city in which you

post. These ads should focus on each sites specific need and should be rotated based on a pre-determined schedule. Never post the exact same ad within 48 hours, and be careful to delete your old ad. Craigslist continues to experience rapid growth- this site gets approximately 40.8 million hits per month. In addition to utilizing this site for advertising, it can also be used as an employee recruitment resource. Best of all its free!! FACEBOOK/TWITTER/GOOGLE The performance of Facebook ads in recent months. Reports have shown that the ads can be an effective means for business advertisement. Not surprisingly, the world’s biggest social networking site tops the list of preferred tools. According to several resources 50 percent to 70 percent of local businesses use Facebook for marketing. This represents a 20 percent increase over the previous year.

Affordable Housing Specialists Development • Management • Investment • Consulting 3333 Founders Road, Ste 120 | Indianapolis, IN 46268 | www.crestlinecommunities.com James Wilson | 317.257.8922 ext. 11 | jmwilson@crestlinecommunities.com

Another use for a company page is resident retention. This page can be used to display your monthly newsletter, promote upcoming resident events and encourage your residents to socialize between one another. Here are a few tips on how to build your companies Facebook page: Add a unique cover photo and use your logo as a profile picture, create a post so when people visit your page they see recent activity, add a new post to your page at least once a week, share exclusive news and respond to people when they post or comment on your page. Last, but not least — always remember to include the Fair Housing logo ON your page. Several companies use Twitter to expand their customer base. Here are a few ideas for How to Use Twitter for Marketing & PR: engage your CEO in social media, keep in touch with bloggers/media, monitor your company/brand on Twitter, announce specials, deals or sales, live updates on events or conferences, promote blog articles, webinars, interesting news and much more. More than 170 million people use the internet in the United States. Google’s network reaches 80 percent of these potential customers/prospects. There are several on-line resources that will lead you through a stepby-step process on how to use Google and market your business effectively. PROPERTY MANAGEMENT/ APARTMENT ASSOCIATIONS PMA’s are statewide trade organizations serving the apartment industry. They promote knowledge and education of the property management industry. These associations offer several resources that are “key” in running a successful business. Examples of these are: • Continuing education • Access to useful lease forms and addendums • Trade shows, conventions, expos • Team building events — focusing on employee retention • Leadership training • Leasing training • Maintenance training

GREAT LAKES CAPITAL FUND

IREM The Institute of Real Estate Management (IREM®) is an international community of real estate managers across all property types dedicated to ethical business practices and maximizing the value of investment real estate. An affiliate of the National Association of Realtors®, IREM has been a trusted source for knowledge, advocacy and networking for the real estate management community for more than 77 years. IREM promotes ethical real estate management practices through its credentialed membership programs, including the Certified Property Manager® (CPM®) designation, the Accredited Residential Manager® (ARM®) certification, the Accredited Commercial Manager (ACoM) certification, and the Accredited Management Organization® (AMO®) accreditation.

SOFTWARE VENDOR With the continuous pace of changing technology and growing business requirements, utilizing training and education provided by property management software vendors is highly resourceful. The role of other software vendors such as Microsoft training and training by resident screening companies can also be very useful. FOR RENT/APARTMENT GUIDEBOOK/ETC Most everyone is aware of the results of advertising with one of these sources. Things that we sometimes forget is that they are not just a source of advertising, they can also provide sites banners, signs, goodies for resident parties and also offer classes for office and maintenance staff.

INVESTORS/LENDERS Great Lakes Capital Fund offers a lot of useful assistance. Some of the items they will do for their partners include: training, staff evaluations, assistance with marketing plans and the analysis and monitoring of the performance of investments. These tools can all be used proactively as well as helping to solve problems before they become larger issues. Either way, utilizing expertise where it’s available will help save money. Sometimes stepping out of your comfort zone can be a scary thing, but if you don’t, then achieving success may be a little harder as well as more expensive. Don’t wait for opportunities to approach you, find them first! Heather Stanley is the area manager/compliance specialist at Crestline Communities. She can be reached at 317.257.8922.

Since 1998, Applegate & Thorne-Thomsen has been a national leader in formulating legal solutions in the development, ownership and financing of and investment in real estate, with a particular focus on the challenges attendant to affordable housing and community development projects. In 2011 alone, our professionals were instrumental in the following: AFFORDABLE HOUSING 



Preservation: 210-unit rental project in a 1920  industrial building in Chicago’s Pullman neighborhood, financed using tax-exempt bonds, HUD-insured first mortgage loan, federal low-income and historic credits, FAF, HOME and AHP funding.  New Construction: 117-unit/six-building project in Chicago’s Woodlawn neighborhood, utilizing New Issue tax-exempt bond proceeds, federal low-income tax credits, HOME funds, assumed municipal debt and redistribution of project-based Section 8 subsidy among  other area buildings. Public Housing: 128-unit mixed-income, multi-family residential development financed with tax-exempt bonds, HOME and HOPE VI loans, state donation tax credits and federal low-income tax credits.

COMMUNITY DEVELOPMENT Healthcare: Development of four-story, 65,000 square foot health and wellness center that provides health and fitness services, wellness programs and services, pediatric care, dental care and pre-natal care.

School: Acquisition and conversion of three-story existing timber loft building, as well as the construction of an addition, to re-purpose the facility as the 100,000 square foot home of a charter high school with capacity for 600 students in Chicago’s Pilsen community.

Retail: Multi-phase redevelopment of 180-acre former urban industrial property into grocery and other retail use, community center, public park and affordable housing.

For further information, contact Bennett P. Applegate at: bapplegate@att-law.com or 312/491.3322. Additional firm information is available at www.att-law.com.

AVENUES TO AFFORDABILITY

FIN A NCE

BUDGETS

A PROPERTY’S MOST IMPORTANT TOOL By Lori Pung and Colleen Read Pung and Read Housing Consultants, LLC

Lenders/Limited Partners require them and management spends time preparing them. Often, preparing a budget is seldom met with enthusiasm yet it is the most useful financial tool a property has. Creating a realistic budget is highly beneficial and produces a plan all stakeholders can employ to understand the financial strategy for a property. Budgets aren’t just numbers on a spreadsheet producing a positive net operating income; they can be used to identify trends, measure achievement, build resources or highlight needed course corrections, all of which can aid in keeping a property on track to attain set goals. From the beginning of the budgeting process, ownership should be involved by sharing their realistic budgeting goals with management. Being ‘realistic’ is the key. A blanket mandate to cut all expenses by 25 percent may not be realistic; however, asking for all contracts to be bid annually may help accomplish this goal. Giving directives to achieve unrealistic or near impossible goals could cause more harm than good if management follows a directive to satisfy ownership knowing the property can never achieve that target. Ownership may be more in tune with key financial benchmarks that need to be achieved in order to receive equity pay-ins or release certain escrow accounts, concepts that should be 20

budgeted for and closely monitored. Informing management of goals to meet specific benchmarks such as breakeven operations or debt service coverage ratio from the outset will keep everyone headed in the same direction. Make sure site staff is involved in the budget process, particularly in understanding the goals and constraints which can aid in decision making and bring accountability to their role at the property. Frequently, site staff doesn’t have the experience to write the budget, leaving this task to a higher level manager. Ensure that the budget is shared with site staff so they can follow the plan. Sharing provides a constant reminder of benchmarks they’re expected to meet and reinforces their accountability. Consider an incentive for site staff if the Net Operating Income is exceeded – they are charged with making the numbers work and they may be more in tune with the process if they personally see a benefit from this process. Each line item of the budget should be examined carefully. Flat percentage increases to revenue and expenses may not produce an accurate budget. Dollar allocations should be based on historical data and reasonable estimates for the upcoming year and this may take some investigation. For example, check out the past few years of utility bills and calculate the increases from year to year. You may

be surprised to find that heating costs may have only increased 2 percent, but electric costs have increased by 6 percent each year. Pay special attention to items budgeted to be ‘same as last year’. Notes should be provided for each item to explain how the number was calculated so you can be sure it is based on accurate assumptions. Most importantly, is the budget being utilized as an important analytical tool throughout the year? Analytical comparisons are not just something for auditors to do annually. The budget should be monitored at least quarterly and compared to actual operating results to assess whether the property is operating within budget or needs a course correction to meet the goals. It is important to consider all streams of revenue that might be achieved at your properties. While rental rates on apartments are certainly the prime focal point, there is more to revenue than just the rental income. The following list is a sample of analytical revenue questions that should be asked when comparing actual to budgeted income. • Do you have recent accurate comp studies of your competitors to know what they are using as lease rents and what is included in that rental rate? Learning about your competition allows you to GREAT LAKES CAPITAL FUND

•

highlight the best features of your property, while downplaying or mitigating the features of your competitors. Is management aware of the rental rates your property used in underwriting so they don’t drop below them and create a new problem? Walk a few vacant apartments – would you pay the market rate rent to live in this apartment? Is it well maintained and clean? Is there anything outdated that can be fixed with a new paint color, updated light fixtures or the addition of a ceiling fan to help increase the curb appeal of the apartment and increase the rental rate? Or bigger ticket items such as new mini-blinds, new flooring or a new appliance – items that may be covered from Replacement Reserve funding that will not increase operating expenses but, will increase operating income? Are concessions offered too quickly? Is management pushing rental rates to their maximum on new leases and lease renewals? Also keep in mind that money is lost on turning apartments and again on concessions. If your program requirements only allow for a 5 percent increase per year (LIHTC), starting out ‘in the hole’ with a rental concession could leave you playing ‘concession catch-up’ for a long time. If the property is experiencing long vacancy periods, is this due to lack of rental opportunities (indicating rents are too high) or slow turn time by site staff (would it be more cost effective to contract work out?) Is the property taking advantage of all income generating opportunities? Examine areas such as beauty salons (chair rental and utility usage fees), carports and storage apartments (if able to charge income, are all apartments being paid for or being used as a concession to improve apartment rental rates), pet fees (pets can be damaging to apartments – they need to pay rent too!), vending machines, guest suite rentals, community room rentals, advertising sales (signs in elevators, in the mail area, charge for ads in the community newsletter to cover the costs of

AVENUES TO AFFORDABILITY

Leadership Solutions For Your COMMUNITIES

“The truth sometimes hurts when we go to the doctor, but we want to know so we can fix it, right? So, why not do the same with other areas of our lives? The Art of Leadership helps you analyze your strenghts and weaknesses and provides a plan to make positive changes. This is not a class. The Art of Leadership is a way of living that results in healthy success both professionally and personally.” — Sherri Weiss, Regional Property Manager, KMG Prestige

March 13, 2013 • LANSING, MICHIGAN registration includes: Full-Day Workshop in Lansing a. Identify skills to overcome challenges & achieve goals. b. Using effective leadership, management, and coaching skills to create success. Webinar Series: 4 sessions, 2 hrs ea a. Occupancy – realizing your full potential b. On-time payments – proactive rent collecting c. Taking the fear out of compliance – turning compliance visits into coaching sessions d. Creating the culture of your community – they’re not tenants, they’re neighbors! $299 per person (limited capacity) Contact info@artofleadership.net or 248.325.9669.

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FIN A NCE

the newsletter) or other revenue opportunities. Keep in mind that regulated properties have to be cautious about any charges that may violate regulatory agreements. • Is onsite staff charging residents timely, and being consistent with the collections policy for damages and late fees? Are all work orders examined to determine if the work being done is the result of resident damages that should be charged for now? • For income earning contracts, such as laundry equipment and cable TV, monitor the terms of those contracts and ensure the property is receiving a portion of this income and that the income is received as per the terms of the contract. Is there a model/employee apartment that is being underutilized and could be converted to an income earning unit? • If bad debt write offs are increasing, can

evictions be completed more timely to minimize the loss? • Is there income from bad debt recovery? What efforts are being made to collect on bad debts? Now that the revenue stream is maximized, don’t forget the rest of the financial statements. Often times it is easy to look at revenue and be pleased that the property is producing more income than budgeted. However, if the property is losing money by being over budget in the expense categories, then this gain does not benefit the property and meet the goals that have been established. The following is a sample of analytical questions related to expenses: • Salaries are typically fixed with nominal increases projected – if actual expenses are higher than budgeted, is an employee working overtime and if so, is it warranted? • Is the staffing appropriate for the size of

•

the property? Monitor increases in utility expenses – have the rates increased or do signs point to leaks in water lines (check that irrigation system), a need to switch to energy efficient fixtures/bulbs, etc.? Utilities expenses paid for individual apartments should fluctuate with the vacancy rate. Does someone monitor this to be sure the property is not paying utilities on occupied apartments? Review the number of telephone lines – are all the lines necessary or can some be eliminated? For example; is a fax line really still needed or has the technology of scanning made this line obsolete? Does the property have grounds wages, as well as a third party vendor for lawn mowing, bush trimming and weed control which means some services may be paid for twice? Who is negotiating with vendors to pro-

Wisconsin PartnershiP for housing DeveloPment Since 1985, we have offered comprehensive services to state and local governments and local community development agencies related to affordable housing. We have assisted with: • Design and management of down payment program, disaster recovery programs, and homeless assistance programs. • Development of affordable rental properties or homes for sale. • Consulting on the operation of nonprofit organizations, including the formation of new organizations and strategic planning for existing nonprofits. • Technical assistance related to the HOME, CDBG, NSP and homeless programs. Wisconsin Partnership for Housing Development works with local governments and nonprofit agencies throughout the Midwest to develop affordable housing and related programs that work in YOUR community. Call us or check our website to get more information about our experience.

608.258.5560 www.wphd.org

GREAT LAKES CAPITAL FUND

vide better pricing for services/supplies for multiple properties? Price shop services such as cleaning or painting apartments on a regular basis. There may be cca_ad_halfpage_bw.pdf 11/5/06 5:38:35 PM new vendors in an area since the prior contracts were negotiated that may result in lower pricing. By the way, ask for those new prices to start ASAP from your current vendors - competition is a healthy business practice! • Large contracts, such as elevators, trash, lawn, snow – should be competitively bid every single year. Perhaps a vendor that had a monopoly on trash services in a small rural community now has competition and they may need to lower their prices to stay competitive. • Remember onsite staff should not be negotiating or signing contracts – they may personally know the vendors in a smaller community and may not be pursuing

AVENUES TO AFFORDABILITY

contracts in the best interest of the property if they have some personal connection to the vendors. • If expenses are routinely over budget, why? Are bills being paid late and thereby incurring late fees? Is there room to improve cash flow management? • Are capital expenditures being budgeted and planned for, with draws being done timely from Replacement Reserves (RR) to reimburse the operating account? A common error is to not utilize the RR “because the property can afford it” but, the property has already paid into the RR and by not using it, the property is paying for its capital needs twice. For aging properties that are headed toward preservation transactions soon, review the budget with that in mind as well – have expenses gotten out of hand? Does the deal in current form need to be right sized, before the

ownership is trying to underwrite a preservation transaction? It will be impossible to justify lowering many expense accounts as part of a new underwriting process if the property is functioning at significantly higher expense levels. Start trimming the fat now and get the property positioned. Writing a budget for a property is important to ensure that the property has the ability to operate within the parameters that it has been underwritten and that the goals of ownership are addressed. However, if the approach to budgeting is to “fix it and forget it’” the property will not perform. Well operating properties require constant monitoring to the budget to ensure maximum operating potential is achieved. LORI PUNG, CPA AND COLLEEN READ, SHCM ARE PRINCIPALS WITH PUNG AND READ HOUSING CONSULTANTS. THEY CAN BE REACHED AT lori@prhcllc.com or colleen@prhcllc.com.

MONEY MANAGEMENT

REDUCING

BAD DEBTS Looking Back and Forward

he multi-family housing industry is beginning to recover from an extremely difficult period. Physical occupancy was down, economic occupancy was even worse; both were due to job loss and overall tough economic times. While our tendency should always be to look forward and make adjustments for improved performance, in the case of bad debt collection, it will be prudent to look back for all of the lost revenue in hopes of recovering some of that loss. The last thing we want to do is leave a possible source of income behind! Let’s declare 2013 The Year of Bad Debt Recovery! By setting goals, setting a plan in motion, keeping on track and adjusting our day to day operations, we can improve revenue and put plans in place to keep from having bad debt issues again in the future. We should put into place 2 different processes: • Looking in the past: How do we recover bad debt from residents who moved out more than 90 days ago? Check your state stat-

BY Jim Erickson Crestline Communities

utes; you may be able to pursue debt collection for up to 10 years against past residents. Do not assume that you will not be able to collect from a resident who moved out several years ago. • Looking toward the future: How do we minimize the impact that bad debt will have on our bottom line going forward? We need to set goals and put plans and policies into place to ensure that our bad debt number is decreased in the future. 7 Steps to Additional Income in 2013 from past residents 1. Figure out how much bad debt was written off in 2010, 2011 and 2012 (and prior!) 2. Figure out how much bad debt was RECOVERED 3. Set a goal to collect a percentage of the net of 1 and 2 (20 percent -50 percent may be realistic) 4. Determine which move out and eviction files have been sent to col-

GREAT LAKES CAPITAL FUND

lection services or attorneys and get status updates on all of them. It is important to meet with your collection agency personally and review the status of all collections. The squeaky wheel will get the grease in this case. If you are following up with them on your collections, they will be more aggressive in collecting for you. 5. Any move out files that have not been turned over to the collection agency from residents who have moved out more than 90 days ago should be sent to them immediately. Discuss with your agency how far back you can legally try to recover debts in your area. Many of these residents will believe they have “gotten away with it”, and will pay upon first contact from the collection agency. If they are not asked for the money, chances are they will never pay it. 6. Stay on top of reports and status. Schedule a time to review reports on a monthly basis from the collection agency on the status of all files. Perhaps the most difficult part of this process (but also the most important), is consistent follow up. Put a tickler on your calendar, set up a recurring meeting with affected personnel, or set up a quarterly conference call with your agency to review your files and measure how you are doing in regards to the goals you have set. 7 Change collection services if necessary. Collection services will be competitive. Try to negotiate rates. Generally there will be a 60-40 split on collections (client gets 40 percent); try to get a higher percentage. Some will negotiate 75 percent or higher for the first 60 days they work on the file or give a sliding scale based on volume. Ask around your apartment association or industry contacts on what kind of collection percentage they are getting and who they work with. 7 Steps to Reduce future Bad Debt 1. Review your resident selection criteria. Compile a list of residents who moved out owing more than $250 and review their credit score and application. Is there any commonality in those files in regards to work history, credit scores, past landlord references that should have been a warning flag? Your resident selection criteria should be a fluid tool for your use. Don’t be afraid to make changes and “tighten up” criteria when the market is good. 2. Regardless of your selection criteria, if the information is not verified thoroughly, it will lead to more bad debt. How are landlord references handled? Are they completed by leasing staff or by your credit agency? It is not unusual for landlords to give a vague, but passable reference just to get a problem resident out. Are you even certain that the information is coming from the actual landlord? Past performance on rental payments is probably the greatest single factor in predicting future payments, so ensure you are doing everything possible to get accurate information. 3. Review your lease agreement and rental collection policy for current residents. How much grace period do residents have before their rent needs to be paid? Do they understand that just because the late fee may not apply until the 5th or the 10th, that rent is still

AVENUES TO AFFORDABILITY

DUE on the 1st? When do quit or pay rent notices get delivered to residents? Do you accept partial payments? 4. Know your local jurisdiction eviction “tendencies”. How long after filing before an eviction will take place? In some municipalities that time frame may be one or two weeks, but it could be as long as three months! Will the judge allow resident to make a partial payment and set up payment arrangements? This information can be invaluable in determining your course of action leading up to an eviction. 5. Follow through with damage hearings on all evictions. Once a resident has actually moved out as a result of an eviction hearing, it is vital that you set a date for and go to the “damage hearing”. This will record the debt legally, and make it much easier to collect going forward. Once recorded, the resident has very little room to claim that the amount of the debt is not correct and will also allow for wage garnishment on the amount due. 6. Make sure you have good communication with residents before they move out. It is important for property managers to remember this is not personal, but a professional business relationship. Having good communication with them regarding what they owe and making payment arrangements in a professional manner will make it much more likely for the resident to exit the situation gracefully and motivate them to be more responsible in paying their debt. 7. Don’t be afraid to ask for the money due! This is by far the easiest and best way to help reduce bad debt in the future. It is human nature to not want to ask for money. Most property managers will just allow someone moving out to walk out the door without ever asking for it. It is much easier to just say “good-bye” and send a reconciliation and bill through the mail rather than discussing what is owed at the time of move out. While the total and final bill may still have to be determined, asking for a specified amount at move out is appropriate and invaluable. If you don’t ask, they will rarely (if ever) volunteer to pay you at that time. This is also an appropriate time to bring up the possibility of payment arrangements for the amount due if they cannot pay everything then. Even if they do not fulfill their full obligation, collecting a small portion up front is better than nothing! People do NOT want to deal with a collection agency, and giving them an option is good for them and for you! They don’t have to deal with someone bugging them for money, and you don’t have to pay a percentage to the agency. It is advisable to attempt to collect the debt “in house” for 30 – 90 days before it goes to collections. Bad debt collection has been an issue that we have too often ignored in our industry. By doing some work up front in reviewing where we currently stand, and putting in to place some fairly simple steps we can all increase our NOI significantly in 2013. Then again, why wait? Let’s start improving our bottom line now! JIM ERICKSON IS THE VICE PRESIDENT OF PROPERTY OPERATIONS AT CRESTLINE COMMUNITIES. HE CAN BE REACHED AT 317.257.8922.

Housing that makes sense. 34NORTH

Today and tomorrow.

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FE A TURE

BED BUG

PREVENTion STRATEGIES BY GARY OFFENBACHER, CPM CONTINENTAL MANAGEMENT, LLC

Bed bugs continue to be a major pest problem in housing and there has been resurgence in bed bug complaints in the past decade. There are many resources available to help you learn about bed bugs. Getting educated about this complex social problem is the best weapon for defense. Let’s start with the basics; what are bed bugs? Bed bugs are small (a quarter inch long when full grown), brownish, flattened insects that feed on human blood and sometimes the blood of animals. They don’t fly and they are oval in shape. Their eggs are tiny and white, about the size of a grain of salt. Bed bugs generally hide during the day and are great hitch hikers. Feeding takes about 10 to 15 minutes for adult bed bugs and less for nymphs. They molt to grow from egg to adult, shedding their skin as they develop to the next stage (five stages from egg to adult). Bed bugs prefer to feed roughly every three days, but can go months without a meal. Given the right environment, bed bugs mature from egg to adult in 4 to 8 weeks and live for about a year. Bed bugs generally stay in close proximity to the bed or sleeping area. Not everyone will react to bites, but those that do react will get itchy painful welts. They do not transmit diseases, but are considered a growing “nuisance pest problem” and therefore a public health concern and a strain on many housing providers budgets. Indications of the presence of bed bugs may be an actual bug crawling on the bed or it may be fecal spots on bedding or it could be unexplained welts. Bed bugs can hitchhike from one place to another in backpacks, on clothing, books, and luggage. They can come with a used mattress or other furniture not treated and sanitized. Each female can lay approximately 200 eggs in her lifetime, laying 1 to 5 eggs per day. In a matter of months, they can quickly establish themselves in a home. Treatment is costly and it may take several treatments by experienced Pest Manage-

AVENUES TO AFFORDABILITY

ment Professionals (PMPs), combined with lots of cooperation on the part of the tenant to get rid of bed bugs. Property managers will need to wear many different hats during the treatment process; Manager, Trainer, Social Worker, Problem Solver, etc. DETECTION Bed bugs love to hide. When performing a visual inspection you will need a good flashlight and probing tool. A magnifying glass wouldn’t be a bad idea either. The following areas should be thoroughly inspected: • Behind electrical covers and switch plates • Behind pictures and other wall hangings • Upholstered furniture • Cushions • Wood furniture • Curtains/drapes/blinds • Window and door frames • Ceiling and wall junctions • Crown molding • Carpet seams and baseboards • Crack in walls • Electronics • Books • Smoke detectors • Mattress seams, ribbing and under the muslin cloth of the box spring When searching for bed bugs, you may want to consider using a bed bug sniffing dog. Their nose is much more sensitive to live bugs and faster than a visual inspection by a person. Finding bed bugs early is the key to preventing the spread to other rooms and adjoining apartments.

FE A TURE

TREATMENT Once bed bugs have been discovered, it is important to balance the need for immediate action with the time needed to prepare the tenants residence for treatment. A quality Pest Management Professional (PMP) will have an extensive preparation list that the resident will need to complete before the extermination process can begin. At a minimum, the resident should be required to strip their beds, empty their closets and drawers, launder everything they own, and place everything that cannot be laundered into plastics bags. Beginning treatment should be contingent upon the resident being adequately prepared for the arrival of the PMP. Constant contact should be maintained with the resident throughout the preparation process. Clutter provides lots of great hiding places for the bed bugs. Development of a strategy to treat the unit that will resolve the problem quickly and thoroughly is paramount. Sit down with the resident and make it clear you cannot treat without their commitment to preparing. This typically includes washing clothing and bedding while the treatment is ongoing and precautions must be taken to not allow bed bugs to escape to other units or common areas. A licensed and experienced PMP will help identify all the does and donâ&#x20AC;&#x2122;t during the treatment process. Heat is an effective way to kill bed bugs. Bed bugs must be exposed

Mitchell Milner and Joseph Caringella congratulate Great Lakes Capital Fund for its commitment to the development of housing for homeless veterans.

to temperatures above 115 degrees Fahrenheit to be killed. This can be done with steam or direct heaters and fans to circulate. This process may take several hours to heat every potential hiding place. While heat treatment is typically 100 percent effective, the construction of the building can create areas for bed bugs to hide to escape the lethal heat levels. Chemical treatment is also an option. Treating with this method can take up to four weeks and potentially up to three applications. Consult your PMP to determine the appropriate treatment for your situation. During treatment you should caution against bringing bags or other potential hiding places for bed bugs into the infested unit. A thorough inspection of your clothing should be performed any time you exit the unit, wearing light colored clothing can help make potential hitchhikers easier to see. For the sake of the owner, all activities related to bed bugs treatment should be documented. Investigative work should also be performed to check adjoining apartments and look for friends and relationships that may have caused the spread of bed bugs between neighbors. PREVENTION Looking for signs of bed bugs should be part of your annual inspection program. An educated property management team should

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understand the signs and favorite hiding places of bed bugs. Community meetings are a good forum to discuss potential issues and to train residents on what to look for. At lease signing the resident can agree in writing to the community’s bed bug reporting procedure. Residents should be cautioned to not pick up second hand furniture without a thorough inspection and possibly steam treatment. Bed bug mattress covers can be found at most major retailors from $25 to $50. Once properly installed the mattress cover prevents any bed bugs from getting in or out. Installation is an easy way to prevent potential future infestations. Discussing prevention strategies with residents and encouraging prompt reporting of outbreaks is crucial to proper prevention. Often the resident may be reluctant to report the problem to management over concerns of being evicted or charged for treatment. If unabated, the problem will grow and eventually spread to adjoining units. Taking the time to educate residents and agreeing on a treatment plan and thorough preparation on the part of the resident, is key to resolving any infestation. To help with information about bed bugs and sample management tools, go to www.michigan.gov/emergingdiseases and click on the PMAM link. Do not attempt to treat bed bug infestation on your own. There are health hazards associated with the misapplication of

AVENUES TO AFFORDABILITY

traditional and non-traditional, chemical-based insecticides and they may pose a health risk to you and others. SUMMARY Integrated Pest Management (IPM) involves working together by the tenant, landlord and pest management professional to resolve an infestation. Like a three legged stool, without one leg, you fall down. All parties must do their part to resolve the crisis. Time is of the essence and we need to help the resident understand what is required to solve the problem. Because the problem is much more involved and costly to resolve than other pest problems, it will impact your bottom line. Your diligence and fast action will prevent the spread. Take the time with the resident to explain what is needed and assure them it can be resolved with all three entities doing their part. Keep your owner informed and discuss resources and funding up front. If you have HUD financing, please read HUD Notice H 2012-5 – www.hud.gov “Guidelines on Addressing Infestations in HUD-Insured and Assisted Multifamily Housing.” Happy hunting...and don’t let the bed bugs bite! GARY OFFENBACHER, CPM IS WITH CONTINENTAL MANAGEMENT, LLC. HE CAN BE REACHED AT 248.731.7810.

M A RKETIN G

taKING

COLD CALLING OUT OF THE OUTREACH By Elaine M. Simpson Occupancy Solutions, LLC

remember the horror and the nausea I felt when my supervisor told me I had to cold call businesses to seek out new residents for our affordable multifamily property. Let me set the scene: It was 1986, our affordable property had higher than anticipated vacancies and we were struggling to get any traffic, much less qualified traffic, through the door. During an emergency marketing meeting, our supervisor began telling us what we needed to do to combat this vacancy issue. As she spoke, she turned to me and said, “Elaine you will focus all your efforts on COLD CALLING the local businesses and factories to attract new residents,” at that moment, I was overcome by horror and fear. I started feeling light headed and my palms began to sweat at the mere words “COLD CALLING”. I nervously agreed to put 110 percent into this cold calling campaign. The next day, feeling overwhelmed and very nervous, I was determined to give it my all. I mapped out my route, loaded brochures in my car, and off I went…cold calling. After hours of stopping by every possible business and factory on my route handing out all the brochures I had loaded in my car, I returned to the management office exhausted and frustrated. I did not feel successful and by this point felt that my day had been wasted. I continued doing this same routine for two weeks, traffic picked up slightly but, because our traffic tracking was not very consistent, we were unable to identify if my

cold calling efforts contributed to the slight increase in traffic. Eventually, the cold calling efforts fizzled out due to lack of enthusiasm and time. Twenty six years later, looking back, I know why I was not successful in my cold calling efforts and have learned, practiced and perfected techniques to become highly successful in driving traffic to the communities I work with to increase occupancy. The first realization was that I should not have been “cold calling”; I should have been doing “outreach”. Most people assume that they are one in the same, but they are in fact very different. A cold call is typically performed by a sales person soliciting a potential customer for a sale of a product or service. Outreach is simply reaching out to others in the community. In addition, I believe that outreach is reaching out to others in the community not to sell a product or service, but rather to create partnerships and add value to your property that will benefit your residents as well as your new partner created by your outreach efforts. It must be a win, win, win. A win for your property, a win for your outreach contacts, and win for your residents. My second mistake was that I did not plan my efforts. You’ve probably heard “She (he) who fails to plan, plans to fail”. That is exactly what happened. I had not planned at all. I did not plan which businesses I was going to visit; I had not planned what I was going to say to anyone; or why this business would want to refer to my property. I did not have a follow up plan for my contacts and had not tracked any of my efforts so we had no idea

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MY first realization was that I should not have been “cold calling”; I should have been doing “outreach”. if my efforts were effective. My third mistake was that I only sought out referrals, so I was selling my property and did not offer anything in return. By partnering with an outreach contact to provide services or programs for my residents, I earned the trust and respect of my outreach contact, who then referred prospects to my property. So, not only did I add value for my residents, I influenced loyalty from my residents, and created deep, long term and ongoing referral sources. Now that I have shared my mistakes, I will share my strategies for successful outreach for affordable housing communities. Every property is different and what works well for one property may not work well for another. Factors that should be considered that may impact the success of outreach efforts include: • Timing, which includes the ability for the staff to perform the outreach duties at this particular time. Consider if your is property ready for visitors and prospects to tour or are their some maintenance issues that should be addressed prior to kicking off your campaign? • Consistency is very important, because outreach is about creating a partnership and one meeting will not create that partnership. Successful outreach is a constant process. In most cases, between three and seven varied contacts are considered necessary for effective deliverance of your message and to create a partnership. • When selecting the team member that will be conducting the outreach efforts, be sure that this person is regarded as credible and sensitive. This person must connect well with others, listen well and speak well on behalf of the property and your efforts. • Consider the local culture and the sur-

AVENUES TO AFFORDABILITY

rounding community’s attitudes towards your property. Some properties may have to overcome negative news reports, criminal activity or negative reputations before outreach efforts can begin. In some cases, you may be able to use this as a way to partner with an agency to help reduce crime and other issues at your property. Once you have determined that you are ready to begin your outreach campaign, you must create a plan. This plan should answer the following questions: • What are your goals for the outreach ef-

forts? → Add value to your property by creating, modifying and/or adding services, programs and sources for your residents? → Increase the public’s knowledge of your property? → Encourage referrals to your property from agencies, non-profits, businesses and churches? • How many new contacts will be made each week? • Who is going to be held accountable for the outreach efforts?

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→ Will it be a single person of your team? → Will it be a joint effort? • If a joint effort, who is going to be responsible for what efforts? • When and how often is the outreach going to be done? → Will efforts be planned for weekly (preferred) or biweekly? → Which day of the week and what time frame will be devoted to outreach? • Who can assist you in achieving your goal? → What agencies, non-profits, businesses and churches should you target to meet your goal? → Of this list, which entities should be the priority? → Who or what department should you attempt to connect with within

these agencies, non-profits, businesses and churches to achieve your goals? • What is the message that they need to hear? → Do you know their mission, current and upcoming goals, grant obligations and obstacles? → Does your message align with their mission, goals or obligations? → How can you assist these groups with fulfilling their missions, goals, grant obligations and overcoming their obstacles? → Do your residents’ need for services, programs and support fulfill any of these groups’ missions and goals? → How can these groups enhance your residents’ lives? → How else could you or your property

support their cause? • How are you going to connect and stay connected consistently with your outreach contacts? → Networking events? → Telephone? → Email? → Email blasts? → Fax blasts? → Mailing information and flyers? → Visit to their offices? → Have contacts visit your property for tours and meetings? → Invite contacts to your property for events? → Send thank you cards? • What are you going to take with you when meeting with outreach contacts? → Brochures? → Business cards? → Activity calendars? → Book of other contacts to make professional referrals? → Current advertising flyers? → Floor plans? → Photos of property and model? → Testimonials from residents? → Stories of how other outreach partnerships enhance a resident’s life? → Testimonial from out outreach contacts endorsing you and your efforts? → Calendar to schedule a visit to your property and tour of model? → Small token to give to contact thanking them for taking time to meet with you? • How are you going to track efforts and success? → Outreach log that lists daily efforts? → Outreach log that is set up to log ongoing efforts and communication with each contact? • How are you going to track referrals of new prospects? The outreach race is not won by the hare but by the tortoise…slow and consistent will make your outreach plan a success. Elaine Simpson is the founder of Occupancy Solutions, LLC. She can be reached at (800) 865-0948.

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when you invest in the Community, the returns are guaranteed. At Huntington, we know how important it is to give back to the community. After all, we do more than just work here - we live and raise our families here too. And after everything this community has done for us, we’re just happy to be able to return the favor.

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FE A TURE

the preventative maintenance program BY GARY OFFENBACHER, CPM CONTINENTAL MANAGEMENT, LLC

Preventative Maintenance Program (PMP) allows a community to maximize the life of the mechanical components and other components through routine examination and repair. Said exams and repairs should be done based on seasonal needs. For example, there is nothing worse than inconveniencing a resident by having their air conditioner quit working on the first really hot day of the summer. Ideally, a PMP keeps equipment operating at peak efficiency with minimal inconvenience and cost. The main goals of a well-heeled preventative maintenance program are to save time and money. There are a lot of other benefits of a PMP which include: reduction of energy use at the community, prevention of sudden breakdowns of equipment during peak demand and having reliable equipment, control of excess inventory of parts, reduction of overtime costs for on-call employees, providing better service and thus preventing angry and stressful exchanges with residents because of equipment break downs. Finally, a wellconceived and executed PMP will extend the life of mechanical and other components found in the typical apartment. This program will take less time and money than the “crisis management” service approach. The creation of the preventative maintenance program begins with realizing a need for it and allowing time and resources to be committed to the program. This drafting of the PMP plan is typically a collaborative effort between Community Manager and Maintenance Supervisor. Here is a list of steps I find works well in first time development of a PMP plan: • List all the maintenance tasks needed and the frequency required. • List the twelve months or 52 weeks and show how and when the tasks are to be performed.

• Create a tracking device (electronic is preferable; for easy updates and ease of sharing). • Ensure that the budget allows for the man power anticipated to start a program; and, if it doesn’t (or you aren’t certain) discuss with your supervisor. • Notify residents of your intent with the bi-annual (or annual) inspections within their homes. Be sure to give them at least 24 hours notice of any inspection. • Begin inspections! • Complete repairs previously not reported to the office; making sure to document any issues discovered upon inspection. I’ve put together a list of commonly regarded items addressed within a PMP plan. Those include, but are not limited to: • The mechanical equipment; HVAC (change filters and clean coils on A/C), hot water heaters (check for rust and sediment), boilers, chillers, and generators. Any oil changes that are necessary should be done at this time. • The plumbing equipment; toilets, sinks (check for clogs), dishwashers (check for leaks!). • The appliances; garbage disposals, refrigerators, stoves/ovens and microwaves. • Safety equipment; smoke detectors, fire stops over stoves, exit signs, emergency lights, exterior lights, pull cords, fire extinguishers (where provided) and fire suppression systems (be sure no one is hanging their laundry from the sprinklers!). • The physical asset; roofs (check for missing shingles), chimney vents, windows (check for leaks and/or fogging of double-paned windows), siding (check for missing pieces), soffits, downspouts/gutters (check for crushed, broken or missing pieces), parking lots and sidewalks (check for cracks and sinking). There are endless excuses not to do a PMP; however, the reality is

GREAT LAKES CAPITAL FUND

the property will pay for the service work at some point. And prevention is much less expensive and time consuming. As an added bonus, making sure all of the apartments moving parts are in top working condition will keep residents happy. Keeping your residents happy will result in a lower turnover rate. As a direct reward, the property will see a savings in both maintenance costs and vacancy loss. As some residents feel that the routine maintenance inspections are a minor inconvenience, it is a great idea to leave a note along with a small gift. Possible ideas include: a bag of popcorn with a sticker that says “We just popped in to perform Routine Maintenance!”, a small bag of chocolates with a note saying “It was so sweet of you to let us intrude! Thanks a million!”, a gift certificate for a video rental or some other small and inexpensive token. Additionally, be sure to note that if follow up is required the team will be in touch to schedule an appointment. In the end, a preventative maintenance plan will keep your community and asset in first class shape and will focus attention on keeping the community full of satisfied customers. Service issues are the number one reason cited when a resident submits their Notice to Vacate. Your residents will appreciate your interest in keeping their apartment in working order! GARY OFFENBACHER, CPM IS WITH CONTINENTAL MANAGEMENT, LLC. HE CAN

making sure all of the apartments moving parts are in top working condition will keep residents happy. Keeping your residents happy will result in a lower turnover rate. As a direct reward, the property will see a savings in both maintenance costs and vacancy loss.

BE REACHED AT 248.731.7810.

AVENUES TO AFFORDABILITY

LEGAL ISSUES

COLLECTING FROM A NON-PAYING TENANT BY KEVIN J. RORAGEN AND WARREN H. KRUEGER LOOMIS, EWERT, PARSLEY, DAVIS & GOTTING, P.C.

ichigan eviction law proceeds in two distinct phases: the possession phase, which is the process of physically evicting a tenant and regaining possession of the premises; and the monetary phase, in which an owner can obtain a money judgment against a tenant for unpaid rent or other sums owed. Choosing whether or not to pursue a monetary action against a delinquent tenant after eviction involves balancing the amount of delinquent rents against the cost of pursuing the action, and the likelihood of actual collection. This article discusses the eviction process and some preparatory steps that should be taken by an owner to expedite the collections process. Given the relatively small delinquency amounts at issue, some owners may choose to forego collections altogether as cost prohibitive. By following the basic steps outlined in this article, an owner may be able to minimize the costs of collection while maximizing the probability of collecting (at least some amount) on its judgment. Before undertaking an eviction and collections action, however, an owner must review all relevant documents governing the lease at issue to make sure the eviction and collection procedure is not amended or mod-

ified in any way. Those documents include the lease itself, and, for properties subject to HUD, MSHDA, or Section 8 financing, the regulatory agreement and rental assistance agreement. Obtaining Possession and Judgment In Michigan, eviction actions are governed by the Summary Proceedings Act. The process to evict a tenant through summary proceedings is fairly simple, and requires that the owner (or a management company, acting on the owner’s behalf ) simply meet the notice and service requirements before filing a court complaint. Owners or their managing agents may undertake the eviction proceedings themselves; however, be aware that corporations and/or limited liability companies must be represented by an attorney in a Michigan court. The first step in the eviction process is serving the Notice to Quit, which generally serves as a written demand for possession of the premises. The Michigan Supreme Court Administrative Office’s (“SCAO”) notice to quit form (Form DC 100c) provides a useful checklist for an owner who is preparing to take action through summary proceedings. Generally, the notice is required to be provid-

ed thirty (30) days prior to eviction, but that requirement will vary depending on the type of lease involved. Although an owner is not required to use the SCAO form, doing so assures that necessary information is contained in the notice. Once the notice is served in one or more ways as provided on the face of the SCAO form, and the applicable notice period expires, the summons and complaint to recover possession may be filed. Upon filing the complaint, the District Court will set a hearing date. At this hearing, the owner will generally be awarded possession of the premises unless the tenant pays the entire amount due. The owner may also seek a money judgment for any amounts due from the tenant. The owner’s possession and money claims may be tried together or separately. The separation of those claims depends on whether the claim for money damages may substantially delay the trial on possession, or if possession of the property is required to determine physical damage to it before money damages can be determined. After the court has rendered a judgment in the owner’s favor for possession, either by default or after trial, a tenant has ten (10) days from the entry of judgment to file an appeal of right. Upon expiration of that period, the owner may seek an order of eviction. An

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The best way for an owner to find collectible assets is to move quickly, and to know what you are looking for in advance. owner must wait twenty-one (21) days after the entry of a money judgment, however, before beginning collections. Collection on a Money Judgment As they say, a judgment is only worth the paper it is written on, if that. If the former tenant could not pay his or her rent, there is a fair chance that they do not have assets to satisfy the owner’s money judgment. Further, there is a high probability that other creditors will have judgments against that individual. Thus, even if the tenant has collectible assets, those assets may be sought by other creditors or even

subject to prior liens or security interests. Additionally, some tenants may take precautions, legal or not, to avoid losing assets to a creditor, which includes hiding assets or transferring them into another’s name. The best way for an owner to find collectible assets is to move quickly, and to know what you are looking for in advance. An owner should collect the necessary information about a tenant which will help in determining where the tenant’s assets are located. That necessary information includes all known accounts, any property the owner is aware of, the tenant’s current address, and the tenant’s current employer. This information should be kept and updated regularly,

especially bank accounts and employment. In order to avoid paying another person to do so, the owner should undertake a search of the tenant’s personal information. The owner should review the lease, and any income disclosures received from the tenant to determine financial information. Free and/or inexpensive searching resources are also available. For instance, the tenant’s current address can be requested from the United States Postal Service. The tenant’s driving and vehicle information can be requested from the Secretary of State, for a nominal fee. Commercial websites such as www.zabasearch.com may also provide detailed and useful information, for a fee.

Karl L. Gotting Kenneth W. Beall Michael G. Oliva Jeffrey L. Green Kevin J. Roragen Richard W. Pennings Ted S. Rozeboom Tracey L. Lackman Michael G. Stefanko Elizabeth Husa Briggs

OVER 35 YEARS OF EXPERIENCE IN AFFORDABLE HOUSING Representing developers and syndicators before the Michigan State Housing Development Authority, U.S. Department of Housing and Urban Development, Rural Housing 124 W. Allegan, Suite 700 Lansing, Michigan 48933

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LEGAL ISSUES

If the owner is concerned that collecting against the tenant may prove fruitless, but the tenant is cooperative, the owner may attempt to make an offer to accept an amount less than the full judgment in satisfaction of the debt. Alternatively, the owner may agree to an installment payment plan. An owner would be wise to agree to installment payments on the conditions that defaulting on one payment will void the plan and entitle the owner to collection on the entire amount. The owner should also condition the plan on the tenant providing current pay stubs, a current address, all current financial information (i.e. bank accounts), and a promise to update the owner on that information if it changes. If the tenant defaults, the owner may use the information for garnishments and asset searches. Regardless of the owner’s willingness to undertake an installment plan, the tenant may force the issue by filing a motion

for installment payments with the court. The tenant will be required to show hardship and the inability to pay the judgment without the installment plan. Upon making that showing, the court may enter an order allowing an individual to pay the judgment in installments. For the non-cooperative tenant, the owner must be more resourceful. Judgment liens and garnishments may be placed on the tenant’s property and accounts. A periodic garnishment should be sent to the tenant’s last known employer, and a non-periodic garnishment to all of the tenant’s last known bank account(s). Judgment liens should be placed on any known assets, and those assets should be seized. Asset seizure requires submission of a request, and subsequent order to seize property from the court that issued the original judgment, or where the assets are located.

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Collection is a very form-driven process, and some owners may be able to cut costs by drafting and filing the forms themselves. As previously mentioned, however, Michigan law requires a corporation or limited liability company to be represented by an attorney in a court proceeding. A tenant may move the court to strike any pleadings or documents filed with the court by a corporation/LLC owner or which are not prepared and signed by a licensed attorney. Alternatively, the court may reject those filings. The key to successful collections is speed and accurate information. The faster an owner moves to collect, the more likely its efforts will result in collecting amounts owed. Knowing exactly where to look to satisfy the judgment amount is crucial, as well. To keep the cost of the process as low as possible, and, thus, maximize returns on collections, the owner must undertake to obtain relevant information about the tenant well in advance of the collection process. Crucial asset information, such as the location and identity of bank accounts, employment information, and the identification of any other assets, should be initially obtained as part of the pre-leasing/screening process. Moreover, that information should be kept as current as possible, and updated regularly. The wrong time to attempt to discover a tenant’s current information is after a judgment has already issued. By then, it is frequently too late. When it comes time to prepare and file the necessary forms, having information at hand will undoubtedly prove useful, will reduce attorney’s fees and other costs, and expedite the collections process. KEVIN RORAGEN AND WARREN KRUEGER ARE ATTORNEYS WITH LOOMIS, EWERT, PARSLEY, DAVIS & GOTTING, P.C. THEY CAN BE REACHED AT 517.482.2400.

248.325.9669 or info@artofleadership.net Art of Leadership Advisors is a subsidiary of Great Lakes Capital Fund

GREAT LAKES CAPITAL FUND

CEO’ s MESSAGE

continued FROM PAGE 5

Lakes have gained, over the last 20 years, a great appreciation for all they do. On another note I would like to provide this update on what we are seeing in the equity markets as this edition of Avenues goes to print. The industry is going through another shift which is going to result in a temporary lack of abundant, well priced tax credit equity. Earlier this year, investor returns were in the low 6 percent range. Many of the non-bank investors that brought a lot of new equity to the marketplace over the past few years have now pulled out of the market. Banks who receive favorable CRA consideration for their investments have continued to provide equity; but many have very narrow and targeted investment needs. Many bank investors have achieved their CRA targets in many geographic markets and this “curbed their appetite” for additional tax credit investments. Many Tax Credit pundits feel that returns will start moving closer to the 7 percent range to try and entice the non- CRA investors back into the market. Even if yields land in this range, it may take a while for equity to flow into the market. There are a number of factors at play which will cause uncertainty in the market: the outcome of the election, possible tax reform, the “fiscal cliff ”, Congressional indecision, etc. I think many investors will sit on the sidelines a bit longer than we would like to see. What will this mean? Immediately, some may find that investors won’t be able to close on deals that they were processing. There should be an expectation that equity pricing will be lower and this may render some developments infeasible. Marginal deals from a market standpoint and/or those sponsored by developers with a limited track record or limited financial strength will be turned-down by investors. Housing Finance Agencies will need to reassess their policies and priorities with regards to the allocation of credits. Developments with credit awards may sit idle if investors have any concerns about the market or the capacity of the development team. There should be no complacency and nothing can be taken for granted right now. The market is changing and we all have to be prepared for what is to come next year. We continue to be totally committed to AVENUES TO AFFORDABILITY

serving the needs and interests of our investors, our development partners and our financing partners in public and private sectors. Together, we are doing great work as we improve the quality of life for thousands of our neighbors.

I hope you enjoy this edition of Avenues and can enjoy the fall season with your families and friends. Here in the Great Lakes region, it’s one of the most beautiful times of the year…and it signals that the holidays will quickly be upon us.

OVER 20 YEARS EXPERIENCE IN ALL PHASES OF AFFORDABLE HOUSING

Mt. Pleasant & Midland, Michigan

• Audits • Cost Certifications • LP Tax Returns

Phone 989.772.4673 | Fax 989.772.6371 | Email jbourland@bbcpapc.com

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We are a family of companies serving the needs of families.

•MANAGEMENT •DEVELOPMENT •CONSTRUCTION •CONSULTING

Medallion Management, Inc. Medallion Management, Inc. 834 King Highway Suite 100 Kalamazoo, MI 49001-2578 Fax: 1-269-381-3609 Phone: 1-269-381-0350 TTY: 1-800-649-3777

www.medallionmgmt.com

"We specialize in Non-Profit Consulting and Joint Ventures" 39

EVENTS & HAPPENINGS

GLCF receives development award GLCF Sponsors War of 1812 Bicentennial Commemoration and Veterans Re-enterting the Work Force. GLCF PROJECT IN INDIANA NOMINATED AS

RILEY AREA DEVELOPMENT CORPORATION

BEST RURAL DEVELOPMENT

HONORS COMMUNITY LEADERS

Dogwood Estates,

Fred Hash, Vice President of

formerly known as West

the Capital Group, received the

York

Redevelopment,

Robert D. Beckman award from

is a finalist in this year’s

Indianapolis-based RADC, for

Affordable Housing Fi-

his service to the board over the

nance’s Reader’s Choice

past eight years.

awards.

Dogwood Es-

RADC distributed awards

tates is an affordable

and recognized the contribu-

housing development for

tions they and their partners

families in Walkerton, In-

have made to the Indianapolis

diana. It was nominated

community over the past year at

in the Best Rural Devel-

the Annual Meeting in August. Fred Hash has been a RADC officer

opment category for “go-

since 2005 and has served the Board as Chair the past 5 years. During

ing above and beyond” in

this time GLCF has partnered with RADC on three developments in

creating the 40 brand-new single family homes, which are built to En-

Indianapolis.

ergy Star standards, for working families to lease or lease-to-purchase.

The Beckman Neighborhood Leadership Award is bestowed on a

Ultimately, Alta Vista de la Montana (Delta, CO) was the Rural

person who has demonstrated vision, leadership, imagination and dedi-

Development winner and Emerald Springs (Detroit, MI) was the

cation to the community, and who has made a significant contribution to

overall winner as decided by votes via Housing Finance’s website.

the Riley Area mission through public service without remuneration.

Readers’ Choice winners will be highlighted in the November/December issue, and honored at the conclusion of AHF Live: The 2012 Affordable Housing Developers’ Summit, Nov. 14- 16, at the Fairmont Millennium Park in Chicago.

GREAT LAKES CAPITAL FUND

GLCF SPONORS WAR OF 1812

IN THE NEWS

BICENTENNIAL COMMEMORATION

GLCF President and CEO, Mark McDaniel, was featured as the cover story for the August edition of the Indiana Banker’s Associations, Hoosier Banker.

The question-

and-answer style article went into great detail about the evolution and growth that GLCF has experienced as a company since its beginning in Michigan; including The USS DeWert (FFG 45) came to Detroit for Navy Week, which marks the 200th anniversary of the War of 1812]

details of GLCF’s expansion and growth in Indiana.

This year, GLCF sponsored the War of 1812 Bicentennial Com-

GLCF for its successes and indeed survival throughout the economic

memoration, which took place Friday and Saturday September 7-8

downturn of 2008-09. In the article McDaniel said, “Out of that came

at Lake St. Clair Metropark. Comprised of two different events, the

a new organization that nobody had envisioned. We realized that we

commemoration offered an opportunity for the community to not only

were more than just a syndicator of tax credits; we were a community

support our veterans, but be a part of fun, family-friendly events in the

development finance company, providing financial resources to those

Metro Detroit area.

who are trying to develop their communities.”

The sponsorship proceeds go to a new organization supporting

On his role in creating a unique, collaborate environment at GLCF,

veterans reentering the work force: Rock Star Warriors. Rock Star

McDaniel said: “My leadership style is based on what my parents

Warriors (RSW) is a nonprofit organization that focuses on edu-

taught me, which is to treat people the way you want to be treated, and

cating businesses, veterans and the public, and provides employment

never have people do work you aren’t willing to do yourself. That’s the

assistance to returning members of the armed forces. Through skills

premise for our culture.”

McDaniel credited the unique culture and work environment at

training, education and resources, RSW is working to eliminate the problem of unemployed veterans in Michigan by helping them confidently enter the workforce. As envisioned by the public and private resources that comprise RSW, the model and database that is developed to employ veterans in Michigan will be replicated to the Midwest and beyond. To support Rock Star Warriors in other upcoming events honoring our armed forces or to learn more email info@rockstarwarriors.com. Follow them on Twitter @RckStarWarrior.

AVENUES TO AFFORDABILITY

ADVERTISER’S INDEX Allgeier Company.................................................................................... 32

Lighten-Gale Group.................................................................................. 8

Applegate Thorne-Thomsen.................................................................. 19

Loomis, Ewert, Parsley, Davis & Gotting, P.C...................................... 37

Baker Tilly Virchow Krause, LLP........................................................... 2

McCartney & Company, P.C.................................................................. 26

Block Affordable Housing Consulting, LLC........................................ 13

Medallion Management, Inc................................................................... 39

Blystone & Bailey, P.C............................................................................. 39

MHT Housing, Inc................................................................................. 43

Chesapeake Community Advisors, Inc................................................. 23

Michigan State Housing Development Authority............................... 42

Clark Hill.................................................................................................. 44

Milner & Caringella, Inc......................................................................... 28

Community Economic Development Association of Michigan......... 13

O’Brien Construction Company, Inc....................................................... 9

Crestline Communities........................................................................... 18

Occupancy Solutions............................................................................... 31

Dauby O’Conner & Zaleski................................................................... 21

Plante Moran............................................................................................ 28

Economides Incorporated Architects.................................................... 26

Pung and Read Housing Conultants, LLC............................................. 8

Gill Group, Inc........................................................................................... 4

St. James Capital...................................................................................... 29

Herman & Kittle Properties, Inc........................................................... 26

Vogt Santer Insights................................................................................ 22

Huntington National Bank.................................................................... 33

Wisconsin Partnership for Housing Development............................. 22

Keystone Construction Corp................................................................. 39

Wolverine Building Group..................................................................... 16

PEOPLE • HOMES • PL ACES The Michigan State Housing Development Authority’s (MSHDA) vision in the 21st century is to improve the quality of life for all Michigan residents and create vibrant communities by focusing on providing safe, affordable housing through homeownership and rental programs; ending homelessness; and revitalizing neighborhoods and downtowns. For information on MSHDA programs, visit the Web site at michigan.gov/mshda. Equal Housing Lender

517.373.6840 • TTY 800.382.4568

GREAT LAKES CAPITAL FUND

Promises Made, Promises Kept. Syndicators and lenders will attest to our rock solid reputation.

For more information, contact Krystal Covington 248.833.0558

Great Lakes Capital Fund 1000 S. Washington Lansing, MI 48910 www.capfund.net

Count on Us. Count on More. For most people, it’s just a briefcase. For our clients, it’s a symbol of expertise, courage, and unwavering service. For Clark Hill attorneys and other professionals, it represents a toolkit of integrated resources, networks, and talented teams—all centered on anticipating and responding to your ever-changing business needs and challenges. With Clark Hill at your side, you can be assured that we will be there, always, when and where you need us, giving you the competitive edge to stay ahead and win in the marketplace.

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