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Property Management Breaking - PDF


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									         Sleeper Cells
   - Breaking New Ground in
Support of Property Management

          Jack Geary
         Charles Foster
        Bridging the GAAP
• Sometimes it seems like my accountants
  and my property managers are on different
               •   An exasperated CDC Director from the Midwest.
         Cash (Flow) is King
           Even on an Accrual Basis

• Audit formats are governed by GAAP, but
  sometimes the format does not meet the
  needs of property managers.
• How can we go beyond audits and GAAP
  to have financial statements that provide a
  valuable management analysis tool for
  asset managers?
     What we have here is a failure to
             communicate !

• Audit formats lead to an info disconnect
  between finance and property mgmt.
• Accounting Professionals: Depreciation,
  accrued interest – It’s about GAAP net
• Property Managers: Show Me The Cash
            The Bilingual CEO
         Speaking “Property Management”
Gross Potential Rent (GPR)
- Vacancy
+ Other Income
= Effective Gross Income (EGI)
- Operating Costs
= Net Operating Income (NOI)
- Hard Debt (must-pay debt)
- Reserve Contributions
= Cash Flow
                Operating Costs
•   Admin (Admin Salaries, audit, Mgt Fee, Office Costs)
•   Utilities
•   Maintenance & Operating
•   Real Estate Tax & Property Insurance
•   Operating Costs DO NOT include:
    – Mortgage Interest
    – Depreciation and Amortization
              “Hard” Debt
• Debt Service that must be paid –
  amortizing debt.
• Includes principal, interest and related
• DOES NOT include accrued interest that
  is not paid, depreciation and amortization.
                The Mission
     Should you choose to accept it…
• Is to calculate cash flow for Charlestown
  Senior Housing LP….
  – Review the audit excerpts (Pages 5-7) & fill
    out the grid on Page 8.
  – Use Property Management Accounting
    Concepts (PMAC).
  – Suspend reality on GAAP depreciation and
    soft debt accrual.
  – Why is GAAP different?
             The Case File
    This Message Will Self Destruct…
• Charlestown Senior Housing LP
  – 190 Unit elderly property
  – Low Income Housing Tax Credits
  – Conventional (HFA) Debt
  – Soft Debt
    The Super Secret Decoder Ring
          GAAP to Property Cash Flow

• Depreciation
• Soft Debt
  – Cash Flow Debt: Pay only if cash flow
  – Deferred Debt: Accrue interest, due at a late
    date in balloon payment.
      What Impacts Cash Flow?
•   Rent Levels
•   Vacancy Management
•   Retention and Marketing
•   Cost Controls
              Rent Levels
• Is the manager increasing the rent
  – Subsidy paperwork
  – Benchmarking to the market
  – Keeping up with the proforma?
      Vacancy Management
• The Elements
  – Marketing
  – Waiting list management
  – Effective screening – Get out ahead
  – Make Ready
     Retention and Marketing
• Turnover Rate
  – It’s always easier (and more cost effective) to
    retain an existing resident than to find, screen
    and house a new resident.
• Good Marketing
  – It’s better to turn people away than to go
    wanting for applicants.
Jack Geary CPM
Jack Geary Consulting
501 Commerce Drive #1-313
Braintree, MA 02184

Charles Foster, CEO
Abyssinian CDC
4 West 125th St.
New York, NY

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