Reserve Studies & Funding Projections
A Reserve Study is an analysis of a physical structure’s condition and the status of the capital reserve fund from which major capital improvements or replacement of various system components will be paid. The report of the independent consultant’s findings gives the board and owners, such as a homeowners’ or condominium association, a budget tool to plan what and when anticipated major expenditures will be needed and how much and when to fund the reserve to pay for them.
On January 9, 2024, a bill was passed in New Jersey establishing inspections, maintenance and reserve funding for condominiums and cooperatives. This bill requires structural inspections to be conducted by a licensed Professional Engineer (PE) and associations to have reserve studies completed and updated on a routine basis.
Associations without a reserve study in the prior 5 years are required to perform one within one year. A new study is required every 5 years.
For more information about this new legislation, refer to our Associations page.
Lockatong’s Reserve Study is conducted in accordance with the Community Associations Institute Reserve Study Standards and meets the Reserve Study requirements of New Jersey Legislation S2760/A4384 establishing procedures for inspecting, evaluating and maintaining the structural integrity of certain residential housing structures. A Reserve Study is not a Structural Inspection. Lockatong’s Reserve Studies are conducted by Licensed Professional Engineers.
Lockatong Engineering’s Reserve Study features a comprehensive engineering inspection and evaluation of all common-element building components along with a written description of the site that identifies the current condition of all components — not just the standard “useful life.” Using this robust data, we prepare the capital cost reserve analysis to determine what the association must set aside on a periodic basis to cover the facility’s major expenditures over the period of the study, which could be 10 to 30 years depending on the association’s time horizon.
- Our Level I Reserve Study is performed if no reserve study has been done or if a reserve study has been done by another engineering firm. It includes determining component inventory and quantities of common elements, conducting a site inspection and condition assessment of the comment elements to determine their current condition and estimated useful life, and conducting a financial analysis including fund status and funding plan for the reserve. A comprehensive narrative report with detailed descriptions, condition, and recommendations of all common elements as well as 30-year reserve cost projections (including the cost of annual projected maintenance) is provided. A review of the most recent reserve study is performed but not relied on if performed by others.
- Our Level II Reserve Study Update is performed if a prior reserve study has been done by Lockatong within the past five years. It includes a review of the common elements to determine if there have been changes to the quantities or additions that need to be included due to anticipation of replacement within the upcoming 30 years. We do still conduct a site inspection and condition assessment of the comment elements to determine their current condition and estimated useful life, and conduct a financial analysis including fund status and funding plan for the reserve. A comprehensive narrative report with detailed descriptions, condition, and recommendations of all common elements as well as 30-year reserve cost projections (including the cost of annual projected maintenance) is provided.
Should we find that your reserve is underfunded for anticipated expenses, we can help you develop practical alternatives that combine sound engineering and financial practices. If you have known issues or if we locate issues, we can also provide a range of services that will assist you in rectifying problems. New Jersey Legislation S2760/A4384 has a Reserve Funding requirement as of January 7, 2024. In the case of a Reserve Fund balance with insufficient funds, and a shortfall that would require a greater than 10% increase in annual Reserve Funding, the association must increase funding.
For those who have never commissioned a reserve study, this can be a first step in building a healthy financial future for your association. A standard reserve study incorporates four steps:
- Conducting a component inventory of common or limited common elements
- Assessing the condition of each component and assigning a value (life/cost)
- Assessing the fund’s status in light of timing of anticipated expenses
- Developing a plan for building the fund to cover anticipated expenses, such as preventative maintenance costs, reasonable estimate for future reserve studies, reasonable estimate of the cost for periodic structural inspections if required, and an estimate of costs associated with implementing any corrective maintenance deemed necessary as a result of periodic structural inspections if required
Lockatong Engineering understands and complies with all New Jersey and industry standards and AICPA (American Institute of Certified Public Accountants) requirements guiding and governing reserve studies. Our experience conducting reserve studies for many entities also means we’re sensitive to the polarization that can arise in homeowner associations: We’ve worked well with owners, boards and managers to deliver results for the organization.
A Lockatong Engineering Reserve Study provides your association with key information in a set of charts and graphs:
- Items that will need repair or replacement, estimated remaining life of each, projected repair or replacement cost of each, how often each item should require repair or replacement and a year when, based on the above, each item will require attention
- Anticipated annual repair/replacement expenses charted for the length of the reserve period, adjusted through the years for inflation
- End-of-year fund balance vs. capital expenditures for the currently funded program, including any special assessments planned or received to date, with three reserve account funding alternatives customized to the needs and resources available to the association
- A comparison snapshot of the three alternatives that includes the annual fund balance anticipated for each across the 20 years
We recommend that the Reserve Study be updated on a regular basis. Normally every three years to follow the CAI recommendations and maximum of every five years to be in accordance with the NJ Legislation S2760/A4384. This is to reevaluate the expenditures, as well as having an inspection of the common elements to evaluate their aging and estimated useful life.
A note: In new construction, a reserve study is often done alongside a transition study, which determines if developers have completed a new project in compliance with
- generally recognized construction practices and
- a public offering statement, bylaws and construction documents.
Lockatong Engineering can conduct a transition study for your new development at the same time as we do your reserve study.
Click here to download our most recent Reserve Study brochure.
In May 2023, the Community Associations Institute (CAI) updated Reserve Study Standards as a result of the 2021 collapse of Champlain Towers South in Surfside, FL.
“Under the 2023 Reserve Study Standards, there is a renewed emphasis on conducting comprehensive structural inspections as part of the reserve study process. Structural components such as roofs, foundations, and building envelopes are critical elements that require regular assessment to ensure integrity and identify potential maintenance or repair needs. The updated guidelines outline the importance of engaging qualified professionals to conduct thorough inspections that provide accurate and detailed assessments of the structural condition of common elements.”
The new standards also encourage associations to address the maintenance of identified issues promptly to avoid larger problems in the future. A strong emphasis is placed on the associations to account for structural maintenance and replacement expenses when planning for the long-term.
Working with structural engineers, such as Lockatong Engineering, as part of the reserve study process is strongly recommended. We can provide valuable insights into the condition and maintenance requirements of the structural components of your building(s), to help ensure long-term stability of your community’s physical infrastructure.
— Robert N. Roop, P.E.
President
Click here to read the updated Reserve Study Standards.
To Comply With Stricter Freddie Mac and Fannie Mae Requirements, Structural Inspections and Reserve Studies Needed on a Regular Basis
Structural inspections of condominium buildings have been more important since the tragedy in Florida. The buildings haven’t changed. No flurry of earthquakes. Just the inevitable work of weather, water and time.
Thoughtful association boards have recognized the need to periodically inspect the common elements of their buildings and plan adequate reserves. Those associations may have had full structural inspections in the past. Perhaps, they have been prompted to recently have one.
Now financial institutions and local government organizations are getting into the act. Fannie Mae and Freddie Mac are asking lenders to answer questions regarding the building’s structural condition and status of any inspections. They are also scrutinizing reserves for adequate funding. Some cities have already enacted ordinances for high-rise structural inspection. The Community Associations Institute (CAI) has issued guidelines for inspection and reserves. More slowly but just as certainly states are considering legislation.
Associations can get ahead of the issue, perform their fiduciary duty and protect their owners’ investment by performing a structural inspection and updating their reserve study. As many know, the recommendation has been reserves are best reviewed and updated every 3 to 5 years.
— Robert N. Roop, P.E.
President
The qualifications of those performing the structural inspections are important. Every inspection guideline or rule maker recognized that specific skills of a Professional Engineer are needed. Beyond that, the inspector trained as a structural engineer is paramount. Membership in organizations such as the National Academy of Building Inspection Engineers (NABIE) is an additional marking of particular skill in building construction assessment by a Professional Engineer. Further evidence of skill in a P.E. is if they hold a Building Inspection Engineers Certificate.
Lockatong’s Professional Engineers fulfill all the important qualifications for performing inspections, including structural and all the building component systems. With that skill set and knowledge of how systems age with use, we are prepared to provide comprehensive inspection and reserve studies.
