Annual Benchmark Report: Your strata’s data-driven scorecard & budget review

0:00 – Eli Report and the Annual Benchmark Report

0:00 Thomas Beattie: So today we're going to talk a little bit about the annual benchmark report. It's a brand new tool brought to you from the OctoAI team. A little bit about myself: I typically describe myself as a recovering investment banker. I am interested in financial literacy, and in 2018, when a few of us got together to co-found Eli Report, we thought it was a bit unusual that when you spent $10,000 on a used car you got a complete report of its history, and when you spent a million dollars on a condo you got 24 PDF files that were very disorganized and difficult to interpret.

0:36 So the whole Carfax for condos idea came to life. I've got a background in the financial services space, and went to school here in the Lower Mainland. Earlier on, Sean, while he was talking about StrataPress, mentioned Eli Report and shared what that is. This is a high level overview provided to any realtor, buyer, owner, lawyer, notary, property manager, anyone else who's interested in a community and has rightful access to the documents.

1:07 It's been trusted by thousands of users, we've run over 20,000 reports over the past several years. So this is something that we have that's well established in the market, and now we're going to take it one step deeper. Based off of all of what we've learned so far, we wanted to turn back to the strata community and to the property managers and provide them with some deep intelligence that would allow them to improve their budget review process and do better capital planning.

1:41 So this report does not provide advice. You know your community far better than we do. This is about objective, data-driven analysis with actionable insights that we hope will improve your community's way of life. So what you're going to see on this is the prototype for the fictional Octopus Villas, a strata located here in the Lower Mainland, which is a townhouse community built in the year 2000 with 28 units in it.

2:12 And I guess the next step is, sort of, how can we do this, and what gives us the authority to provide this level of intelligence? Well, we've been providing these high level reviews for nearly five years, so we have a combination of AI and tooling which extracts data.

2:28 – How Comparison Groups Are Built

2:32 Thomas Beattie: That data is reviewed by a skilled local team which has manually verified millions of data points. So every piece of tabular data has at some point or another been reviewed by a member of our team. I am personally responsible for many of those, which has contributed greatly to the grey hair. But what this allows us to do is provide you with unprecedented insights into your community and how you're doing relative to a peer group.

3:00 Eli Report has a larger cohort of comparables. It's based on communities of the same type and a similar age, built within three years of your community. So that cohort for this fictional strata was 113 townhome stratas built between 1997 and 2003, and that got narrowed all the way down to 11 to form this comparison group. We provide a little bit of an introduction, and in it it sets out what this report is supposed to help you with.

3:30 And importantly it sets out the fact that this is a tool not to praise nor critique your property manager or your strata council members. The decisions are made by every owner in that community for the benefit of every owner in that community. Tony, several of the other presenters so far today from CHOA, talked about how difficult it is to be a property manager. It's a highly difficult job.

3:57 They are responsible for often many, many owners across several communities, sometimes more than a dozen communities. It's a real strain and a real draw, and we are very fortunate to have the property managers that we do. I know that everyone wishes that they were that much better, and technology has to help. So we're here with this tool trying to assist you as strata council members, and them as property managers, to do a better job at interpreting the information that's out there, to make better and informed decisions that are for your community.

4:32 – Scorecard: Fees, Reserves and Insurance

4:32 Thomas Beattie: And as I've said before, you know your community more than we do, this is data that we hope will help. So, the scorecard. We cover off a review of some key metrics across the building compared to your comparison group. So this looks at your maintenance fees and whether they're higher or lower than the peers. If they're slightly above average we think that's a good thing. If they're way above average it's something that might merit some review.

4:54 And obviously if they're below, then you might be doing a great job, you might be thrifty, you might be doing a lot of the work yourself, you might be putting some things aside. And that's why the repair and maintenance expenditures are important. Again, unless your community is taking on a lot of this maintenance themselves, having a proper budget for repair and maintenance we think is very important.

5:17 We look at your reserve contributions as well, seeing how much you're putting aside for the future. We examine insurance premiums to see whether or not you are paying more or less than your peers, and obviously we want to try and help you save some money. So if we can point you towards some of our partners that help in the insurance space, then we would love to do so.

5:36 At last year's BC Strata Tech conference we were on with Axis, and we now have additional partners in the insurance space. We'll look at insurance claims if you've uploaded a loss report, and eventually we'll show you some statistics around those as well. We look at the capital projects you have upcoming over the next five years, and we determine whether you are anticipating any special levies, and I'll go into that a little bit further as we go through the slides.

5:56 – Expense Breakdown Versus Comparison Group

6:04 Thomas Beattie: The next page is an overview. We have a top level expense breakdown to identify where your community is allocating its budget relative to the comparison group. You can see that in this case they're relatively similar, slightly less on the repair and maintenance than the cohort, but slightly more into the reserves, so overall that's looking reasonable. We do a breakdown of repair and maintenance across a number of subcategories, if you will, and we look at what the average dollar expenditure is compared to these comparison group communities.

6:39 Each community is unique and there's no pretending that any two of them are going to be alike. We just narrow it into the closest group possible based on the year built, the number of storeys, the number of units, so that you can get a bit of a picture of how that looks, and then you'll calibrate it for the specifics of your own community. And finally we look at the insurance summary, your insurance premiums as well as your deductibles across some key areas, earthquake, water and flood, so that you can see how you're doing on that measure as well.

7:13 Now, the reason that this report is built for strata council members and for property managers and not for the average owner is that we get right into the details.

7:21 – Line-by-Line Budget Comparisons Per Unit

7:23 Thomas Beattie: In the budget details page we do line by line budget comparisons on a dollar per unit basis across 100 income and expense categories that we have standardized. This illustrates what your building is spending on each on a per unit basis, plus what the comparison group is spending on a given line item if it was included in their budget. So the point of this is to give you that detailed view of where that money is being spent and whether or not there could be some opportunities for savings, whether or not you've got some others that are obviously in a similar situation to you.

8:01 And I'm not going to pretend that this doesn't have complexities. Each strata council, each property manager has their own approach to setting out a budget, has their own terminology, and some of them put a lot into general repair and maintenance and some are much more prescriptive about each line item. So we've broken it out into little sections here so that you can look across each to find out where we think you might be spending more or less, and allow you to make that calibration for yourself.

8:31 In the example that you see here, and I know it's quite small on your screens, their general repair and maintenance for the target community, Eli 9999, the Octopus Villas, is $250, whereas for the comparison group it's over $800. But this particular strata has a much more detailed budget, and we've got a separate line of $321 for the caretaker or handyman. Again, that's per unit, so you'd multiply it by the number of units in the community to know what we're annually spending on that.

9:03 And a number of other broken out repair and maintenance lines, such as for the recreation facilities, foyer, lobby and hallway maintenance. So we have to consider the big picture as well as the individual line items when we're doing this analysis. But again, it's to allow you as the professionals, during budget time, to step back and take a closer look at the community and try and get a handle on what other communities that look very similar to yours, at least on paper, are doing.

9:32 Some of these line items are more discretionary and they're based upon your preferences as a strata. You might have the best grounds in the city, you may be very proud of those grounds and have that as an important part of your budget. But if your landscaping budget is higher than the peers and you're not believing that you're getting anything special for that money, it might be an opportunity to seek a competitive quote, or consider that budget line item.

10:02 For example, we also take a look at the CRF and the upcoming capital projects.

10:07 – CRF Balance and Reserve Adequacy

10:07 Thomas Beattie: The contingency reserve funds are of course what you have in the bank, and we also look at your contributions, which you're putting aside, and how do each of those compare to the peer group. In this example the reserve fund balance that we have in our community is much higher than the peers, and our contributions are also a bit higher. Despite all of that, one of the commonly used methods of determining reserve fund adequacy is to discount the future cash flows to today and compare it to your existing CRF, and in this case it's just a whisker over 7 percent.

10:43 Now, I'm not a big fan of that measure, because I think it's not particularly practical or useful. It feels almost like taking the value of your mortgage and comparing it to your bank account. It's not actually an indication of how likely you are to be able to pay your mortgage. We instead come up with an overall reserve adequacy calculation which looks at the future contributions at the current rate today, plus the rate of inflation, or the discount rate that we're using for the other proceeds, to determine how well you are funded overall looking forward.

11:18 And in this case you're about 65 percent funded, as the fictional Octopus Villas, and that's not great but not bad. We'll go into some more details on some of those comparative benchmarks in the future. We show projected capital expenditures from the latest depreciation report, so this will go out as far as that report goes.

11:33 – Capital Expenditures and Special Levy Forecast

11:37 Thomas Beattie: The above measures have been adjusted for assuming a 30-year life. And then finally we prepare a special levy forecast. And there are a lot of caveats here, and there's a big star, and there's a bunch of explanations on the last page, and again on our website, where we go into some of the details around what that means.

11:55 But we look at what the engineers have done in the latest depreciation report, we look at what you have in your reserve fund and what you're putting aside, we make a number of very important assumptions about those activities happening in the year that they are expected to happen, that your contributions continue at the current value plus the rate of inflation. But we are able to make some estimates about the timing, the magnitude and the cause of future special levies.

12:23 And this is a great tool to help prepare your community for what may lie ahead. In this case it's not for several years, we don't have a special levy projected for this community until 2030, at which point we think it should be about $111,000 per unit for the roof, and the following year about $55,000 per unit for the windows and doors. Now, it is a guess, but it is a good thing to put on the radar of the owners in your community so that you can have a handle on that.

12:52 And also it's an opportunity to make some course corrections and adjustments so that you might be able to do a bit better in that respect in the future.

12:56 – Potential Savings and Minimum CRF Contribution

13:03 Thomas Beattie: And finally we've got some potential savings and considerations. We're highlighting a number of different line items that we see you're paying more for than the comparison group, and we try and highlight those as opportunities. Now, some might be just a matter of seeking competitive quotes, others might take time or investment to achieve savings, and yet others are those deliberate choices made by your community.

13:26 And then we have a minimum recommended contingency reserve fund contribution figure, and that amount is effectively what you'd be contributing to your CRF every year, adjusted of course for inflation, that would net the special levies out over a 30-year life to zero. It doesn't mean you couldn't have a levy, you could have a big project in year 20 and then build up funds again in the years after that, but it would mean that over the life of this particular depreciation report, given what you're putting aside today, that you would be fully funded, if you will, for those expenditures.

14:03 You can see those lines for projected savings at the top. The first one is insurance: you're paying $4,700 more than the comparison group for insurance. And there's often a reason for that, either you've had claims, which obviously affects your rates, or you have specific risk factors that are causing your premiums to be higher. It doesn't mean you can't and shouldn't be looking for a competing quote. In BC there are three major providers of strata insurance and a handful of smaller players in that space, and you should be seeking out a competitive quote when you see that you're above the peer group.

14:38 You also may consider some of the projects that would lower your premiums, and that relates to the age of critical systems and other building specific factors. Perhaps you have some polybutylene plumbing, perhaps you have aging copper pipes, perhaps you have an aging roof. But those are the sorts of things that you may look at to reduce your insurance premiums. Some are discretionary: the recreation facilities and gym, this community has broken those out as a separate line item and is paying $4,000 a year more than the comparison group.

15:13 A little bit higher on the enterphone and foyer maintenance. And electricity is higher, that might of course be a matter of an energy savings opportunity with LED lighting. It may mean that you could look at future energy efficiency programs, or even consider an alternative way of heating and cooling your building. All of those things might come into play. The rest of what's on this page are some of those conditions of use and terms that set out a little bit more about what this report is.

15:42 We go into detail describing both the adjusted reserve adequacy and the overall reserve adequacy, and the logic behind the minimum recommended CRF contribution, and all of those other important definitions and assumptions that we make in preparing the special levy forecast and the rest of this report. But we hope it's a valuable tool for you. And the number one question, I hope, is what does it cost and when can I get it.

16:04 – Pricing, Launch Date and Ordering

16:06 Thomas Beattie: The pricing is going to be $5 per unit, minimum of $100 and maximum of $500. So if you have more than 100 units it's less than $5 a unit, and if you have less than 20 it's a few dollars more. Either way it's not an overall significant cost, especially in light of the fact that we're hoping you can identify potential cost savings that will both enable your strata to save some money and make better decisions for their financial future.

16:32 And you'll receive a free Eli Report with the special levy forecast, which levy forecast is a premium feature. The report itself is $40, so a $50 value, which can be shared with all owners. That report will set out at a very high level the lifestyle restrictions, issues of importance from the meeting minutes, the depreciation and other engineering studies, as well as some high level benchmark data. It is not as specific as this annual benchmark report.

17:00 And it's launching in July, exclusively to strata council and property manager users through the Eli Report platform. You can contact me for additional information, or to order one prior to launch at a 50 percent discount. We would love your feedback, we care very deeply about these issues, and we certainly hope to make the product available through additional services in the near future. We are already integrated with StrataPress for the Eli Report.

17:28 We would love to put an annual benchmark report purchase option directly into the portal for qualified users, being members of their strata council or property managers. So that's us at OctoAI. We're out here to try and save you some time and some money, building intelligence, comparative analysis, strata insurance. So that's us as a team.

17:54 Ryan Grant: Great, that was awesome Tom, really cool to see that deep dive and how it compares to the standard Eli Report.

18:01 Thomas Beattie: Yeah, thanks Ryan. It's been obviously a long labour for us. We are fortunate to not only have built some really great tooling from a really great tech team, but to have admins that are there to oversee and approve all of that tabular data that we are going through, so that we can provide deeper intelligence.

18:24 Ryan Grant: Awesome. We do have questions here, I posted one in the chat there if you can take a look.

18:29 – Q&A: Townhouse Amenity Budget Lines

18:35 Ryan Grant: Looks like they were a little confused about comparisons of the townhomes, and why the report includes hallways and lobbies and stuff.

18:43 Thomas Beattie: Yeah, you're right. So this particular hypothetical building is a townhome community, but they do have an amenity building with that recreation facility in it. So in this case that lobby was for the recreation facility, and that's why they have a gym budget for it. So that's why they would have those sorts of things. But the enterphone question is a good question that I don't have a good answer for.

19:05 So unless there's a buzzer on that door, I'm going to have to revisit our hypothetical budget items.

19:14 Ryan Grant: Awesome. Let's see, another one here.

19:29 – Q&A: Mandatory Depreciation Reports and Costs

19:29 Ryan Grant: Okay, so basically for a strata council, if an owner… right.

19:33 Thomas Beattie: What's the problem that's going to partially solve itself? Just recently, as some of the other speakers have highlighted for you, I know you had the previous presentations and I know Jeremy went into this, depreciation reports are necessary. Unless you are under that five units, as Tony from CHOA mentioned, you have to get one. It is very important, and now you're on a schedule, so you not only have to have one but you have to update it regularly.

20:02 I believe that it's now every five years at a minimum, and many of them are choosing to do better than that and do it every three years. And I understand that it comes at a fairly significant cost at times and it can feel unnecessary. But this is a shared community, and one of the things about living in strata is that you are making decisions as a group and no longer as an individual homeowner.

20:28 If you're a homeowner you can afford to make your own decisions on the life and the life cycle of your home and your building. This is a collaborative venture and an investment made by a group. So I hope that you resolve this particular situation. I know that it is a tool that can be purchased by either the strata council or the property manager. I understand how busy property managers are, I want to make their lives easier, I am prepared to pay them for the time they take to review this report with you.

21:05 I really want to see them perform to the best of their abilities and to execute as well as they can on your behalf. And I really want to see you as a strata owner well informed and empowered and making decisions that do well for you now, that do well for your community in the future.

21:27 Ryan Grant: Well said, and that's exactly the similar situation that I'm in with my strata. We just got a depreciation report done, and we would like to see comparables. And like you said earlier, last month, you'll be able to run that for my strata, and I'll be able to then see comparables once I had my depreciation report. So that's perfect timing for me, right, that I'm going to be able to get a report like this and then show the council some comparables to other similar buildings around the province and our area, and kind of compare how's our building to the similar kind of buildings out there.

22:08 Thomas Beattie: Precisely. Your community is unique, Ryan, yours is not identical to someone else's. But this, as a tool for strata councils, they are unpaid, they're doing this because they live there, they value their community, they want to see it be successful. But very few of them are trained as professional managers of commercial property, and they need and deserve all of the help that they can get.

22:34 And I hope that this tool turns out to be something that they find valuable and affordable, and supports those of us that are dedicating our time to try and make BC strata a good place to live and a good place to be.

22:53 Ryan Grant: Awesome. Let's see if there's any more. Currently there's no more other questions, and we did come to the end of the day. It looks like we just made it, we're a couple of minutes overdue, but nonetheless, yeah, that was great, good timing.

23:09 Thomas Beattie: Wonderful, thanks so much Ryan. I'm looking forward to the rest of the presentations.

23:14 Ryan Grant: Yes, take care there Tom, thanks again, and thank everybody for tuning in.