CA Energy Commission – Mandates Solar on New Homes

Yesterday, May 9th, 2018, in a landslide vote of 5-0 the California Energy Commission voted to require solar on all new homes starting January 1, 2020. The Commission estimates that new solar will increase costs of about $40 per month for homeowners but should save them $80 per month on energy costs.

The ruling modifies Title 24 of the California Code of regulations, specifically Part 6, and also affects non-residential buildings lighting systems. The goal is to build more energy efficient properties, better indoor air quality and a reduction of green house gas emissions. With the changes implemented they estimate that new houses will be 53% more energy efficient than those built based on the most recent 2016 standards.

While we have our doubts about actual savings estimates overtime because of the recent changes made by many utility companies to change their rate structure for solar powered properties, we remain optimistic that this change will move California forward as being a leader in energy efficiency.

Read more about the Commissions ruling here:

http://www.energy.ca.gov/title24/2019standards/documents/2018_Title_24_2019_Building_Standards_FAQ.pdf

1099 Independent Contractors – Are the savings worth it?

We hope you all had a lovely Christmas & New Year celebration! As we get back into the thick of the New Year and as your accountants and CPA’s work tirelessly for you to meet the Franchise Tax Board and IRS deadlines we wanted to touch base on an important topic: 1099’s for Independent Contractors and their cost/benefit. The question is: Is it worth the savings to hire independent contractors? To answer that question we will use a case study of a small Association hiring an Sole Proprietor Landscaper which pays it $175/Mo.

First, it is important to understand who is required to receive a 1099. Any sole proprietor, partnership, LLC, trust or similar entity is required to receive a 1099. A hired Corporation does not need to have their payments reported via a 1099. For this reason it is extremely important for you to have a checks and balance system when hiring a new vendor and processing their W-9. We have oftentimes seen it where sole proprietors and partnerships use a DBA to give the appearance they are a corporation and you wouldn’t have otherwise have known their status until receiving their W-9. Knowing who you are contracting with is extremely important and educating the members of these facts can help them make better informed decisions.

Members of a common interest development and their board’s often forget that an Association must file taxes and report employee income to both the taxing authorities and your workers comp. insurance carrier. Filing the 1099’s is generally an increased cost to the Association which can vary between $20-150, depending on if you have the CPA or your manager filing the forms. We always recommend that you have the CPA filing the forms unless your manager has an on staff CPA. For this case study lets presume a fee of $100 to file the 1099 Forms.

In addition to the CPA fee to file the 1099’s ever since the California case of Heiman v. Workers’ Compensation Appeals Board back in 2007 it has the industry recommendation that all Associations, whether or not they have direct employees, carry workers compensation insurance. This is because of the tendency of Board’s hiring unlicensed independent contractors performing work on the premises. If the independent contractor is injured while performing work the Association is automatically considered to be the employer based on statute and case laws. In order to protect the Association’s liabilities non-payroll workers comp is generally bound. Many forget that the Association must generally report the income paid to the independent contractor to the insurer; which increases the amount of premium that must be paid during the annual audit. Failure to report the amounts paid on the audit could result in a denial of any injury claim so it is in the Association’s best interest to complete the form accurately.

$175 x 12 = $2,100 Base Landscape Fee
$15 x 21 = $315 Additional Premium per $100; Rate listed as HOA Classification could be higher if insurer changes classification based on services performed.
$861 Non-Payroll Workers Comp Policy Base Fee
$100 1099 Fee
$3,376

Based on the above, not including potential legal and liability exposures, the Association’s annual $2,100 expense increased by 60% just because the sole proprietor was hired and additional expenses were necessary to hedge the Associations risk exposure against its employment liability. Essentially the Association is basically paying for contractors workers comp insurance on top of everything else you they are paid for.

There is another opportunity cost the Association must consider; is the level of experience and expertise of said independent contractor the same or better than competitors it could obtain. In other words, is the person performing as well or better as a competitor or are they struggling to keep their maintenance up in a timely manner and failing to use the industry best practices and following the laws a licensed contractor in that field is obligated to. In our experience the answer is: No, the service received is less than that of properly licensed and insured competitors. Remember, the above addresses the additional expenses related to the Association’s employment liability only, not its overall liability to its members and the general public to properly maintain the premises. When you account for the opportunity costs and additional exposures this service person brings the savings is almost never worth it.

Situations between Associations may vary however, the general concept applies to all; in order to hedge against risk additional steps must be taken which increases expenses and reduces potential savings while exponentially increasing the risk exposure and repeat repair expenditures. The long term result is always the same: Hiring cheaper labor upfront will cost you more overtime.

Consulting services: Risk management

We help establish risk management plans to deal with any property, financial, corporate, governance, and operational issues that might arise. Internal, external, past, future, known and unknown risks can affect the value of your property/building/unit. The primary concern for an owner/investor/Board of Directors is to maintain the property’s market condition while creating a stream of income. Risk management plans anticipate the primary risks to a property and outline steps to cost-effectively reduce or prepare for those risks as much as possible.

Establishing a risk management plan is an important project, and one for which it is best to bring in experts. Whether due to financial issues or unforeseen circumstances (e.g., natural disasters), the complexity and diversity of real estate may require you to seek the advice and insight of those who specialize in the area in question. We can help to effectively assess the potential risks, work with the proper vendors and authorities, and create a plan to ensure that any risks are properly recorded, addressed and taken care of.

Having an expertly created risk management plan in place greatly increases peace of mind. Once the plan is complete, you can be certain that most contingencies are included so you can focus on your other business priorities. If any changes or modifications are needed, we’ll make sure the plan is updated. This includes items such as changes in zoning and property use, financing or new laws and regulations that could affect your property.

We are very familiar with the maintenance, financial, physical, and legal issues which plague property owners, and we can come up with solutions to manage that risk. After many years of specially acquired knowledge in commercial property management, we already know where the primary risks lie for this type of investment, and can advise you through our consulting services on those issues. With years of experience, we know how to create a plan that identifies the risks and provides detailed and complete analysis; helping to reduce any threats to your property.

We can conduct comprehensive risk analyses, or focus on an individual risk area of particular concern to our client. Some clients have specific concerns depending on the property or through past experience. In that case, we can offer a risk analysis that goes in depth on a single risk area and anticipate where problems may arise. Despite the range that we analyze, we can ensure you that your property’s potential risks will be significantly reduced.

Please contact us at (888) 611-5598 if you want to create a risk management plan for a specific risk area of your property or the property as a whole.

Preparing for a natural disaster

Natural disasters can occur any place at any time; but some properties are more prone to certain disasters than others. Some real estate properties in Southern California may be at a higher risk for natural disasters. Depending on the type of structure, and when and where it’s been built, these properties may face greater exposure to damage from earthquakes, fires, flooding, snow/rain, wind, dust/dirt, and certain factors need to be taken into consideration when preparing a natural disaster plan.

Being prepared for a natural disaster can make or break your survival when one does occur. The consequences of most natural disasters can be mitigated through good planning and preparation. The priority is the safety of owners, tenants and visitors, and there should be a detailed plan in place for the evacuation and protection of those on the property. Some disasters come with little warning, so it is important that occupants and customers are aware of the disaster plan and how to respond quickly.

Understanding your natural disaster zone can help you take the necessary precautions to maximize safety and minimize liability. If you have a property that is in an area that is susceptible to earthquakes, flooding or wind, then this type of preparation should be your priority. However, remember rain can cause flooding, snow can cause roofs to cave in, and dirt/dust can also damage micro and macro components in machines, HVACs, etc. As a property owner you have a legal duty to warn and protect visitors from hazards that are predictable, and being in a disaster zone makes this duty explicit. Failure to meet the legal standard could expose you to liability in the event of injury and end up costing you a lot more money to fix an issue caused by a disaster than it would to prevent it.

We evaluate our clients’ properties and make recommendations for safety improvements. As part of our consulting services, we help our clients determine which natural disasters carry the most risk for their property, and what measures are needed to minimize the potential for damage. We also propose certain safety improvements that can be made to the property in order to make it a safer environment for everyone. By taking these steps, we can work to protect the property, our clients and their clients while limiting the economic consequences of a natural disaster.

We can help develop a safety plan with an evacuation route in the event that a natural disaster does occur. Our experience in assisting our clients with disaster preparation gives us the background to help you create a safety plan that can work. By clearly evaluating the property and potential hazards, we can create an evacuation plan that is clearly marked and communicated to owners, tenants and customers.

Please contact us at (888) 611-5598 so that we can discuss potential natural disasters that may affect your property, and steps you can take to be prepared.

Setting a budget so that you don’t have to

To maximize tax and cost savings, it is important to properly manage every budget category. A major part of commercial real estate management is ensuring that the revenue projections are accurate, and one way to do that is by having a specific budget for the property. The budget should be itemized to reflect the different cost areas so that any deviations can be amended quickly.

Budgets that are too generic can land the owners, boards, and developers in trouble, both during tax season and when it comes time to sell or lease the property. A generic budget that only lists overall costs and is not itemized will not be sufficient for most purposes. Both state and federal tax authorities require commercial properties to be specific on their tax returns about the type of expenses incurred by the property. Many buyers of a commercial property will insist on knowing the detailed budget so that they can project the value of the property’s revenue and investment potential.

Many external factors affect a property’s budget, such as local regulations, reserve requirements, even the property’s age! We can help our clients develop a budget that takes into account factors that include property access and use, necessity of adequate reserves, and the potential for repairs. All of these items can be estimated using our experience in the commercial real estate business. We have worked with a wide range of properties and can help you create a budget that protects you from factors out of your control.

We give FREE budget evaluations to new and prospective clients. For an example of our expertise at work, we can offer you a detailed budget on your property without charge to show you our sincere desire to work with you. You may find that you have overlooked some budget items, or underestimated some area of cost that could be a problem in the future.

We go over every line of a budget, even drafting multiple budgets to prepare for different eventualities. Just as in any business, there has to be contingency plans if cost conditions change or other economic factors emerge. We can give you several budget options that may be used depending on outside factors, tenant occupancy or changes in utilities, taxes, and operating costs.

Please contact us at (888) 611-5598 to schedule a free budget evaluation for your commercial property.

Asset management: It makes a difference!

True asset management is more than just collecting rent/association dues and overseeing maintenance; it involves managing all aspects of the property, the legal entities that own and operate it, and financing and funding of the company and the property owned by it. Unlike property management, which focuses solely on the physical aspect of a property, asset management is the big picture; incorporating the physical, financial, and legal components of managing property. Our asset management services are designed to preserve the value of the commercial real estate through managing income and expenses, collecting dues/rents, reducing liabilities, and managing the simple physical aspects of the property (e.g., fire/life/safety systems, landscaping, painting, HVAC, asphalt repairs, concrete repairs). Nowadays, asset and property management has become so complex that we have been asked by other asset and property managers from banks, developers, management companies, and “full service commercial real estate firms” to assist them with asset and property management of their portfolios.

When done properly, asset management saves owners significant time and money, as well as greatly reducing liabilities. Our asset management services aim to make lives easier for board members, memberships, owners, and tenants. We manage all aspects of one’s property, which includes tracking, dealing with and distributing the money, collecting dues and assessments from associations and knowing how that money is reallocated. We handle all aspects of the property, including risk management to minimize potential liabilities for our clients. You don’t have to spend the time on the details of your property, and will have the peace of mind knowing that your asset’s value is being preserved and managed in the best way possible.

Centralized management of all processes and systems keeps things simple, as well as speeding up the completion of projects. Because we have special knowledge, specialized managers, and all property-related actions and decisions coming to our office, we are able to manage every aspect of the property efficiently and without complications. Anytime a maintenance or renovation project is needed, we can make sure that it proceeds on schedule and anyone involved is kept up to date. We actively seek out discounts for renovations, and find licensed, bonded, and properly insured contractors/vendors. Prior to paying the workers, we ensure that they produce quality work on the renovation project; saving you a lot of time and money on needing further repairs and maintenance.

We make sure the correct processes are in place, and that the property and its controlling entity share the most advantageous legal relationship. The manner in which commercial real estate is owned requires a management company that is well versed in the legalities and requirements for the most common entities and complex entities used. After all, various owners, boards, and investors all have a stake in the property value and management, therefore we work to ensure that the property is well taken care of promptly and cost-effectively. We provide the highest quality of customer service to the Board of Directors, owners, landlords, and tenants by managing all aspects of their property so they don’t have to, and so they can focus on running their own businesses.

We advise owners and boards on ALL aspects of a property, ensuring every question has a readily available answer. Our history in commercial real estate on the West Coast means that we have seen most situations that can arise for a property, and can handle various issues that arise. We provide “proactive management”, take control of all aspects of one’s property, and help save owners and boards time, money, and unnecessary stress. We take our role seriously, and are responsible for making sure that you have the answers you need.

Please contact us at (888) 611-5598 to discuss the asset management services we offer to our clients.

How we work: Helping write the law

We assisted in spearheading changes in California law that help our commercial association clients. These changes were instrumental in creating a new level of efficiency for associations in how they operate and control commercial properties. The result of this law is a cost saving that can be passed on to owners and tenants, making commercial real estate investment an even better business venture. Our intimate knowledge of this law can allow us to better serve our clients.

The law changes will save tens to hundreds of millions of dollars for commercial associations over the next 10-50 years. Just as with any business enterprise, commercial associations have a need for efficient and fair legal processes that encourage investment and growth. By implementing changes to association laws, we helped create a new framework for association functions and procedures that are cost conscious and time saving.

We are the experts on these laws; other management companies lack our expertise, which ends up costing their clients even more time and money. Because of our in depth knowledge of commercial association laws, we can guide our clients on how to implement and follow the correct procedures for management and decision making through best practices. Without this background, other companies may be giving advice that is outdated or not even in compliance with current state law. We have seen it many times in our takeover clients. Your property deserves the best management services available, with up to date legal and regulatory knowledge.

We make sure the correct processes and systems are in place to maximize time and money savings for our clients. We do not provide legal advice on these matters, but because of our unique knowledge and experience on the subject, we have established many best practices to optimize association governance within these new laws, which our clients get for FREE! Once we begin working with a client, we first make sure that the procedures being used are the best available, and reflect any new legal developments. Any outdated processes will be replaced with the most current practices available in the industry. This way, our clients realize cost savings right away which helps to prevent unnecessary problems in the future.

Unlike most other management companies, we can make sure the law changes have been implemented correctly in our clients’ governing documents, etc. A large part of commercial association laws pertain to operational and procedural rules that must be incorporated into all formal documents. We review your documents and make specific recommendations on necessary changes for compliance and governance purposes.

Please contact us at (888) 611-5598 so that we can conduct a review of your documents and advise you on potential areas of change or modification.

Risk management for commercial properties

Risk management identifies and minimizes potential financial and legal liabilities for a property. Our experience in commercial property management has taught us the value of offering risk management for our client properties. Even the most successful commercial property can be at risk from unexpected events, and we know the ways to mitigate those risks. These can include contractual obligations, personal injury suits, simple trip and fall hazards, and large environmental hazards that lead to legal liability.

Everyone has their own tolerance for risk, and it takes experience to manage risk appropriately. Not every property is exposed to the same risks, and we can ascertain which risks may be most relevant for your property and then help you decide how to manage the situation. Almost all risk management tactics involve some cost, therefore there must be an assessment of where to allocate resources to the most serious and imminent risk of liability.

Properly managing risk can significantly decrease potential liabilities. Once you know your risk exposure, you can act to minimize the potential for financial or legal consequences. This can take the form of supplemental insurance policies, tenant and owner disclosures, property improvement or repair, and in some cases obtaining liability insurance to cover unforeseen events (e.g., natural disasters). You can’t predict every potential source of liability, but it is possible to minimize the obvious and known risks on your property.

We take a comprehensive approach to managing our clients’ risk profiles, covering everything from trips and falls to insurance policies. We help you continually monitor the possible risks and will review those periodically to make sure that you are not unnecessarily exposed to liability. Because of our experience in commercial property management, we know what to look for and how to manage the risk for you. We use our knowledge of insurance methods, potential legal claims, and physical property hazards to help you eliminate a wide range of potential risks for your specific property.

We take the hassle and confusion out of managing a client’s risk! It is not easy to approach risk management on your own, due to the many types of risks and multiple strategies to minimize liability. It may be necessary to consult with insurers, contractors, and attorneys all of which can be a daunting task. In addition, the right questions must be asked of them. As your property management company, we have the resources in place to fill this role, and can help simplify the process of risk management for you.

Please contact us at (888) 611-5598 to discuss your property and the potential risks and liabilities that may be present.

Managing utilities and “peak hours billing”

Utility companies are moving towards “time-of-use” metering, where electricity consumed during peak hours costs more than electricity consumed during off-peak hours. Periods of high electricity demand will be charged a higher rate, such as from noon to 6 p.m. in the summertime. Winter peak times are longer, but have a lower rate. It is also important to review the utility rate sheets to ensure your account is being metered under the most beneficial tier. It is essential to manage utility usage and avoid excessive charges from clients’ use, and we can assist you with this challenge as part of our property management services.

Failing to prepare for time of use metering could spell disaster for a property’s budget. The peak and off-peak ‘time-of-use’ rates are spelled out clearly, and because of the stable climate in Southern California it is possible to create a specific budget for utilities on your property. Since most client operations will occur during some part of the peak time, this should be taken into account when preparing cost projections.

Tenant/occupancy operations can significantly impact energy consumption, so it’s important to know to what you are supplying power. When you have a new client, we will inquire into the nature of their energy and water use, and the types of equipment they will be using on the property. This way, you will have the ability to create a specific budget for each client based on actual energy needs, with some room for adjustments depending on the season.

We monitor electric bills and monitor site conditions to maximize power-consumption efficiency. As we view the utility bills for each client we can begin to see where the greatest electricity and water usage occurs, and where there are opportunities for savings. Also, we may be able to make recommendations on energy efficient equipment that help manage the cost of utilities within the rate structure. Sometimes energy use during peak times can’t be avoided but we can help find ways to minimize the amount by monitoring specific uses by clients.

We make sure our clients are not upgraded to a higher rate plan unnecessarily. Depending on the overall usage, the rate plan may be higher or lower than comparable properties, and we will work with the utility company to obtain the best rate possible. In addition to the time of use rates, there can also be ‘demand’ charges for high energy consumption, and by monitoring the utility bills and site usage, we can help to minimize these types of costs.

Call us at (888) 611-5598 to discuss utility management and all of our commercial property services.

Consulting services: Reserves investments advisory

Depending on the property or association type in question, your financial reserves account may be subject to different regulations. Requirements for financial reserves vary based on the type of property, whether it be an investment property or a commercial association. We offer you a reserves investments advisory as part of our consulting services, to ensure that your reserves account has the right funding amount for your property type. We have experience in working with many properties and associations and can advise you on how to manage the funds to meet current regulations. We offer this service using our many years of experience in the commercial property industry.

Not understanding the relevant regulations can expose a board of directors to significant legal liabilities. Director liability is a very real possibility where funds are misallocated or poorly managed by a board that does not know the regulations that pertain to the amount required or restrictions on use. For instance, using the wrong type of funds for construction, maintenance, and repairs can lead to various legal implications. Also removing reserves without replenishing them can be an illegal act and it’s crucial that the board of directors are aware of these restrictions. We can assist you in meeting the compliance requirements and help you properly manage the reserves accounts in order to shield yourself from liability.

If you follow reserve processes inappropriate for your type of property or association, it is very easy to set aside too little, or too much, reserve funds. It is essential to have the right amount in your reserve fund for unexpected capital expenditures, and we can show you the formula to determine the optimal reserve fund amount, if you are required to have any at all. There are specific ways to determine the amount of reserve funds needed for commercial properties in the Los Angeles Metro area, and our advisory service will show you how to make that computation for your property.

We can give a free evaluation to the board or owner, ensuring they are in compliance with the relevant laws and regulations. Our consulting services are part of our property management business, and we use our knowledge of the rules governing the reserves for commercial properties to keep you free of potential conflict. We offer this evaluation free of charge to demonstrate our interest in having you as a client.

We assist boards and owners in maintaining the correct level of reserves without the operating account, curb appeal, or tenant moral suffering. If too little is kept in reserves, any large expense can deplete the fund quickly, which can limit the amount available for other improvements or repairs. Having a correct level of funding will ensure that the property is kept in good condition and tenants are satisfied with the ongoing management.

Please contact us at (888) 611-5598 for advice on your reserve funds, and how to protect yourself against any regulatory or management problems.