Reserve Funds

There are a thousand reasons not to go through a transaction based on building financials. Like all fortune 5's, there's just no such thing as a perfectly balanced entity.

So with all that being said, if the reserve fund is low, (not cash, but rather under CD's or long term investments) assess how well the building is managed, and what future major capital improvements need to be performed. Oftentimes, 200 unit buildings with $2 million in reserves could be very insufficient, and 20 unit buildings with just $20K in reserves could be well sufficient.

Another important factor to observe is the EBITDA (earnings before interest, taxes, depreciation and amortization) for two years on the Income Statement section of the buildings financials. If both years are positive, the building is in great shape. If one is negative and the other is positive, then look at the individual line items of expenses and determine what caused the deficit in a particular years. The answers are pretty simple. (ie a surprise increase in fuel oil, taxes, or unexpected repairs) If both years are negative, then look to see if they are large deficits to debt levels where the reserve cannot cover the loss, and if there are any future events that will turn the financials into a positive. (I.e. sponsor's rental income, building management restructuring, etc.)]

In the end, if the building financials are going to be a deal breaker for you, buyers will find that it's going to be extremely difficult to make a decision based on those terms.

The relative significance of different reserve fund amounts depends on the major capital
improvements that a building needs, and when it needs them. $100,000 can be adeqyate where
$1,000,000 wont be.

MORE IMPORTANTLY: AVOID BUILDINGS WHICH ARE ALONG ACCESS ROUTES INTO OR OUT OF THE MIDTOWN
TUNNER.They are worth less and harder to sell because of noice and fumesm because they make
it very undesirable to open apartment windows,

In 2008, the building mad $70k before depreciation and amortization....and roughly the same amount in 2007.....if i take into account taxes of $400k....which is presented above the line item....the positive would be $470k.....so, i gather this is all good?

This building has 60 units.....so a 117k reserve is still low.....3x the monthly maintenance seems to be the rule and that would be 300k.....but they do have a 300k line of credit.......all very confusing@