I was asked a question regarding “capital reserves” for a pool. That’s the $100K item circled above.
Is that enough, set aside, for future repairs and replacement of the long-lived, big-ticket items, as they wear out? Things like the roof, the HVAC system, carpeting, parking lot pavement, and the equipment.
Turns out, that’s a surprisingly hard question to answer.
But my answer is, yeah, probably. Or, at least, I can’t possibly know enough to say otherwise.
What prompts this question?
The context is the financial issue currently facing the Reston Community Association, in that many of their 40-to-50-year-old outdoor pools are now in need of major repairs or replacement (reference). Apparently they are looking at a tens of millions of dollars of investment to keep their 15 outdoor pools operating into the indefinite future.
For Vienna, the question is whether Vienna will find itself in a similar situation a few decades from now. Or whether accumulating this $100K per year will give a large enough reserve to handle all the likely major repairs and renovations that this proposed facility will require?
Rules-of-thumb versus a proper reserve study.
Answering this question with any degree of accuracy requires a “reserve study”. Which, in turn, is simply a listing of everything that goes into this building, its expected lifetime, and how much it would cost to replace it.
For example, this proposed facility will have a roughly 20,000 square foot flat (membrane) roof. Google’s AI tells me these cost about $12 per square foot to replace. And the same AI tells me these typically last about 25 years. So, for the roof, you’d need to put away (20,000 x 12 / 25 =~) $10,000 per year, to cover the cost of planned roof replacements down the road. That way, 25 years from now, ignoring interest on the money, and ignoring inflation, you’ll have saved up the enough money to replace the roof.
That sort of bottom-up approach will give you as accurate an estimate as you are likely to be able to get. If you want to save a prudent amount each year, you’d take all the stuff that’s eventually going to wear out, do that calculation, add it up, and that’s your required capital reserve.
It would be nice if you could avoid doing that, with some simple rule-of-thumb.
And, you sure can find rules of thumb. Many of them. Some based on the cost of the building. Some based on square footage and type of building. Some based not on the annual contribution, but on the long-run balance you hope to maintain in the fund. And, as near as I can tell, those rules-of-thumb disagree radically. Like 20-to-1 variation across seemingly credible sources.
My reading is that capital reserves are something that nobody likes to pay, everybody ignores to the greatest extent possible, some deep-pocketed owners don’t even need, and so on and so on.
There is no one-size-fits-most rule-of-thumb for capital reserves. There is, as far as I can tell, a uselessly wide range of opinions about what the right rule of thumb is. So the only way to do this well is to do it the hard way. Literally figure the replacement cost of every replaceable item in the complex.
And with that comes with two catches.
Catch 1: You need a reasonably comprehensive list.
Just a glance at the Reston Associations recent reserve study (click for link to document on dropbox) shows you that it’s literally a list of every significant item with lifetime of one year or more, in every built structure owned by the Reston Association.
Above, that’s one page of their 190-page capital reserve study.
Catch 2: These costs are “normal” costs, and don’t factor in possible structural failures
As I read it, the big unexpected problem that Reston is encountering is that some of their pools have major structural failures. For example, they were put in behind retaining walls that have failed. Or that the beams supporting the weight of the pool have cracked over time. Or that the interior construction of the pool-associated buildings shows extensive, previously-undiscovered rot.
To exaggerate, if, twenty years from now, a sinkhole opens up underneath your pool and swallows half of it, there’s no plausible way to price that ahead of time. A capital reserve study is a study of the cost of normal repair-and-replacement cycles. It is not intended to price out extraordinary events.
In particular, a capital reserve study has no business trying to cost out the likelihood or consequences of, in effect, unexpected catastrophic failures of what should be permanent parts of the infrastructure.
A quick guesstimate.
This is a 25,000 square foot building with everything you’d think a building would normally have. Roof. HVAC. Flooring. And so on.
In addition, you have a pool, with all the associated fixtures and equipment that can wear out.
And you have a weight/cardio room, with all the associated machinery that can be expected to wear out even with proper maintenance.
Let me start from the Reston Association capital reserves report. For the 15 outdoor pools listed, the report typically shows around $600K in associated replaceable fixtures and equipment, with a median working life of around 25 years. In addition, each pool shows a “complete replacement line”, the median of which is somewhere around $2.3M, with a working life of 50 years.
(I note that the recent Smith Aquatic Center renovation and pool expansion, in Reston, cost about $5.5M. That’s ballpark, then for $2.3M for merely replacing in indoor pool of about that size.)
The estimate for cardio and weight machines assumes a room somewhat smaller than that found at Oakmont rec center, with about 40 cardio and 20 weight machines. Cost and lifetime estimates are quick cuts after searching the internet.
The cost for the roof and HVAC are reasonable guesses.
The upshot is that $100K a year in capital reserves seems about right. Or not so far off as to require significant adjustment.
