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Beyond Monitoring Performance: Creating a

“Watchlist”September 24, 2010

Vermont Housing & Conservation Board

Due Diligence Checklist

The following are key actions in an Asset Management Plan for a property requiring Executive Team and Board monitoring.

Review of owner’s broad goals for the property, and the degree to which the property succeeds in meeting those goals

Review of conformance with initial multiyear proforma projection

Approval of annual operating budget and management plan

2

Due Diligence Checklist (cont)

Compliance with established property performance benchmarks– Financial– Physical/Sustainable– Social/Mission

Compliance with CDC obligations and warranties such as cash flow performance, reserve balances, tax credit compliance

3

Due Diligence Checklist (cont)

Approval of any deal revisions, major capital expenditures

Approval of any change in property management

Review and approval of any potential financial restructuring of the property

4

5

What is a Watch List?

• It is a list of properties that are under scrutiny based on their performance in one or more identifiable indicators

• Different stakeholders are likely to focus on different indicators

• Being on a watch list can trigger events or consequences that pose difficulties for a property or an organization

6

Stakeholder Watchlists

What are likely to be on these stakeholders’ watchlists?

• Lender• Investor• Regulator• Board of Directors• Property Manager• Residents

7

The Asset Manager’s Watch List

• Make the criteria SMART– Specific– Measurable– Attainable– Realistic– Timely

• First, identify the key indicators for your portfolio

• Secondly, establish the criteria you will use to evaluate each indicator

• Lastly, decide on a ranking system

8

Watch List Example

INDICATOR: May be one discrete indicator, such as vacancies,

or

a combination of one or more (rent loss which equals vacancies plus uncollected rent)

CRITERIA: Rent Loss0 = > 7%1 = 5% - 7%2 = 3% - 4.99%3 = 1% - 2.99%4 = < 1%

RANKING:0 Troubled, Watch List1 Watch List2 Watch List

3 Performing 4 Performing

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Evaluating a Watch List

• Your materials include– A sample of a non-profit

asset manager’s “portfolio status report” of a portfolio that is a combination of owner/managed and third-party managed properties

– A sample of an intermediary’s quarterly portfolio summary

– Both “rank” or “rate” properties

• Critique these report as follows:– Evaluate the indicators

• What do you like• What’s missing

– Evaluate the criteria• Are they SMART?• What would you change?

– How much of the portfolio is ranked

• Troubled• Watch List• Performing

– What indicators are weakest?