January 2010 Minutes of ECA Board Meeting

THE ELIZABETH CONDOMINIUM ASSOCIATION
4601 North Park Avenue
Chevy Chase, MD 20815

Minutes of Board of Directors Meeting January 21, 2010

Board Present:
Woody Cunningham ....................President
Alexandria Kielty .........................Vice President
Monique Fridell ...........................Treasurer
Judith Barth ................................Assistant Treasurer
Jeffrey Axelrad ............................Secretary
Charles Bressler ...........................Director
Dr. Alfred Muller .........................Director

Others present:
Scott Murdoch ............Community Manager, Legum & Norman
Michael Horan ............Property Manager, Legum & Norman
Rebekah Hutton ................Recording Secretary

Call to Order: Mr. Cunningham called the meeting to order at 7:36 pm.

Approval of Minutes:

MOTION
Ms. Kielty moved, Dr. Muller seconded, to approve the November 16, 2009, meeting minutes. The motion passed unanimously. [NOTE from Karren Alenier: The Board erroneously was reported to have approved the November minutes.]

President’s Report: Mr. Cunningham thanked the Energy Committee and residents for their continued efforts to reduce utility usage. He reported that in the first five months of this fiscal year, the Association has reduced gas and electric usage each month compared to last year. He stated that peak usage is usually in February and encourage residents to continue conservation efforts.

A RFP will be drafted to seek the services of an engineering consulting firm to assist the community in determining what energy efficiency measures/equipment, including window and balcony door replacements, are appropriate. The three companies previously interviewed by the Energy Committee will be invited to submit bids.

Treasurer’s Report: Ms. Fridell reported that 2009 audited fiscal year financial statements were distributed to all residents. She reminded residents of a workshop on February 2, 2010, at 7:30 p.m. to go over the audited statements with residents.

Ms. Fridell also asked for three owners to volunteer to assist her over the next two months to identify and clear fully depreciated or no longer existing assets from ECA’s balance sheet in advance of adding new assets relating to the refurbishment project. The result of this project will be a write-off amount to be approved by the Board and ECA’s auditors which will be reflected on the 2010 audited balance sheet. Two owners volunteered.

Old Business:

a. Funding major projects: Mr. Cunningham asked Ms. Fridell to explain her proposed process for decision-making regarding identifying, prioritizing and funding major capital expenditure projects such as window and door replacement.

Ms. Fridell reported that the Energy Committee began preliminary due diligence last year regarding the identification of energy conservation projects, including the replacement of windows and balcony doors. She has also been researching financing options for such multimillion dollar projects for over a year. On 8/27/09 she had presented to the Energy Committee an outline of considerations for such a project and a collective decision making process regarding analysis, due diligence, and funding. She stated that the Board has been criticized for lack of transparency in issues such as management company selection and refurbishment project. In order not to have this criticism leveled at the Board again, she stated that it would be important to explain in public and in writing, a transparent decision-making process agreed upon by the Board and explained to owners. The outline of steps associated with this process is as follows:

“OBJECTIVE

The purpose of this meeting is threefold:

1) to outline issues relating to financing large-ticket energy saving equipment and capital expenditures
2) to describe several possible financing options
3) to identify next steps in the due diligence and decision-making process

1. KEY ISSUES RELATING TO ANY FINANCING OPTION

1. Bylaws

2. Five Year Plan as determined by Board of Directors

3. Quantify costs/benefits

4. Owners support for action plan

a. Supermajority vote, if required by Bylaws
b. General information and “buy-in”

5. Amount to be financed, net of applicable tax credits

6. ECA Annual Budget/ability to service debt

7. Management capacity to manage project

8. Timing

a. Size/cost/benefit/urgency versus other critical expenditures
b. Staging of expenditures/construction
c. Availability/deadline of applicable tax credits

9. Financial Conditions

a. Interest rates
b. Availability of credit
c. Tenor of financing
d. Structure/collateral required
e. Amount/conditions of applicable tax credits

II. POSSIBLE FINANCING OPTIONS

1. Reserves
2. Capital Assessments (requiring 75% supermajority owner vote)
3. Bank Loan
4. Private Placement Bond Issue
5. OEM financing
6. Municipal assistance
7. Voluntary/individual purchases
8. Some combination of the above, depending upon total project cost

III. SUGGESTED NEXT STEPS

Energy Committee

➢ Due diligence on consultants/advisors
➢ Propose consultant to Board of Directors
➢ Due diligence on project costs/equipment to be purchased
• Due diligence on applicable tax credits
• Quantify cost/benefits, establish timing/phasing of project(s)
• Make proposal to Board of Directors
• Public presentation w/Treasurer to Owners of project features, costs/benefits and financing plan

Board of Directors

➢ Engage legal due diligence on Bylaws, applicable tax credits
• Approve/contract consultant/advisor
• Receive advice of consultant/advisor
• Prioritize projects recommended by consultant
• Approve project dimensions/costs
• Approve financing structure from Treasurer
• Propose capital assessment to Owners vote, if necessary
• Approve Annual Budget, including financing of project costs
• Include project in ECA Five Year Plan
• Approve ECA Five Year Plan

Treasurer

➢ Analyze/determine viable financing options
• Receive total project cost
• Solicit debt financing proposals, if necessary
• Design alternative financing structures and propose to Board
• Present Board-approved financing structure to Owners in conjunction with Energy Committee project presentation
• Adjust Annual Budget to take into account financing of project costs
• Include project into ECA Five Year Plan for Board approval
• Negotiate, document and close financing in conjunction with ECA counsel

Owners

• Participate in and assist Energy Committee, Treasurer and Board of Directors in professional due diligence
• Attend presentation regarding project costs/benefits and financing plan and raise issues/questions
• Vote on proposed capital assessment, if necessary
• Review Annual Budget and proposed project financing and raise issues
• Attend Annual Meeting”


Ms. Fridell verbally reviewed each point of the document and briefly explained each to ensure common understanding.

Regarding financing options, Ms. Fridell stated that it is likely that for a large project such as the replacement of windows and balcony doors, a combination of several available funding options will likely be necessary and that all possibilities must be explored and considered.

Mr. Cunningham asked the Board to vote in principle to support the process, emphasizing that it would be suitable for any major project. Discussion ensued.

Mr. Bressler cited another funding option. The Green Briar Condos executed a window replacement project recently. The Board of Green Briar negotiated a bulk rate with the vendor for individual owners to purchase windows over a set period of time. Owners then had the option to purchase the windows at the bulk rate at the time of their choosing. There could also be a requirement that if replacements are not made during the life of ownership, then no sale of a condominium could occur without the windows being replaced Dr.Muller expressed support for Mr. Bressler’s suggestion, citing a similar suggestion from one of the The Elizabeth owners.

Ms. Fridell will add to the process document Mr. Bressler’s individual funding option and other edits requested by Board members.

(R) Mr. Axelrad moved, Dr. Muller seconded, to approve as amended, and as a general practice, the due diligence decision-making process outlined by Ms. Fridell for execution of major projects. The motion passed unanimously.

b. Lobby horizontal piping: Mr. Horan reported that the lobby horizontal piping project was almost complete. All piping is in place, and the insulation should be completed by February 12, 2010.

c. Emergency generator: Mr. Murdoch reported that there was a bidders’ conference on January 14, 2010, and final bids were due January 22. Two bidders requested an extension until January 27. Once all bids have been received, members of the Board will convene to review the proposal with bid comparisons.

d. Garbage room light sensors: Mr. Murdoch reported that there had been a significant reduction in gas and water usage in the previous two months. He has added to the Management Report a utility consumption chart comparing usage from 2007 to the present. Dr. Muller asked Mr. Horan to explain the light sensors in the garbage rooms. Mr. Horan reported that motion sensors had been installed in the garbage rooms to save energy consumption. The light will stay on as long as there is movement in the room.

e. Lobby renovation project: Ms. Barth reported that last week, Hartman Design Group completed work on documents to submit to the County and contractors. The designs have already been sent to the architect for review. The architect has two weeks to review and then will submit to the County. Simultaneously, Hartman is preparing a letter to ten contractors with whom the firm has previously worked. The bidders’ conference will be held in February, and Hartman will conduct a walk through and set a date for bids to be returned. The hope is that both the County approval and the bidding process will be completed in early March. Hartman has worked on many similar projects with other communities and reported that contractor bids had all come in lower than expected. A presentation of the design plans to all residents will be made at the end of February or early March.

New Business:

a. Energy Conservation Consulting Firm RFP: Mr. Cunningham reported that at the last meeting the Energy Committee recommended three engineering consulting firms which could be capable of performing the energy conservation analysis for ECA. Mr. Murdoch has prepared RFP with proposal requirements and scope and requested a quick response from bidders. The Energy Committee chair subsequently reported the committee had been interviewing engineers for the in depth energy conservation study. The committee recommends that bids be solicited from three organizations: Metro Engineering; LS Grimm Consulting Engineers; and Mendoza Rebas. All three contractors indicated they could do the work for $10k-$20k

Mr. Cunningham reported that while the reserve study was helpful, it was largely based on useful life standards for various types of equipment and not generally based specifically on the actual state of ECA’s common elements. As a result, the Board is now seeking a consulting firm to assist the Board in decision making regarding energy consumption and possible replacement of windows and doors. He recommended that the Board approve the RFP. Discussion ensued regarding possible expense which may range from $10K - $20K.

Ms. Fridell requested that part of the consultant’s scope include the possibility of submetering. She stated that ECA’s cost structure is higher than those of other condos because the Association pays for utilities. This presents a “moral hazard” issue in the sense that individual interests are not necessarily aligned to conserve energy costs. The Association as a whole pays for utilities and there is no way to tie individual costs to individual usage. Mr. Axelrad suggested that the cost of submetering may decrease dramatically within a few years due to imminent technological developments. The Board’s consensus was to obtain expert advice on this topic.

Mr. Axelrad had prepared an Analysis of the Window/Door issue and requested that it be included in the Minutes. The Board agreed. Mr. Axelrad’s Analysis, which follows, should be considered to be an integral part of these Minutes:

“ OUTLINE OF Axelrad’s WINDOW/DOOR ANALYSIS

• Some residents have substantial draftiness in their units. This problem has persisted since The Elizabeth was first occupied and has not been corrected.

• Because the problem is not new, the problem is unlikely to be related solely to the age of windows and doors. In fact, as an experiment a long time ago, the Board installed new windows in one unit. The owners report that the new windows did not solve the problem. Whether the original windows and doors are faulty, whether installation is a cause of the problem, whether façade construction is a source of the problem or whether some combination of causes or additional cause for the problem exists is not known.

• The Final Report submitted by Reserve Advisors, Inc. on January 13, 2009 to The Elizabeth Condominium Association does not recommend immediate replacement of windows and doors. This Report proposes that the windows and doors be replaced in steps over a four year period, commencing in FY 2021.

• The Preliminary Energy Audit prepared by American Renovators for The Elizabeth, dated January, 2009, says that the windows and doors “have held up well considering their age.” This document goes on to “recommend that thermal efficient, double-pane insulated glass windows and balcony doors be specified for replacement within the near future.” The document’s projection is that this action could result in $34,303 in annual energy cost savings, at an installation cost of approximately $2,394,800. At present our “Five Year Plan,” used in determining owner monthly fees, does not include any amount for such a cost.

• The Energy Committee arranged a meeting for residents of The Elizabeth to hear the views and suggestions of the Montgomery County official charged with encouraging energy savings. This official opined that replacement of The Elizabeth’s windows and doors at this time would not be cost effective.

• Although I am not a tax lawyer, my understanding is that for last year and the current year, if a person makes energy-conscious purchases that reduce the amount of electricity or other energy resources used in one’s home, a tax credit of up to $1,500 is available. The instructions to IRS form 5695, for claiming this credit, recite that “[i]f you are a member of a condominium management association for a condominium you own . . ., you are treated as having paid your proportionate share of any costs of such association or corporation.” The tax credit is allowed to offset only a fraction of the cost (up to 30 % at most).

• The Elizabeth’s Board should now take every reasonable action to assist unit owners to resolve the drafty apartment problem. The Board should immediately ask management to survey engineering or other competent contractors able to determine the source of the problem and propose effective action, and provide this information to the Board at or before the Board’s next meeting. The Board should then decide to retain a contractor to propose specific options for the Board to select; these options would include options requiring Board action or action, if desired, by the owners of individual units. If the solution warrants expenditure of Condominium Association funds (rather than arranging a fee schedule with a contractor for individual unit owners to utilize if they wish), the Board should take Monique’s Energy Committee presentation into account if it intends to retain a contractor to implement the solution.”


Ms. Kielty asked if the RFP will address the issues raised in this meeting such as the cost/benefit of owners replacing windows individually, as the case of the Green Briar condo mentioned by Mr. Bressler. She expressed concern that the contractor would address the contract differently due to the scale and scope of doing the replacements individually versus collectively.

(R) Ms. Barth moved, Mr. Axelrad seconded, to issue an RFP to three or more companies with two weeks time frame to respond with proposals. The motion passed unanimously.

b. Water detectors: Mr. Horan showed residents a water leakage detector, various models of which ranges from $7-$30, all with similar functions. Zircon Co., offered a bulk rate of $7.00/unit if the Association purchases at least 400 detectors un-packaged. Purchasing 400 would provide for one per Unit with extras to be available for purchase by owners who wanted additional detectors in their apartments.

(R) Mr. Axelrad moved, Ms. Kielty seconded, to authorize management to purchase 600 Zircon water leak detectors at a total cost of $4200 ($7 each); and to distribute one to each unit. The remaining units are to be made available to residents at cost. The motion passed unanimously.

c. Contracts: There were no contracts outstanding that required Board attention.

d. Pet registration form: Dr. Muller thanked Ms. Fridell for providing the proposed form. Ms. Fridell asked Management for details on the plan to execute and manage the database of pet registrations. Mr. Horan stated that he has a list of known pet owners and will send letters with registration form with a date for return request. They also have a camera to take pictures of the pets and their owners. Ms. Barth asked how the weight of animals would be determined. Mr. Cunningham stated that it would be the honor system for residents to report the weight of pets. Ms. Fridell said that Management would have to confirm the pet’s Montgomery County license number and vaccination record. Mr. Horan will edit letter to request that owners bring copies of the license and vaccination record when they have their pictures taken. Mr. Cunningham stated that the letter should go to all owners, not only to known pet owners.

(R) Dr. Muller moved, Mr. Bressler seconded, to approve the pet registration form and proposed registration process. The motion passed, all Board members voting affirmatively except for Mr. Axelrad, who abstained.

e. Landscape design: Mr. Horan reported that Valley Crest put together a proposed landscape design for the front and back of the building complete with computer generated before/after images. Ms. Fridell stated that she understood the plan was to request a second landscape designer plan. Mr. Horan stated that Valley Crest’s designer came to the property and made the proposal. The need to consider a second proposal was discussed. Mr. Bressler commented that the Valley Crest proposal was obtained at no cost but a second proposal can be obtained if the Board desired. Ms. Kielty stated that the proposal process needed to be completed quickly in order to ensure that a plan was in place in time for planting season. Mr. Horan was directed to obtain at least one additional proposal from another landscape design firm and that such proposal ought to include a similar computer generated design for consideration. Mr. Horan agreed to make this request the following day.

(A) The Board directed Mr. Horan to provide the Board with a list of all landscaping proposals received with a list of each contractor’s proposed plantings; and to include his recommendation.


(R) Ms. Barth moved, Mr. Bressler seconded, to direct management to obtain second bid at a cost of no more than $750. The motion passed unanimously.

Ms. Kielty noted that in some cases there seems to be a communication breakdown in terms of who is responsible for taking follow-up actions – e.g., committees, the Board and/or the Management. Mr. Murdoch stated that it is Management’s function to facilitate the committees in the performance of their functions as assigned by the Board. He stated that Management can equally assist committees with RFPs and due diligence as it does for the Board.

f. Auditor proposal: Mr. Cunningham reported that the Board received a proposal from Deleon & Stang, ECA’s current auditor, for the FY 2010 audit at a cost of $12,500. Ms. Fridell asked Management to research how long the firm had been conducting the Association’s audits. She mentioned Sarbanes Oxley requirements that require audit firms be changed periodically; however, there would be a benefit to maintaining D&S for continuity since this will be L&N’s first audit with ECA. It is expected that Treasurer Fridell will provide further guidance on this point.

Committee Reports:

Energy Committee: Discussed earlier in these minutes.

Social Committee: Ms. Barth reported that the Holiday Party had been a success. Mr. Murdoch reported that the financials reflect that the Social Committee is over budget for the month; however this is only due to timing difference for the month and is not expected to be the case for the year. Ms. Barth reported that they were actually under budget by $300 for the holiday party. She stated that the only upcoming event planned is for the presentation of the renovations in late February or March.

Dr. Muller reported that he has monitored the TV room and found it to be used frequently but not in a disruptive manner.

Election Committee: Mr. Cunningham reported that the Board had appointed a committee to look into the election process and the process for identifying new candidates. The committee has met but has not yet made its recommendations to the Board.

Fitness Committee: Ms. Kielty reported that last month the Board voted to ask Hartman Design Group develop plans for Exercise Room. Hartman will be out in the next few weeks to develop a design for the Exercise room.

Mr. Murdoch formally apologized for the lateness of the Management Report this month. He stated that he and Ms. Fridell had been working on correcting the financial statements, and it took some time to get the final version of the financials from L&N Accounting.

He also reported on the change to a new bank for ECA’s lockbox account. L&N is moving all lockbox banking services from BB&T to Community Association Bank (CAB), effective April 1, 2010. He stated that assessments collection for April, May and June will go to CAB. Some of the advantages of CAB are that it specializes in association banking services; facilitates bill payer systems; and pays interest on lockbox account balances. He stated that owners will receive a new coupon book for April, May and June 2010 condo fee payments. Owners who pay via coupon will simply need to send payment to CAB with the new coupons.If residents use their bank’s bill payer system, they will need to instruct their banks to send payments to the new account at CAB. Changes in direct debit payments will be handled by L&N with no action required on the part of the residents who have their condo fee payments debited automatically by ECA.

Comments from the floor:

-A resident asked about Green Briar’s handling of their window replacement project. She expressed concern that if The Elizabeth followed a similar plan, it could violate the bylaws; it could result in a situation where only some windows have been replaced and others had not. She also expressed concern that if some windows were replaced by owners and others opted to wait, the same style of window may not be available at a later time. Mr. Cunningham stated that before any plan is approved, the Board will submit it to counsel to ensure that it meets the bylaws.

-The resident also asked if L&N could be of assistance in large projects as discussed in Ms. Fridell’s plan since L&N has likely worked with other communities on similar projects. Mr. Murdoch stated that L&N can provide advice and recommendations
.
-The resident also commented on submetering. Mr. Cunningham stated that such questions were best directed to the energy-efficiency consulting engineer once a firm is selected.

-A resident asked if Management could have a sign up sheet for water detectors to ensure that owners who want more than one are able to reserve them and to ensure that the amount ordered will accommodate demand. Mr. Cunningham agreed and asked Mr. Horan to ask the contractor if it would be willing to make additional units available at the same price at a later date if it became necessary to order 200 or 300 more.

-A resident asked about the process for window replacements if the individual option is chosen. She asked if the owner would be responsible for paying for the scaffolding, etc. Mr. Cunningham stated that it would be a question for the consulting engineer. Mr. Bressler stated that if the individual option were chosen, it would likely be done by tier, and residents would have a set timeframe to opt in.

-A resident expressed concern that the tax credit for energy improvements may only be applicable to those improvements which are completed in 2010. Brief discussion ensued regarding definition of cost benefit as it relates to the window replacement project.

-A resident suggested that comments from the floor be moved to the beginning of the meeting.

-A resident expressed concern regarding the individual option for window replacement. He stated that he had spoken to a contractor who suggested that even if a resident replaced a window, the window would have to be replaced again when the whole tier was replaced because of structural issues.

-A resident asked what would happen regarding common area windows if the individual option was chosen.
The resident also asked about the replacement of the balcony doors on Tier 14 due to the soffits (the underside of a building).

-A resident reported that she heard a continual loud grinding noise in her unit. The issue has been reported to management.

-A resident expressed concern about the relationship between wind/temperature problems and leakages because some of the balcony doors leak. Mr. Horan stated that some balconies slope towards the building rather than away from it and cause water to run back into the unit instead of washing away.


-A resident asked about residents who are currently replacing their door locks. She asked if the locks would have to be changed again at the time of the refurbishment project. Mr. Cunningham stated that one reason for the delay was to ensure consensus between the designer and the future availability of the same model of locks. He also stated that he felt it was the Board’s responsibility to ensure equitability.

Adjournment: The President adjourned the meeting at 9:45 p.m.

The initial draft of the minutes, upon which these minutes are based, was prepared by Rebekah Hutton of On the Record.

Respectfully submitted,
Jeffrey Axelrad, Board Secretary