2010 Annual Meeting Minutes

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

Minutes of Annual Meeting May 5, 2010

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

Others Present:
Scott Murdoch ...............Community Manager, Legum & Norman
Michael Horan ..............Property Manager
Jason Fisher .................Counsel
Patti Dubuque ...............Executive Vice President, Legum & Norman
Jana Bowcut .................Recording Secretary, On the Record

Call to Order: Mr. Cunningham called the meeting to order at 7:39 p.m. He stated that the main purpose of the meeting is to elect four new members to the Board. Prior to this meeting, the Board held a special meeting on the 2011 budget and voted for a five percent increase in condominium fees, most of which would be used to build the reserve fund. The budget was approved by the Board.

Proof of Notice of Meeting to all members: Mr. Axelrad read the Proof of Notice of Meeting, dated April 21, 2010, which was sent to all residents.

Approval of prior Annual Meeting Minutes:

MOTION Mr. Bressler moved, Ms. Barth seconded, to accept the minutes of the May 6, 2009, Annual Meeting minutes. The motion passed unanimously by acclamation.

Presentation of Certificate to Retiring Board Member:
Dr. Muller made the following comments in honor of outgoing Board President, Mr. Cunningham:

Your Board has asked me to say a few words, on their behalf, about a very special person who is retiring after many years of service to The Elizabeth.

As you all know, every Board faces a number of challenges and works very hard to solve them. For the last few years the Board has had some unique challenges, all at the same time: questions about management, refurbishment, and reserve funds, to name just a few.

In addition to these challenging issues, every Board President also faces the challenge of finding consensus among seven hard-working volunteers, who often have differing strong opinions, sincerely held and sometimes expressed in strong terms. It was once said that getting the Board to reach a decision is a little like “herding a group of cats.”

In the last few years our President, Dr. Woody Cunningham, has faced this daunting task with patience and dedication. By a combination of professional hard work, self-effacing modesty and good humor, he has prodded, pleaded and persuaded this “herd of cats” to make decisions during a difficult, but inevitable, time of transition at The Elizabeth.

By way of recognition, we would like, therefore, to present him with a small token of our appreciation, our respect, and our affection for all that he has done, and, hopefully, will continue to do in the future when we seek his wise counsel. Our Vice President, Alexandra Kielty presented the outgoing President with a Tiffany sterling silver magnifying glass.

President’s Report:
Mr. Cunningham’s report was distributed to all residents at the meeting and is attached to this report (Attachment #1). He stated that major issues confronting the Association will be: installation of the emergency generator, initiation of the construction/refurbishment, and some smaller projects such as the installation of backflow prevention valves for the water system.

Treasurer’s Report:
Ms. Fridell’s report is attached to this report (Attachment #2).

Committee Reports:
Refurbishment Committee: Ms. Barth reported on the renovation project, in that the budget was met and everything on the first floor will be renovated, except for the fitness room. HBW was selected as the general contractor and work will begin on June 2, 2010. The contractors are committed to meeting the deadline, and anticipate four to five months for completion. The renovation committee and advisory committee have arranged for a live auction on May 16, 2010, from 2-4 p.m. A preview of the items to be auctioned will be held on Saturday, May 15, 2010, from 3-5 p.m.

Social committee: Ms. Barth reported that the committee held a number of successful events over the past year: a community brunch, Halloween party, Christmas party and wine and cheese reception. The committee hopes to add additional events, such as a barbecue this summer.

Mr. Cunningham provided a brief overview about the activities of several other committees. The election committee made the recommendation, which was approved by the Board, to use the electronic balloting process. The engineering committee identified three possible consulting engineer groups, which the Board interviewed and then selected Mr. Mendoza’s Company. An ad hoc pet policy committee recommended new pet policies, some of which were approved by the Board. A physical fitness committee evaluated the types of exercise equipment needed and made an evaluation about the use of space in the fitness room.

Comments from the Floor:
A co-chair of the floor representatives committee thanked all of the floor representatives for their work over the past year. The next meeting will be held on Thursday, May 13, 2010, at 7:15 p.m. in the party room. Dr. Muller added that the Board had previously discussed giving a reception of thanks to this committee and hopes that the new board will carry this out.

A resident inquired about when the broken exercise equipment in the fitness room will be repaired. Ms. Kielty stated that she learned about these problems only recently and will obtain more information before the next board meeting regarding the status. She added that the exercise committee will present recommendations to owners for replacing some of the equipment within the next month.

Concerns were expressed about how long it took to establish quorum at the meeting. A resident attributed the delay to confusion among residents about how to hand-in proxies. Also, signs about the meeting were not posted in elevators the week before, Mr. Murdoch apologized for the delay and stated that it was due to each proxy being hand-reviewed by the three judges.

Nomination of Election Inspectors:
Mr. Cunningham proposed the following residents as election inspectors: Ray Quarterman, Jerry Feldman and Jim Vuko.

(R) A motion was made, and seconded, to accept the proposed election inspectors. The motion passed by acclamation.

Explanation of Ballot:
Mr. Murdoch explained that there were six candidates for four vacancies. Each term is for two years. He instructed residents to check the name of the person they would like to serve, voting for no more than four candidates. The new board member candidates were: Judi Barth, Alfred Muller, Seth Levine, Molly Frantz, James Jones and Hongbin Liu.

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 Jana Bowcut of On the Record.

Respectfully submitted,

Charles Bressler

Charles Bressler, Board Secretary

DATE APPROVED: ______________________________________________________


ATTESTED BY: _________________________________________________________
(Name) (Title)

(R) Resolution/Motion (A) Action


Attachment #1:
PRESIDENT’S REPORT

ELIZABETH CONDOMINIUM ASSOCIATION ANNUAL MEETING MAY 5, 2010

This report provides a summary and highlights of the many activities taken by the Board on your behalf between May 3, 2009 and today. More detailed information is available in the minutes of the numerous meetings held by the Board. Since July 1, 2009, the Board has had 11 regular open meetings and several open workshops.

TRANSITION TO PROFESSIONAL MANAGEMENT

We are beginning to see positive results from our move to professional management by Legum and Norman. Operating costs are down significantly below our approved budget for fiscal year 2010 by more than $70,000 and we expect less than a 2% increase in operating costs tor fiscal year 2011. As discussed below, we do expect major expenditures from the reserve fund for large projects during the next five years. Here again, though, we have seen significant benefits from L&N participation. They have a disciplined approach that requires multiple bids, a detailed analysis of the responses and a recommendation to the Board for vendor selection.

The transition from self-management to professional management has not been as smooth or speedy as we would have liked and we expect to see additional changes in the next year. The Board approved a contract renewal with L&N for fiscal year 2011 on April 19, 2010. Contract terms remain the same which includes an increase in the management fee by “an amount not to exceed the increase in the CPI (U) for the Washington Metropolitan area for the preceding twelve (12) month period plus one and one half percent (1.5%).”

MAJOR PROJECTS

This fiscal year, we have been involved in three major projects requiring significant expenditures from our reserve fund. We have completed most of the design work for the refurbishment and we expect actual construction in the lobby to begin in June. We have contracted with the HBW Company to do the Lobby and first floor construction work for $641,000, which includes work required on the Party room and the rest rooms. It also includes Lobby door replacements even though that cost will be allocated to a new fob or Keyless entry system. Bids are being received for that system and the new Board will select that contractor. We expect the cost of the First floor and Lobby renovations, including the costs of furnishings to remain well within our budget of $1.2 million. The emergency generator has been delivered, a contractor has been selected for installation, and the design has been submitted for county approval. We expect the installation to be completed this fiscal year. We initiated and completed a project to replace all horizontal piping in the lobby area including the necessity for an asbestos abatement to remove insulation and sealant. Total expenditures in FY2010 from the reserve fund are expected to be on the order of $1.1 million.

SMALLER PROJECTS

We have continued an excellent maintenance and engineering effort by our own staff and in addition we have completed a number of projects to enhance safety, security, and structural integrity. The lighting in the garage and other common areas has been replaced with lower wattage, higher efficiency lights that not only make those areas brighter, but also will reduce our electricity use significantly. Façade work on the East tower has been completed. The security camera system has been updated. Bids are being evaluated for water system backflow preventers.

FINANCIAL MANAGEMENT

The treasurer will report on the Elizabeth finances, but I do want to say that our financial health is good and the Board has worked hard to keep it that way for the future. As mentioned in my budget letter, the Elizabeth operating budget is well under control and we expect to maintain expenditures very close to the same in the next Fiscal Year. Our reserve funds are essentially managed by our treasurer, Monique Fridell, who is to be commended for her excellent efforts on our behalf. The Board has set a policy that calls for a minimum balance of $1 million in the reserve and the ability to borrow a million dollars in the event of a major catastrophe. The Board has just approved a new budget with almost all of the increase going to assure an adequate reserve fund without asking for any special assessments.

COMMITTEES

Various committees have been active this year and have provided valuable advice and recommendations to the Board. To highlight some of the results, the Board has made changes in the pet policies, adopted the electronic balloting process we are using tonight, made major energy conservation efforts, selected an engineering firm for assessments, developed a plan for improving the fitness facilities, expanded our social activities, and improved our security.

ENGINEERING ASSESSMENTS

We are currently conducting an engineering assessment that is evaluating our mechanical systems (boilers, chillers, pumps, fans, etc. including our heating, ventilation and air conditioning systems). The study also is evaluating structural integrity of the building including windows. The results are expected to include recommendations for saving energy and replacing aging equipment with new high efficiency equipment. As an example, the study has already shown that our old exhaust systems are continually causing large energy losses that can be corrected with new equipment. The study will be completed in a few weeks and will be used to update our current five-year plan.

UTILITIES

Utility costs remain high and represent almost one third of our operating budget. However, the weather, our conservation efforts, and lower gas prices will permit us to stay under the budget for this year.

PERSONNEL

Our continuing and loyal personnel have worked extremely well during the transition to L&N management. They also took the initiative during the winter storms to assure our safety and security by volunteering to work long hours. We have moved for the first time to a merit-based performance evaluation system and salary increases are in effect as of May 1, 2010. We have some necessary changes in the front desk operation and expect to see more improvements there.

BUILDING INSURANCE

With the help of our insurance agent, John Manougian, and the L&N Community Manager, we have been able to negotiate a new contract for building insurance that will reduce our costs by at least $35,000.





George W. Cunningham
President


Attachment #2:
TREASURER’S REPORT

Our financial condition as we finish FY 2010 is generally sound, although not without challenges. Sound means basically that ECA does not have most of the issues that are negatively affecting the condo association universe at this time.

• Delinquencies < 2%, far below the 15% limit for lenders, although our delinquencies have doubled this FY in absolute $ amounts • No history of assessments • Adequate operating budget and on track to come in below budget for the year • No debt • No foreclosures • Rentals = 82/353 or 23% of total units, maximum of 30% rentals • No single entity over 10% ownership, highest ECA = 0.9% • Commercial use < 20%, ECA = 3.5% The financial factors I cited above are the basic underwriting metrics that mortgage lenders look to and which is the bottom-line factor in the market value of our properties – i.e., if buyers cannot finance their purchases of ECA condos, there is effectively no market for our condos, and our property value suffers. FY 2010 Year to Date (YTD) Results

Over the past year, we have shifted most of our cash portfolio to Morgan Stanley Investment A/C from individual bank CDs, as directed by the Board. As of 4/30 (unaudited/unreported by L&N yet) we had approximately $ 2.3 MM in cash and investments. We have $500K in operating fund cash, which we have been accumulating over the last two years as part of our strategy to build approximately three months of operating expenses in operating savings. Our reserves currently stand at approximately $2.1 million in reserves. This FY we will have transferred approximately $700K to reserves, and expect to spend approximately $1.0 MM, principally on the refurbishment project, the lobby horizontal piping and payments on the emergency generator.

We had a significant increase in condo fees last year, based on the recommendation of the Reserve Study and the Board distributed a budget which reflected another material increase this year. I would like to stress that we are proposing to hold operating expenses flat and that whatever increase we agree upon tonight will be entirely dedicated to boosting our reserves. We have all received your comments, letters and your wrath, and many of you have shared your views on what increase you believe is “enough.” Frankly I think it is very difficult even for the Board to judge what number is “enough” without extensive financial analysis, a long-range Reserve Study and supporting engineering analysis (which we are currently commissioning) to project what our future reserve expenditures may be.

This is probably the most difficult decision that a condo Board has to make, and I would like to explain to everyone why there are financial risks no matter what number we decide upon. The condo fee increase is linked to the amount we save in our reserves every year. The only way to increase the reserve contribution without increasing condo fees is to cut operating expenses, which is something many condos have been forced to do, but which this Board to date has not been willing to undertake. If we keep the fees low, the short term marketability of our homes is boosted by competitive condo fees vis-à-vis our peers. However, this could lead to not putting enough in reserves, which might leave us of short of money to take proper care of the building, and ultimately our market values will fall. If we have sustained high fee increases as we had last year, we could make our homes uncompetitive due to high condo fees and we risk increasing delinquencies, as ours did in this last year. On the other hand, we would have more money to put into our reserves and into preserving the value of our homes and building. This is a very simplified explanation, but I hope it will help everyone understand that the decisions of the condo fee increase and the corresponding amount to contribute to reserves are a matter of individual judgment and risk tolerance, and there are no “right” answers.

I see the following issues as challenges for FY 2010 for the next Board:

• Execute the lobby phase of refurbishment project on time and within budget and begin hallway phase of the project.
• Execute energy savings projects, based on the recommendations of the Energy Conservation Committee and the consulting firm that we have hired and in accordance with the decision-making process that the Board has publicly described, in order to control utility costs which are 1/3 of our operating budget.
• Continue to manage the transition to L&N management, improve resident services, consistency in front desk professionalism and customer service, accuracy of financial reporting, management organization and discipline, house rules enforcement.
• Treat Reserve expenditures as a scarce and precious resource to be used extremely judiciously. The low interest rate environment is not allowing us to invest at decent interest rates. Our weighted average interest rate is below 2.5-3% long-term inflation rate. As long as we are investing below inflation, our reserves are losing value in real economic terms.
• Increase owner participation in governance and Board projects through committees.
• Improve Board/owner communication both in terms of explaining our decision-making and processes more clearly as well as providing more up to date communication tools such as a web site.


Monique Fridell
Treasurer