Renovations Why What and How

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Renovations Why What and How
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Why Renovate?

• Increase revenue
• Remain competitive in market
• New condo construction (30 becomes rental)
• Attract better quality tenants
• Enhance curb appeal (better first impression)
• Lower vacancy
• Retain tenants
• Boost advertising impact

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Suite Renovations

• New carpet
• Laminate flooring
• Lasts longer than carpet 25 year warranty
• Carpet life of 5-10 years
• New cabinet facings
• New lighting fixtures, plumbing fixtures, tub
  surround and cover plates
• Low cost upgrades
• Blinds
• Ceramic tile
• Baseboards
• Appliances
• Cost savings if replaced with low energy
• New paint
• Updated color schemes

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Kitchen Renovations
Cost 785 Cabinets 640 Countertops
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Flooring Upgrade
Cost 1.86 / SF Laminate 2.88 / SF
Installation Total Cost 2,310
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Bathroom Renovations
Cost 825
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Building Renovations

• New tile / paint in lobbies
• New furniture in lobbies
• Upgrade fitness facilities / common area
  amenities
• New desks, paint, flooring in offices
• Carpet / paint in halls

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New Fitness Centre
Cost 38,210
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Lobby Renovation
Cost 23,625
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When to Renovate

• High vacancy
• Excess cash flow
• Outdated suites and / or common areas
• Necessity due to competition in the surrounding
  area

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Choosing a Supplier

• How to find a supplier
• References
• Word of mouth
• Better business bureau
• Supplier attributes
• Listen to you what are you trying to achieve?
• Explain all available options
• Product knowledge and well-informed about the
  manufacturers they represent
• Familiar with respect their competitors
• Customer satisfaction

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Choosing a Contractor

• Contractor Requirements
• General Liability Insurance
• Protects your property if the contractor causes
  damage
• Proof of coverage
• Workers Compensation (WCB ) Coverage
• Protects you if one of the contractors employees
  is injured on the job
• No coverage you could be liable
• Sole proprietor does not need WCB, but coverage
  needed if an assistant / helper is brought in
• Obtain clearance letter from WCB before and after
  the job
• Alberta WCB offers an online system to confirm
  contractor coverage
• Written references
• Verify references
• Ensure references are not relatives or friends

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Contractor Quotes

• Quote Details
• Written, detailing the scope of work
• Consistent specs to compare quotes
• All contractors given the same spec and
  understands the scope of work
• Lowest price is not always the best price
• Ensure everything is equal
• Final contract should include
• Building permits pulled and work done to code
• Clean-up and other work - responsibility
• Written explanation of warranties and guarantees
  of work
• Start and completion dates of work
• Price
• Price Shopping
• Sharing one contractor / supplier prices with
  another hoping to get a better deal
• Beware your reputation

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Payment , Holdbacks Problems

• Down payments should not be required on most jobs
• Exception if special products are used work out
  details of payment in writing
• Larger jobs may require progress payments
• Withhold an amount back (holdback) on each
  payment
• Protects you against liens placed by the
  contractor or their suppliers
• Ensure no liens on the property before holdback
  payout
• Statutory declaration contractors suppliers
  are all paid
• Do not pay until the work is completed to your
  satisfaction
• Problems with Contractor Work
• Take care in choosing a contractor good
  contractors will rectify a problem
• Keep calm and be reasonable try to work out a
  solution
• If a contractor doesnt address the problem
  address it and rectification in writing
• 3rd party involvement if no response to written
  request
• Do not pay the holdback until problem is resolved

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Financing Your Renovation

• Lender options
• Conventional
• CMHC Insured
• Payback
• Boardwalk looks for 2 5 year payback
• Unlevered return
• Boardwalk seeks 10 return
• Value added
• Capitalized value added is greater than capital
  cost

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Conventional Financing

• Advantages
• No Mortgage Insurance Premium
• Approval does not require meeting CMHC
  requirements
• Disadvantages
• LTV of 75
• High risk in Secondary Financial Market
• Current credit spreads are over 200 bps

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CMHC Insured Financing

• Advantages
• Easy mortgage renewals insurance coverage is for
  the entire amortization period
• Marketable in secondary financial market
• Debt obligation is more attractive to creditors
  due to insurance behind the mortgage
• LTV up to 85
• Disadvantages
• Approval requires meeting CMHC standards
• Fee for Mortgage Insurance (25 year amortization)
  
• Up to 65 - 1.75
• Up to 70 - 2.00
• Up to 75 - 2.25
• Up to 80 - 3.50
• Up to 85 - 4.25
• Current CMHC credit spreads range from 100 to 200
  bps

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Increased Value

• Given the relatively low cost of financing in
  todays market, the cost of financing is balanced
  with the increase in rents however, the
  estimated increase in value is over 16

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Payback Unlevered Return
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Value Added
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Conventional Financing of Renovation
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• Thank-you for your time
• Questions?