Condo corporations are looking for resourceful solutions to keep budgets balanced and cash reserves healthy.
Cash reserves or reserve funds are the money a condo corporation puts aside and contributes to monthly, for maintenance, repairs and upgrades to the common elements of the building. In other words, money set aside for a rainy day.
With current market patterns such as plummeting interest rates and sporadic inflation rates due to the economic downturn, there’s no promise how healthy reserve funds will be in the coming year(s).
If condo boards aren’t careful, they could find themselves in unfortunate circumstances needing to double back on where to invest cash reserve savings and how to stay afloat in what many predict will be financially harder times ahead.
One change to be prepared for is, condominium corporations can expect higher electricity costs starting in April 2021. The Ontario Electricity Rebate (OER), subsidizes the energy used within common areas of large buildings. Common area hydro accounts cover a condo building’s most power-intensive services, including elevators; lighting in corridors, stairwells and parking areas; ventilation systems; delivery of heating; and pumps for the delivery of water.
Multi-residential buildings were anticipated to see this rebate get pulled out from under them as of October 31 2020. Meaning buildings could have seen, the once subsidized 31.8% rebate, turn into a premium on the building’s energy bill. In other words a whopping $40,000 extra out of a condo’s pocket every year depending on the size.
Luckily for condos, they’ve bought some time…for now. The Energy Board of Ontario announced they would not cancel the rebate. In fact, they intend to increase the rebate rate from 31% to 33.2% on November 1.
While the increased rate is an improvement to save condos money in the short term, it is a temporary solution until April 2021. After that, there’s no predicting whether or not The Ontario Energy Board won’t cancel the rebate indefinitely.
If and when the time comes the rebate truly is gone forever, it’s going to be hard for any condo to scrape up an additional $40,000+ for energy costs (even in good economic times).
Even though April is five months away, time goes by faster than we think. If anything, the five-month extension on the rebate is buffer time for condo boards to find out where the money will come from.
Although the reserve fund is made to be a cushion for times like this, it begs the questions, will it be enough to accommodate all the other costs of running a condo; maintaining the grounds, keeping amenities open, addressing maintenance calls, tenants’ requests and equipment failure.
Condo corps must act quickly to find the extra cash to pay for up and coming energy bills and for any other unplanned costs to come in 2021.
Let’s step back and take a look at the current investment trends for condo reserve funds.
To keep budgets healthy, condo boards generally invest their savings into GIC’s (guaranteed investment certificate). It’s common for condos to put savings into GIC’s because it’s a safe and secure investment with very little risk.
The interest earned on a condo’s balances becomes a significant contributor to the reserve fund. But with increasingly low-interest rates, it means more money has to come from a condo owner’s wallet.
The 1 – 3% interest rate on the average Canadian GIC likely won’t amount to $40,000+ for any condo to accommodate upcoming energy costs let alone staying afloat with other building demands. So, what’s the solution?
Parity is a cleantech software company that uses real-time data collection to optimize HVAC energy use in multi-residential buildings. We work to automate and control building HVAC operations to run smoother, ultimately improving energy efficiency throughout your building. Generally, we save our clients from 20 – 30% on their energy costs, at the same time making their building more environmentally friendly.
Parity monitors occupancy levels, weather patterns, building Co2 levels and historical usage to determine in real-time where energy is being used, and where it’s being wasted all without sacrificing resident comfort.
The reduced energy use amounts to significant savings back into condo board bank accounts.
Parity’s business model offers condo corporations a similar time commitment of a GIC (up to 5 years) but with a more promising guaranteed return on investment (ROI) ranging anywhere from 30 – 50%.
Let’s do the math: If you invest $100,000 into a five-year GIC with 1 – 2% interest, you are looking at up to $2,000 back in five years. Whereas with Parity, that could be anywhere from $30,000 – 50,000 back in a building’s pocket thanks to energy cost savings. Granted, Parity earns money for the service but the amount you save is always much greater than the amount that Parity charges.
Having greater visibility into a building’s energy performance is an asset for property managers because if you can see the problem before it gets bigger and out of hand, this saves the reactive costs of calling a maintenance technician or replacing damaged equipment (which is the last thing anyone needs in times like these).
All of this to say is, there are numerous innovative ways in which Parity works smarter for your buildings, your residents, and your wallet. For example, Parity’s remote monitoring of your HVAC system can help both diagnose and alert you to issues with your HVAC long before residents are aware. In some cases we rectify problems remotely, saving you and your building managers up to 1 – 2 maintenance calls every month. Which over time, can amount to thousands of dollars back in your pocket. This is just one example of how Parity software can help grow your cash reserve fund in a more modern way than traditional and dated financial investment options.
As interest rates, inflation rates and energy rebates take a turn in the midst of an economic downturn, these will have a stronger impact on condo buildings across Canada. Each condo corporation should consider the impact of these upcoming changes and consider introducing more contemporary ways to save money for their cash reserves, to keep them big and healthy throughout these hard times.