MEMORANDUM DATE: April 21, 2014 TO: FROM: NeighborWorks America Capitol Hill Housing REGARDING: Mission Matrix Contest Capitol Hill Housing has completed a Portfolio Assessment using the Mission Matrix methodology and would like to enter our work in the NeighborWorks Mission Matrix Contest. BACKGROUND: The Board of Directors and Senior Management of Capitol Hill Housing requested an analysis of the portfolio to aid in decision making and strategic planning. The Mission Matrix methodology was used for this analysis. Property Sustainability is a combination of Financial Performance, Mission Alignment and Financial Sustainability. The Capitol Hill Housing (CHH) portfolio was evaluated on a property by property basis, with each property scored on its Financial Performance, Mission Alignment and its Financial Sustainability. These three measures were used to plot the properties on a bubble scattergram to visually evaluate each property relative to the overall portfolio. This information can be used by CHH senior management to assist in strategic portfolio decisions and by staff to make day to day operating decisions. The results of the Portfolio Assessment were used to develop Action Plans for all of the stabilized properties in the CHH Portfolio. This has proven to be a very valuable project for CHH and provides a strategic roadmap for each property to increase its sustainability and the performance of the entire CHH portfolio. The Action Plans have been distilled to a Portfolio Strategy Matrix, which is a one page spreadsheet summarizing critical actions needed at each property and the due date to accomplish them. Over the next year we will implement steps for improvement as enumerated in the Action Plans. We will update the Portfolio Assessment in early 2015 with 2014 financial results and resurvey our residents. This information will be used to gauge our progress toward increasing the sustainability of our portfolio. METHODOLOGY: The first step in the analysis was to gather financial information on the portfolio. The 2012 Statement of Revenues and Expenditures was used as the starting point. Two recently acquired
properties were removed from the analysis since they did not have a full year of operating history. Net Income was adjusted to measure the financial contribution of each building to the CHH Main Office. CHH has an internal Property Management group which manages 42 of our 44 properties. Property management fees paid to the main office vary by property. To measure excess management fees, the standard property management fee was set at 8% and any excess fee was added to Net Income. Partnership Management Fees and Deferred Development Fees were added to Net Income. Some properties pay expenses that normally would be considered capital expenses from operating cash flow. These amounts were deducted from the Repair and Maintenance category and added to Net Income. Property Management staff provided an estimate of Capital Expenditures needed based on the Capital Needs Assessments for each property in years one and two, years three and four, and years five through seven. Another data point is the reserve balance as of December 31, 2012 and the annual reserve contribution. FINANCIAL PERFORMANCE Financial Performance was measured by Total Net Income, which measures the gross contribution of each property to the CHH main office, ranging from a $95,048 contribution to a negative $9,742. This is a good measure of the financial performance of the portfolio as the goal is to have each property at least self-sufficient, and ideally each should make some contribution to the main office to cover overhead and help CHH achieve its mission. It should be noted that the ability to distribute cash to CHH is restricted by partnership agreements for several properties with high Total Net Income. MISSION ALIGNMENT The second aspect of this analysis was to evaluate the portfolio by alignment to the CHH Mission. This is a difficult task as a property s alignment to the CHH Mission is subjective. An attempt was made to find an objective measure for this subjective concept. Per the CHH website, the CHH Purpose and Values are as follows: Founded in 1976 as an outgrowth of community action, CHH currently owns and operates 44 buildings, providing safe and affordable housing to low- and moderate-income individuals and families in Capitol Hill and nine other Seattle area neighborhoods. Capitol Hill Housing has functioned as the Community Development Corporation on Capitol Hill since its founding. We are committed to creating equitable and sustainable communities in central Seattle. CHH is leading community stakeholders in building a vision of development for generations to come, prioritizing outstanding architecture, pedestrian-oriented amenities, affordable housing, commercial opportunities, and space for arts and culture.
We envision a diverse community that includes housing for individuals and families across a broad range of incomes. We are proud to develop buildings in a community context and provide affordable homes that strengthen the neighborhoods we live in. We believe in each person's right to a safe, affordable, quality home. We act with integrity in our lives and with passion for our work. We cultivate a strong team that leads through a commitment to excellence. We are responsible stewards of our properties, communities and environment. We are caring and respectful of all residents, staff, community partners, and neighbors. Our core purpose can be summed up as Building Vibrant and Engaged Communities. Mission Alignment of the portfolio was measured in several ways. An exercise at the spring All Staff meeting was conducted to obtain staff input on what is a Capitol Hill Housing Building? This exercise revealed that staff has wide ranging thoughts about what constitutes a CHH building, but the comments were consolidated and the top five attributes were Affordability, Community, Transit/Pedestrian oriented, Safe/Secure, and Green. The CHH Board did a similar exercise at the Board Retreat held June 1, 2013. The results of this exercise indicated that the Board s idea of a mission centric building are similar to the staff s with Location, Affordability, Community, and Walkability as top attributes. The results of these exercises were incorporated into the Mission Scoring aspect of the portfolio. Since our mission is focused on the Capitol Hill neighborhood in Seattle, properties located on Capitol Hill and in the Central District received three points. Properties located in Belltown or CHH strategic neighborhoods scored two points, and 1 point was given to properties in other areas. To evaluate the portfolio on the Affordable Housing metric, three factors were measured, the overall size of the property, if the building has HUD units, and if the building has family units. Each building was scored on size and bonus points were added for HUD units and 20% or higher percentage of family units. Community was measured in several ways. Comments from the staff and board exercises mentioned the importance of community within the buildings. This community is enhanced through opportunities to interact both inside and outside the buildings. For the purpose of this analysis, the Interior community was measured by the availability of space to hold community gatherings or meetings inside the buildings. Exterior community was evaluated on the basis of outdoor space to hold gatherings or for social interaction. Bonus points were awarded for buildings with areas for a pea
patch or playgrounds, since these areas provide opportunities for community interaction. A point was also awarded to buildings where there is the potential to add community space. Walkscore.com was used to measure each building s pedestrian-oriented amenities. Walk Score is a number between 0 and 100 that measures the walkability of any address. From Walkscore.com: Walk Score measures how easy it is to live a car-lite lifestyle not how pretty the area is for walking. Walk Score uses a patent-pending system to measure the walkability of an address. The Walk Score algorithm awards points based on the distance to amenities in each category. Amenities within.25 miles receive maximum points and no points are awarded for amenities further than one mile. Walk Score uses a variety of data sources including Google, Education.com, Open Street Map, and Localeze. The CHH portfolio had Walk Scores from 55 to 100, with an average of 89. Three points were awarded to properties with a Walk Score from 90 to 100, two points for a Walk Score between 70 and 89, one point for Walk Score of 60-69 and zero points for Walk Score under 60. Building Design was scored on a subjective judgment of each building, based on whether it preserves character, is visually attractive, in scale appropriate to the area, and has a positive neighborhood impact. The Mission Alignment score ranged from 21 for two properties to 9, with a portfolio average of 14. FINANCIAL SUSTAINABILITY We looked at the projected Capital Expenses for each property relative to its current reserves and reserve contribution to measure the Financial Sustainability. Property Management Staff provided an estimate of future capital expenditures for each property based on our Capital Needs Assessments. To assess the ability of the property to cover these expenses, the total amount of capital expenditures were calculated for a seven year period. The current reserve balance was deducted from the total and the result was divided by the annual reserve contribution. This measures the property s ability to cover its projected capital expenditure needs over the next seven years. A negative value from this calculation is actually good, as it indicates the property can pay for projected capital expenditures on its own. Properties with a high positive ratio are unable to cover the projected capital expenditures from current reserves and projected contributions. The result of this calculation was used to assign a score to each property. Negative values greater than one had the sign changed and this was the score. Values between -.9 and 2 scored 1, 2.1 to 4 scored.75, 4.1 to 10 scored.50, and values over 10 were scored.25.
The size of the bubble on the scattergram is based on the Financial Sustainability score, the bigger the bubble, the more sustainable the property. SCATTERGRAMS To evaluate the portfolio on Financial Performance, Mission Alignment and Financial Sustainability, the properties were plotted on a bubble scattergram. The X axis measures each property s Financial Performance and the Y axis measures the Mission Alignment. Financial Sustainability is measured by the size of the bubble (Z axis). The resultant scattergram was divided into four quadrants. According to mathematical convention, the upper right quadrant is known as Quadrant I, the upper left quadrant is Quadrant II, lower left quadrant is Quadrant III, and lower right quadrant is Quadrant IV. The book Nonprofit Sustainability by Bell, Mazaoka and Zimmerman was used as a guide for this analysis. This book describes the properties or programs in Quadrant I as Stars. These are High Impact, High Profitability properties and the goal is to invest and grow them. Quadrant III (lower left) are Stop Sign, or unhappy properties. These are Low Impact, Low Profitability properties and the strategic imperative is to try to move them to profitability, increase the mission, or divest. Properties in Quadrant II are Heart properties. These have High Impact, but Low Profitability. The strategic goal here is to keep the property but contain costs and try to move them toward profitability. Finally, properties in the lower right quadrant, (Quadrant IV) are Money Tree or Cash Positive properties. These properties are characterized by Low Mission Impact, but High Profitability. Goals here include Water, Harvest and Increase Mission Impact. Properties move from quadrant to quadrant as profitability and mission alignment change. From an operations perspective, the goal should be to move properties toward Quadrant I. Quadrant III properties should be carefully analyzed for ways to increase the mission or profitability and if there is no cost effective way to improve the property they should be disposed of. The Total Net Income vs. Mission scattergram has the Mission Alignment line drawn at 12, two points below the average mission score of 14 and the Financial Viability line drawn at $10,000. Only two CHH properties fell in Quadrant III. These properties are being actively evaluated for potential mission improvements and closely monitored to maximize financial performance. The CHH Portfolio Assessment Bubble Scattergram is attached. ACTION PLANS: Based on the results of the assessment, CHH created 43 Action Plans one for every stabilized building in our portfolio. The Action Plans are two pages long and the goal is to provide general
property data as well as specific steps to increase the performance of each property across the three metrics, Financial Performance, Mission Alignment and Financial Sustainability. The front page of the Action Plan features a detailed compilation of property data which includes basic property information as well as the date of acquisition, average household income of residents, any significant date that affects the property and the debt cover ratio. This data is helpful for readers who may not be familiar with the property to get a general frame of reference regarding the asset. The property financials are summarized and compared on a per unit basis to the entire CHH Portfolio as well as a subset of comparable properties. This allows the reader to compare the financial performance to the whole portfolio as well as a relevant subset of buildings. The projected Capital Expenditures over the next seven years, current reserves and reserve contribution are summarized into the Financial Sustainability score. The second page of the Action Plan includes the calculation of the Mission Alignment score. The property turnover data is summarized. This is useful since turnover has a large impact on the financial performance of the property since every time someone moves out we incur repair and maintenance costs, leasing costs, and lost rent while the unit is vacant. As part of the Action Plan process we surveyed all of our residents. The survey consisted of thirteen multiple choice questions phrased in such a way that 5 was favorable and 1 was unfavorable. The survey also had two open ended questions that allowed residents to provide comments. Survey questions were summarized into three general categories and the property s survey results compared to the portfolio average. Finally, specific steps for improvements across each metric were developed and a timetable for achieving these improvements is set. These Action Plans provide a framework to improve property operations, with the goal of moving each property to Quadrant I, Star. Every draft was reviewed by Capitol Hill Housing s CFO, COO, Director of Property Management, Asset Manager, Portfolio Manager and Site Manager for each property. The final drafts of these documents presenting specific improvements and the timing around them were submitted to property staff for their input and buy-in. The plans have been compiled into a physical handbook which was provided to Board and Senior Staff members to guide decision making and measure progress toward goals, as well as Site Staff to help focus day to day activities toward the strategic goal for each property. Four representative Action Plans are attached. CONCLUSION AND GOALS FOR IMPLEMENTATION: The Portfolio Assessment and Action Plans have been extremely useful to CHH Board, Senior Management and Staff. The Portfolio Assessment provides an evaluation framework for strategic decisions regarding the portfolio. Properties located in QI are considered core
properties that are both in alignment with the CHH mission and contribute financially. Quadrant II properties meet the mission of the organization but are not currently financially sustainable. Efforts should be made to increase the financial performance of these properties. Quadrant IV is populated by financially successful properties that are below average in mission alignment. To the degree possible, strategies to increase the mission alignment of these properties should be implemented to move them toward Quadrant I Properties located in Quadrant III are below the acceptable level in both mission alignment and financial sustainability. These properties should be evaluated carefully for potential improvements on both metrics. The Portfolio Assessment methodology can also be used to inform decisions regarding future acquisitions and property development opportunities. The Action Plans will provide a strategic roadmap for each property to maximize its performance across each metric, Financial Performance, Mission Alignment and Financial Sustainability. Our primary goal for the year to come is to improve the overall portfolio sustainability. We plan to measure this by updating the Portfolio Assessment in early 2015 with 2014 financial results. We will compare the results to the 2013 Portfolio Assessment. The Action Plans will be used as the strategic roadmap for improving the portfolio sustainability. Quarterly meeting will be held between Asset Management Staff and Property Management staff to monitor progress on the steps to improve the properties across the various metrics. Financial Performance improvements will be achieved through careful management of the financial performance to budget. Moving the Mission Alignment score is challenging, but we are actively seeking ways within our portfolio to improve the mission score. For example, an unused basement room at one of our properties is in the process of being converted to a community room, with meeting space, AV equipment, and kitchen facilities. Financial Sustainability will be maximized by implementing capital projects where necessary and strategic refinancings where possible. We have developed a Portfolio Strategy Matrix to organize and prioritize actions to be taken at each property. This matrix will help staff visualize portfolio improvements and achieve economies of scale on refinancings and capital projects.
25 24 Capitol Hill Housing 2013 Portfolio Assessment Mission-Financial Performance-Financial Sustainability Matrix 23 22 21 20 19 18 M i s s i o n 17 16 15 14 13 12 -$10,000 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 $100,000 11 10 9 8 410 -Each bubble represents a property. -Size of bubble depicts the financial sustainability measure. -Bubble colors are random. 7 $$$ 6 5 Net Income
Capitol Hill Housing Portfolio Assessment Presentation at AHMA/ARHC Conference April 23, 2014 Jill Fleming Brad Lange
Founded in 1976 Capitol Hill Housing
Capitol Hill Housing Founded in 1976 Functions as Community Development Corporation on Capitol Hill, Seattle
Capitol Hill Housing Founded in 1976 Function as Community Development Corporation on Capitol Hill, Seattle Own and operate 44 buildings encompassing 1,197 units
Tiltsonian--Acquired 1983
The Jefferson Completed 2012
Capitol Hill Housing Founded in 1976 Function as Community Development Corporation on Capitol Hill, Seattle Own and operate 44 buildings encompassing 1,197 units 88 units under construction
Capitol Hill Housing Founded in 1976 Function as Community Development Corporation on Capitol Hill, Seattle Own and operate 44 buildings encompassing 1,197 units 88 units under construction Additional development opportunities in pipeline
Capitol Hill Housing Core Purpose Building vibrant and engaged communities
History of Asset Management at CHH 2007 Created Asset Management Department Capital Needs Assessments Partial Portfolio Assessment 2013 Asset Management 2.0 Bubble charts and Action Plans
Portfolio Assessment Goal is to provide assessment of portfolio for Board and Senior Management decision making.
Portfolio Assessment Goal is to provide assessment of portfolio for Board and Senior Management decision making. Evaluated three aspects of each property: Financial Performance
Portfolio Assessment Goal is to provide assessment of portfolio for Board and Senior Management decision making. Evaluated three aspects of each property: Financial Performance Mission Alignment
Portfolio Assessment Goal is to provide assessment of portfolio for Board and Senior Management decision making. Evaluated three aspects of each property: Financial Performance Mission Alignment Financial Sustainability
Bubble Scattergram
Bubble Scattergram Snapshot in time. Goal is to move properties to Quadrant I. This methodology based on the book Nonprofit Sustainability by Bell, Masaoka, Zimmerman
Quadrant I Star Properties
Star Property-- Pantages
Quadrant II Heart Properties
Heart Property Lincoln Court
Quadrant IV Cash Positive
Cash Positive Property-- Larned
Quadrant III Unhappy Properties
Unhappy Property Byron Wetmore
Financial Performance Measure Used Net Income as measure of Financial Performance Adjusted so fee income to CHH is included as Net Income
Net Income
Mission Alignment What is a Capitol Hill Housing Building? All staff meeting Board retreat Multiple iterations
Mission Alignment Settled on five factors: Location,
Mission Alignment Settled on five factors: Location, Affordable Housing,
Mission Alignment Settled on five factors: Location, Affordable Housing, Community,
Mission Alignment Settled on five factors: Location, Affordable Housing, Community, Pedestrian Oriented Activities,
Mission Alignment Settled on five factors: Location, Affordable Housing, Community, Pedestrian Oriented Activities, Building Design.
Financial Sustainability Used projected capital expenditures from Capital Needs Assessments for next seven years. Developed scoring system to compare properties. The size of the bubble is based on the score: bigger bubble = more sustainable.
Bubble Scattergram
Any questions on the Portfolio Assessment or Bubble Scattergram?
Action Plans Purpose is to provide strategic road map for each property
Action Plans Purpose is to develop strategic road map for each property. Provide framework to improve property operations.
Action Plans Purpose is to develop strategic road map for each property. Provide framework to improve property operations. Staff buy in for improvements and timing.
General Building Info Financials including per unit comparisons Capital Needs/ Financial Sustainability
Mission Score Turnover Info Survey results Comments Steps to improve property across each metric Goal and timetable
Next Steps Creating Portfolio Strategy Matrix Help us to prioritize work Visualize portfolio improvements and achieve economies of scale Revisit Portfolio Assessment in two years to gauge progress
Questions? Email us at: Jill Fleming- jfleming@capitolhillhousing.org Brad Lange- blange@capitolhillhousing.org Thanks for your time!
Capitol Hill Housing Pantages Apartments PROPERTY ACTION PLAN December 26, 2013 BUILDING PROFILE NAME: Pantages Apartments ADDRESS: 803 E. Denny Way Seattle, WA 98121 UNITS: 49 total 3 studio, 26-1 bed, 15-2 bed, 5-3 bed BUILT/RENOV.: Built 1907/2005 Renovated N/A PLACED IN SVC.: December 2005 TYPE: Acq. Rehab of existing house, new construction FINANCING: LIHTC, City, State Bank loans INCOMES SERVED: 30%, 50% AVG. HOUSEHOLD INC. $16,633 SIGNIFICANT DATE: Dec 2019-Year 15 D C R @ 12/31/12: 1.76 PORTFOLIO ASSESSMENT: Quad I Star FINANCIALS as of 12/31/12 Property Per Unit CHH Portfolio Large Bldg. Group Revenue: Gross Potential Residential Rent: $442,746 $9,036 $8,876 $8,525 Less Vacancy Loss & concessions -8,926-182 -304-268 Total Residential Rent Revenue 433,820 8,853 8,572 8,257 Other Revenue Commercial Income 0 0 443 434 Other Income 28,411 580 329 431 Total Other Revenue 28,411 580 772 865 Total Revenue 462,231 9,433 9,343 9,122 Expenses Administrative 145,146 2,962 2,788 2,692 Utilities 44,950 917 1,112 1,048 Operating and maintenance 66,000 1,347 1,613 1,770 Taxes and insurance 34,031 695 657 628 Total Operating Expense 290,127 5,921 6,170 6,138 Operating Surplus (Deficit) 172,104 3,512 3,173 2,985 Partnership Expenses and Debt Service Partnership Expenses -13,000-265 -167-236 Debt Service -77,136-1,574-1,919-1,705 Total Partnership Expenses and Debt Service 90,136-1,840-2,086-1,942 Operating Surplus (Deficit) B4 Reserves 81,968 1,673 1,087 1,043 Reserve Contributions Replacement Reserve -24,500-500 -524-680 Operating Reserve -4,800-98 -41-34 Total Reserve Contributions -29,300-598 -566-713 Operating Surplus (Deficit) 52,668 1,075 522 329 FINANCIAL SUSTAINABILITY Year 1-2 Years 3-4 Years 5-7 Total Capital Exp. Pending $5,000 decking $10,000 laundry equipment $30,000 exterior painting $45,000 Replacement Reserve Balance Annual Replacement Reserve Financial Sustainability Score Pantages Apts $483,631 $24,500 17.90 CHH Portfolio Avg. $110,362 $14,286 3.77
MISSION ALIGNMENT SCORE Loc. Afford. HUD or Family Comm. Indoor Comm. Outdoor Playground or P-Patch Pot. to Add Pedestrian Oriented Building Design Total Pantages 3 5 1 3 2 0 1 3 3 21 Portfolio Avg. 2.6 3.1 0.8 0.7 1.4 1.1 1.0 2.6 2.4 14.0 TURNOVER RATE % Avg. Length of Tenancy Income Avg. Age of HH Pantages 24% 2.1 years $13,856 37.3 years Portfolio Avg. 18% 4.3 years $20,155 40.3 years RESIDENT SURVEY RESULTS: Port. Avg. Response Rate 51% 48% Avg. score for all questions: 4.01/5.0 4.13 Mgmt. & maintenance questions: 4.04/5.0 4.20 Satisfaction w/ apt. questions: 4.17/5.0 4.17 Sense of community questions: 3.73/5.0 4.01 COMMENTS: For the purpose of the Portfolio Assessment, $13,000/ $265 PU for Partnership Management Fee and $33,125/$676 PU for pay down of CHH Sound Families Loan were added to Net Income. Pantages achieved the highest Financial Sustainability score in the Portfolio Assessment, and tied with Broadway Crossing for the highest score on Mission Alignment. QUOTE: - I love my apartment and have been here for 4 years. The manager has been great. I am grateful to be here and feel very lucky. survey respondent ACTION PLAN: Steps to improve Financial Performance: Monitor unit turns to minimize vacancy loss. Keep close eye on transitional units. Proactively manage building to minimize future capital expenditures. Increased parking fees will boost revenue. Steps to improve Mission Alignment: Consider roof deck improvements to enhance utility. Second WIFI line added to increase resident satisfaction. Evaluate potential lift and enhancements to community room to enhance access and utility. Check into addition of resident computers. Steps to improve Financial Sustainability: Pantages appears to have adequate funds to cover projected capital expenditures. Timetable and goal for improvements: Target to address items by end of QII 2014.