Hampton Commons Condominium Association

Enclosed please find 2001 Capital Reserve Schedule prepared for the Hampton Commons Condominium. The Reserve Schedule is developed based upon our observations at the site, review of the Public Offering Statement and examination of the 1994 Kipcon Capital Reserve Schedule. The Schedule is prepared in accordance with our proposal to the Association which includes a Level of Service I wherein you work includes development of all quantities for use in the Reserve Schedule.

Summary

After our review of conditions at Hampton Commons and development of the 2001 Capital Reserve Schedule, we recommend the Association increase their level of Reserve Funding from the current $100,000 per year to approximately $240,000 per year. In addition we are recommending an annual contribution of approximately $75,000 to a fire retardant treated plywood fund to be used for roof replacement.

The major increase in the level of funding reflects changes to the earlier Capital Reserve Schedule prepared by Kipcon, Inc. for 1994. Our Schedule includes an increase in many of the unit costs compared to the previous schedule to more closely reflect realistic replacement costs we believe the Association will experience and has already experienced. Additional component line items were added to the Schedule and some minor items were deleted.

The total item replacement cost amount of the Schedule increased by approximately 100 from $1,450,000 to $2,800,000. This obviously impacts the yearly funding requirements necessary to fund the Reserve Schedule for the replacement costs. The 1994 Schedule failed to fund for the cost of the fire retardant treated plywood roof replacement which would also require the accelerated replacement of the shingles. The 1994 Schedule did not include a line item for the Concrete Entry Walks to each front entrance which has a replacement cost of approximately $250,000 for the 302 dwelling units.

Hampton Commons
Capital Reserve Schedule

We believe the Reserve Schedule prepared for the Association reflects realistic project replacement costs based on our experience of providing remedial construction project assistance to community associations throughout New Jersey and also considers additional component line items which we believe are appropriate for inclusion in the Capital Reserve Schedule.

For example, the current replacement cost of pavement for the roads has been increased by a factor of 250 % . The driveway replacement cost based on costs currently experienced by the Association was increased from the 1994 Kipcon schedule by a factor of 5 times. The current item replacement cost for Concrete Sidewalk was increased by 100 % . These increases reflect costs specifically experienced by the Association and those which we think are reasonable for the work. The 1994 Schedule in our opinion represented current item replacement costs which in many cases underestimated the actual cost we believe the Association will or has experienced.

General

An adequately funded Reserve Schedule is important to prevent the need for the Association to institute a "Special Assessment" for the anticipated replacement of Capital Items. The items included in the Reserve Schedule, in our opinion, represent the Common Elements or Limited Common Elements at Hampton Commons which are the responsibility of the Association and can reasonably be expected to require replacement over time. We recommend that the Association review the Capital Reserve Schedule on a yearly basis to incorporate changing replacement costs, fund balance, and component item conditions, in addition to incorporating any recent replacement or necessary additions of Capital Items.

We recommend the Association's Attorney and Accountant review the Capital Reserve Schedule to determine the appropriateness of the included Component Items and to determine that items included have not been accounted for in other funding methods such as operating budgets or depreciation.

Our inspections for preparation of the schedule did not include any material testing or destructive testing to more completely assess component conditions. The Initial Useful Life and the Unit Cost for the items included are based upon that which can typically be expected for similar items of similar quality. The Useful Life used for each item in the Capital Reserve Schedule assumes proper maintenance of each item will be undertaken during the life of the item. For some items, the Useful Life will reflect a subjective decision by the Board or Association based on aesthetic considerations.

The Item Unit Cost included in the Reserve Schedule is the cost that we believe the Association will experience for the replacement of the items. These costs do not necessarily reflect the actual cost of purchase of the item since additional factors may be involved such as dismantling and disposal of the existing item, design costs, repair of surrounding areas as a result of replacement of the new item, disposal costs of the old item, and specialized construction equipment that may be necessary to install the item. The Unit Cost is also depended upon the quality of the material replaced at the time replacement is necessary.

Quantities for the site element were developed from field measurements or from the Engineering Plans provided to our office. Architectural plans were not available, consequently roofing quantities were estimated based on small scale plans included in the Public Offering Statement.

Theoretical Fully Funded Amount

Based on our determination the theoretical Fully Funded Reserve Schedule Amount in the Capital Reserve Schedule account should be approximately $1,160,000. With the existing balance of the Reserve Fund of approximately $375,000, a shortage of approximately $780,000 exists when the fund balance is compared to the Fully Funded Amount. The Fully Funded Balance is the amount which is in direct proportion to the fraction of life used up of the current replacement cost.

Our level of funding recommends an increase from approximately $105,000 to $240,000 per year based on five year forward averaging. Additionally, the Association will need to fund approximately $77,000 per year for 5 years to provide for the balance of the fire retardant treated plywood replacement cost. Any moneys received from the State or any other settlements with regard to the roofing would offset this amount.

Component Items Not Included - Could not find in the Bernards II Reserve

Items or components for the sewer treatment plant have been removed from the Schedule. All the building, water tower and all other components of the water system have also been removed from the Schedule as our understanding is that the Utility Company is responsible for both of these systems. The guide rail which has been installed along Peregrine Point and Pelican Drive has not been included. The storm water system is not included. As the Association matures, depending on the utility history, the Association could consider establishing funding for this and portions of the sanitary and domestic water supply systems not responsible to the respective utility companies.

Reserve Schedule Component Item

The information below amplifies information for many of the component line items included in the Reserve Schedule.

Pavement - Reserve Schedule reflects the cost for a 2" overlay with some pavement repair work. Substantial increases from the prior Reserve schedule occurred as a result of the adjustment of the road and driveway replacement costs to realistic values.

Condition of the driveways is beginning to show substantial differential settling and cracking. While we have given seven additional years to the useful life of both the roads and the driveways, the Association must carefully monitor these items since we have used an optimistic remaining useful life value. If the Association waits too long to repair and overlay the roads or driveways, the cost of the project will escalate dramatically from the amount of required repairs. Failed pavement areas must be repaired prior to the installation of an overlay or the cracking will reflect through the new material.

Curbing - Curbing has been added to the Reserve Schedule Funding over a fifty year period. After the installation of two overlays, the reveal (face) of the curb will be lost. Funds in the curbing component line item can be allocated toward milling which can be used to retain the curb reveal during the pavement overlay project and to maintain a smooth curb flow line profile.

Retaining Walls A separate component line item has been established for the retaining walls which have been installed at the buildings along Eagle along the front yard areas. We believe these ties will require replacement before retaining walls located at other portions of the site.

Split Rail Fence - Our inspections noted approximately 130 L.F. of fence at Pelican was in poor condition and should be replaced in the near term.

Pond Aerators - A funding amount has been included in the Schedule to allow for funds to be allocated toward work to replace the two pond aerators.

Street Lights - The street lights have been included in the Reserve Schedule: The quantities are based on our field inventory during the course of our work at Hampton Commons.

Roofing - Individual component line items have been established to provide for the older and newer roofs at Hampton Commons. The replacement cost amounts included in the Capital Reserve Schedule are for shingle replacement only. The balance of the cost of the roof replacement which would include the fire retardant treated plywood replacement has been included in a separate portion below the totals on the Reserve Schedule page. For the roof replacements to occur, the funding amounts from both the Reserve Schedule portion and the Roof Replacement Analysis portion will be necessary.

As the Association will note the cost of approximately 1 Million Dollars exist for replacement of the 250 dwelling units. This obviously provides a dramatic impact to the Reserve Schedule. The original Capital Reserve Schedule provided a current item replacement cost of $280,000, whereas the current Schedule provides for a replacement cost for the shingles only of approximately $715,000.

Wood Siding - A lump sum amount of $350 per unit has been included in the Reserve Schedule to allow for funding of some siding replacement. This does not provide sufficient funds for large scale replacement but will provide some funding for regular and routine replacement which occurs on a periodic basis.

Concrete Walks - The initial useful life of this item is typically thirty years. Our Schedule includes an extension of the typical useful life by five years to reflect the ongoing replacement and mud jacking which the Association is undertaking. This item was not included in the 1994 Schedule but represents approximately 10 % of the schedule replacement cost with a yearly requirement of approximately $9,000.

Pool - Various component items have been included under this portion of the Reserve Schedule. An allowance for a liner/coating has been included which allows for major work to the body of the pool. Other line items include funding for replacement of the concrete deck, the pool equipment and the fence.

Club House - Various individual component items have been established to replace portions of the interior and exterior of the club house including the bathrooms, floor coverings, furniture, roofing and other elements.

Cash Flow

Included in the Capital Reserve Schedule for the Association is a 20-year Cash Flow Analysis. This shows the annual reserve contributions and estimated expenditures with the resulting reserve fund balance which will result from the next 20 years based on fully funding the Capital Reserve schedule. All information is included in Present Value form. The Roof Replacement Analysis is not included in the Cash Flow.

To provide a more uniformed yearly contribution, we have included along the right side of the Cash Flow Table an average yearly contribution. This amount is the annual reserve requirement averaged forward over a number of years. In the table we have provided this averaged amount through seven years. We recommend that the Association consider averaging for a period of approximately five years but should consult with their Accountant and Management.

1994 Schedule

As we have indicated, a number of differences exist between the Schedule we have provided and the Schedule produced in 1994. The major changes include reduction in the remaining useful life of the roofs, general level increase in unit cost, major increases of the units cost of driveways and roads, and inclusion of Concrete Entry Walks.

The level of funding we have recommended in our Schedule, including the Roof Replacement Analysis, is a dramatic increase for the Association. This reflects the need for the near and intermediate term replacement of the fire retardant treated plywood which alone amounts to $50 per unit per month when funded over five years. We believe contributions at the level we have recommended will help minimize future needs for Special Assessments as the Association undertakes large scale projects such as driveway replacement and roof replacement.

A list of Capital Reserve Schedule definitions is enclosed for your convenience. If you or the Association have any questions with any of the information we have provided concerning the 2001 Capital Reserve Schedule Update, please contact us.

Sincerely,

Gary Gartenberg, P.E., P.P.
Managing Member

GG/pfp

Enclosure

C:\GA\W1\PROP?RES\Hampton Commons.doc

CAPITAL RESERVE SCHEDULE DEFINITIONS

Component Item
This represents the specific item that is determined to be a Common Element or Limited Common Element responsible to the Association. The items included generally have a reasonably well defined useful life, and can normally be expected to require replacement in the foreseeable future.

Estimated Item Quantity
This represents the estimate quantity of the Component Item included in the Reserve Schedule. The determination of the item quantity is derived from field measurements or plan measurements.

Item Unit Cost
This represents the estimated replacement cost for the Component Item on a unit price basis. The cost typically includes labor, materials and any other expenses that can normally be anticipated to be incurred during the replacement process. The quantity of replacement that occurs simultaneously will impact the unit cost of the item. Our costs are the cost the Association can anticipate at the time of the Reserve study preparation. These are typically derived from standard published cost data, recent experience of replacement for similar items at other Associations, or actual Contractor bids or contact with Manufacturers.

Current Item Replacement Cost
This represents the aggregate replacement cost for the total amount of item quantity.

Estimated Current Age
This represents the estimated age of installation of the Component Item. In projects constructed over time, an average age of construction is used.

Initial Useful Life
This represents our estimate as to the initial useful life that can typically be expected for items of similar quality and installed under similar use conditions.

Estimated Remaining Useful Life
This represents our estimate as to the remaining useful life of the Component Item. This estimate is predicated on the conditions that periodic maintenance and repairs are conducted to maintain the condition of the item. This does not include unforeseeable or catastrophic failures. For certain items, to the degree reasonably possible, this estimate includes aesthetic considerations. Some items will probably be replaced before the item wears out. This is the estimate that directly effects the Annual Reserve Requirement determination.

Present Funded Amount
This represents the portion of the total amount in the Capital Reserve Fund as of the beginning of the fiscal year of the Reserve Schedule, distributed to each specific line item. The method of distribution is based on a weighted average effected by the total replacement cost of the specific item relative to the total replacement costs for the Reserve Schedule, and the initial useful life of the line item.

Annual Reserve Requirement
This represents our determination of the annual contribution necessary for the Association to accrue necessary funding over the remaining life of the item to through a series of relatively uniform contributions totaling the current item replacement cost.

GARTENBERG ASSOCIATES, LLC
P.O. Box 243 Convent Station, NJ 07961
973.359.0660

This web page was last updated on August 31, 2006.
Please contact the management company for the latest information about Hampton Commons.