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Oh Shit! What Now?

Managing the Expiring Subsidy Challenge

CHRA Congress May 2012


Steve Pomeroy, Focus Consulting Inc.

Steve Pomeroy Focus Consulting Inc


Context End of Federal Subsidy
Federal Subsidies
terminate in tandem with
maturing mortgage
Potential Impact on
project operating viability
Declining federal
expenditure and related
advocacy efforts to
reinvest savings back
into housing

Steve Pomeroy Focus Consulting Inc


Project Financial Viability
Operating Viability
With no mortgage payment and reduced or no
subsidy will rents cover operating costs?
Quick viability test: As a basic rule of thumb, if the current annual
subsidy is greater than the total annual mortgage (P&I), the
project is very likely to experience post-expiry difficulty. With
no corrective actions, a project in this situation today will have
negative Net Operating Income (NOI) at expiry.

Capital Adequacy
What capital renewal is required and are current
reserves or ongoing surpluses (if any) sufficient to
support capital renewal
Steve Pomeroy Focus Consulting Inc
Simplified Assessment Tool
Excel spreadsheet tool to help providers
determine:
Net income = operating financial viability
Adequacy of Reserves (BCA?)
Discussion guide: Addressing the Expiring
Subsidy Challenge: Options and
Remedies

Steve Pomeroy Focus Consulting Inc


Potential Outcomes Matrix
Fully Funded Capital Reserve Under-funded Capital
Reserve
Positive (1) Project is viable, can (2) Project generates a cash
NOI maintain current RGI market flow surplus, but asset is
mix and is in sound physical under-maintained.
condition
Negative (3) The project is not viable and (4) The project is not viable,
NOI cannot sustain the current and is unable to undertake
RGI/market mix. necessary capital
Building is in good condition, replacement.. Project is at
which may help in risk
attracting/improving market
revenue.

Steve Pomeroy Focus Consulting Inc


See separate demo of
Simplified Tool

Note caveats on capital adequacy test: recommend


Building Condition Assessment (BCA) and Capital
Investment Plan

Steve Pomeroy Focus Consulting Inc


Addressing unviable operations *
Adjust market rents
Adjust RGI mix (at turnover)
Explore ways to improve RGI tenant income
Shift RGI to market
Abandon RGI rents in favour of low break-even
rents
Review mix of working poor vs. social assistance
RGIs households
Seek new subsidy assistance from funder
* May not apply in Ontario
Steve Pomeroy Focus Consulting Inc
Addressing Lack of Capital
Reserves
Borrow against surplus (if any)
Add a capital improvement levy to rents
Seek P/T approval to increase pre-expiry
contributions
Seek P/T approval to re-amortize and
borrow pre-expiry for replacement
Seek renewal of funding support

Steve Pomeroy Focus Consulting Inc


Policy Implications
Social assistance and tenancy/rental regulations
Enabling economic self-sufficiency (increase
income and RGI rent)
Capacity & expertise to refinance
Potential supporting roles:
Provinces/Territories clarify rent, social assistance
policies
CMHC facilitate financing (existing mandate)

Steve Pomeroy Focus Consulting Inc


Thank you

FOCUS CONSULTING
Policy Research and Market Studies

STEVE POMEROY

Phone: (613) 722-0110 40 Java Street


Fax: (613) 722-4650 Ottawa Ontario
Email: spomeroy@rogers.com K1Y 3L3

Additional background reports available at


www.focus-consult.com

Steve Pomeroy Focus Consulting Inc