Volume 25, Issue Number 3, Spring 2020
Financial Matters

Reserve Fund Planning for Skyscrapers

Is the Status Quo Enough?

By Stewart Handrahan | Other articles by Stewart Handrahan

Tall residential condominiums have been commonplace in Ontario since the 1960s. Until recently such buildings have typically been under 40-storeys, with designs focused on conventional construction methods. Over time, engineering and construction professionals in Ontario have developed the know-how to repair the aging building stock. Because we've been repairing these conventional buildings for so long the methods of repair and expected costs are relatively well established so budgeting for future repairs and replacements (i.e. reserve fund planning) has become streamlined.

The recent trend, especially in the GTA, has been for condo developers to build taller and more complex structures. These skyscraping condos are different. With 60+ stories becoming the norm, these buildings tend to have iconic architectural features, complex mechanical systems, and are often located at prominent downtown intersections where commercial office towers once dominated. Naturally, some may assume that these skyscrapers will be cost-effective to repair on a per unit or square footage basis as there intuitively must be efficiencies of scale. Unfortunately, when it comes to skyscrapers the scale is sometimes working against us. In some cases, the design almost seems not to have considered the need for future maintenance/renewal work at all.

What's the difference?
These new skyscraper condos are different in several ways, including:

1. Building Envelope - The building envelope will always represent a significant proportion of reserve fund expenditures within the life of a building. Skyscrapers are certainly no different. Shorter buildings typically employed brick masonry, precast panels, or window-wall systems. Skyscrapers are more often clad with curtain wall systems, which have been the norm for office towers for decades. The good news? Good quality curtain wall systems can often be longer-lasting and better performing cladding systems than windowwall systems seen at most modern residential buildings. The bad news is that curtain wall systems can be much costlier to repair or renew than window-wall systems. Accessing walls to complete repairs can prove challenging for very tall buildings (more on this later). It will be common for wall retrofit/renewal costs at skyscrapers to exceed $20 million.

2. Roofs - Although roofing assemblies are much the same as with conventional buildings, replacement costs on a square footage basis will be higher because hoisting materials to the roof may prove to be challenging, especially if there are wind restrictions for hoist equipment, or if material needs to be hoisted several times (e.g. up and over terraced roofs to get to the main roof).

3. Mechanical Equipment - When buildings are under construction access and craning logistics related to installing mechanical equipment are straightforward and relatively inexpensive because the tower crane used to build the building can be used to hoist the equipment and the building enclosure may be incomplete. For replacement projects things are more complicated. The equipment is often located in relatively inaccessible areas; mechanical rooms that are part-way up the building, or in two storey mechanical rooms at roof level. Craning costs for large equipment such as chillers, cooling towers, air handling units, and generators will be very high and alterations to the walls and/or roof slabs to permit removals and installations may be needed. With downtown sites built to the sidewalks, crane setup will likely need to be done from the city streets, necessitating costly road closures. Depending on the location, municipalities may require work be done over evenings or weekends, which will increase costs even further.

4. Access - Most building envelope restoration work in Ontario is accessed via suspended platforms commonly referred to as "swing stages". Stages are typically 10-20ft long and are suspended from outrigger beams and cables tied back to anchors at the roof level. The work progresses around the building in "drops" as the stage moves vertically until its moved to the next drop. Skyscrapers are too high for stages, so these buildings come equipped with their own permanent stage and building maintenance unit (BMU) which is essentially specialized rooftop crane, often on rails along the perimeter of the roof to permit full access to all sides of the building. Not all BMUs are created equal. Some have very low load capacities that seem to have been designed for window-washing purposes only, without consideration of future restoration projects. Many are not even strong enough to hoist their own replacement parts (such as hydraulic cylinders) up to the roof. BMU's move slowly and are subject to strict wind-limits, so productivity of work completed is very low.

Building envelope restoration for skyscrapers will probably therefore be completed using alternate access equipment, especially for large-scale projects involving significant amounts of material and tools. The industry will further refine the approach for access for such projects, but currently the thinking is access will include using mast climber or similar equipment in lieu of (or in combination with) the BMU. This will allow for higher productivity and material carrying capacity but adds significant cost to any wall repair project. To compound this difficulty, some skyscraper designs include periodic canopies or other projections or set backs, which make the installation of mast climbers even more challenging.

What's a Reserve Fund Planner to Do?
How does a reserve fund planner adequately address these challenges? The short answer: very carefully. There are a few specific things to consider.

The first is to confirm which projected expenditures can be budgeted with the well-established unit rates from readily available cost data. For some budgets, the unit rates used for conventional buildings are indeed appropriate. Think parking garage repairs and interior finish refurbishment. For others, such as building envelope renewal, all the cost data gathered in recent years for conventional condos from the 70s and 80s is essentially irrelevant. More relevant cost data can be sourced from the commercial office sector, although the number of major building envelope projects completed for these buildings is more limited and can differ significantly based on the scope of work. In some cases, there is no precedent for how much renewal will cost (such as replacing a large heat exchanger at the 55th floor of a 70-storey building). The reserve fund planner must establish what they believe to be a reasonable budget based on discussions with service contractors and other specialists. Sometimes comparing costs for similar yet different projects can be a helpful guide for establishing upper and lower bounds for budgets.

The second is that the projects must be defined in greater detail for considerations such as access methods, production rates, staging areas, craning, and construction sequence. A simple per square meter unit rate is not enough.

Alternatives to full replacement should be considered for difficult to access equipment. Major refurbishment in lieu of replacement for large mechanical equipment and building envelope systems are sometimes feasible. If the planned renewal includes an alternative to replacement, there must be proactive maintenance programs in place. Cooling towers and air handling units for instance are relatively simple devices with sheet metal boxes and individual components that can be replaced as a part of a major retrofit that keeps most of the existing equipment in place. For these refurbishments to prove effective and to ensure the equipment reaches its expected service life the equipment needs to be proactively maintained. This can sometimes involve annual programs above and beyond the norm for most residential buildings where the equipment is partially disassembled, thoroughly inspected, cleaned and adjusted, and re-assembled. Condo managers can look to their counterparts in the commercial real estate industry where some have developed very thorough proactive maintenance programs for mechanical equipment. It is not uncommon to see mechanical equipment in office towers with air handling units and cooling towers that are 30 years old and performing well. However, achieving this extended service life does not happen without implementing meticulous proactive maintenance programs that are currently not the norm for condominium buildings.

What's Management to Do?
There are steps management can take to ensure the long-term viability of these buildings. They should play an active role in supporting the reserve fund planner in developing an adequate plan. They can do this by providing as much detailed information about the building systems as possible, including providing full sets of design drawings and specialty system shop drawings, coordinating discussions between service contractors and the reserve fund planner, and providing details about the BMU if there is one. Annual maintenance practices in skyscrapers should be as proactive as possible; due to the high access and mobilization costs, ensuring equipment reaches its maximum service life becomes critical.

What's a Board to Do?
The financial analysis term used in the reserve fund study should be longer than the service-life of the critical building systems such as the wall cladding. Although the Condominium Act stipulates a minimum term of 30 years, there are many systems at high-rise buildings which last much longer than 30 years. If a board elects to only look forward 30 years, in essence ignoring a $20M-plus project in the reserve fund analysis, they are steering the corporation towards financial challenges. When these very large projects enter the analysis period, significant annual contribution increases will occur, resulting in future owners bearing an unfair financial burden to cover the cost of renewal. Adapting this short-sighted approach also effectively negates the advantage of having longer lasting systems; the advantage being corporations have a longer period to save for renewal if they start saving early. While this adage applies to all condominiums, it is especially true for the skyscrapers.

In selecting a reserve fund planner, boards should carefully consider how the planner proposes to develop budgets. Investing the time and effort upfront to develop quality budgets for renewal projects covered by the reserve fund study will be key to the long-term viability and success of skyscraper condominiums.

The reserve fund planning process for these buildings will evolve over time, just like it did with the older condos. One thing is certain, these new skyscrapers present real challenges for planners, in fact vastly different challenges than the conventional condos from decades ago, therefore the status quo for reserve fund planning is not enough.