Expiring Operating Agreements – Using BCNPHA’s guide in Ontario
Over the next 18 years, housing providers across Canada will engage in planning processes to address expiring operating agreements. Operating agreements were legislated to guarantee funding support and rent subsidies and are tied to the term of a provider’s mortgage payments. While the end of a mortgage is something celebrated by homeowners, social housing providers will see their funding dry up at a time when their buildings may need crucial repairs.
In order to maintain the viability of affordable housing post-operating agreement, it is important that organizations and providers begin to plan for the major changes ahead. This is particularly true given that a large proportion of tenants may require continued subsidies following the end of operating agreements.
The British Colombia Non-Profit Housing Association, in partnership with BC Housing, has prepared a guide to explain the issue and assist providers through the process of planning for change.
The guide outlines a step by step process that breaks down key considerations that housing providers can make, and looks at ways to overcome these challenges. Steps include: reviewing operating agreements, determining financial viability, reviewing internal and external factors, assessing options, and consulting on plans.
- Operating Expenses
- Capital reserve replacements
- Physical Condition
ONPHA worked with CHRA and a number of other organizations throughout Canada to develop a Simplified Assessment Tool, which covers the first three areas. This tool is valuable in determining how providers need to change or plan in order to continue to offer viable housing.
The Simplified Assessment Tool uses information such as revenue, number of units, and year of operating agreement termination, amount of subsidy, inflation rates, and cost of refinancing. This assessment helps determine whether the current project is viable, or needs additional adjustments.
In order to determine physical condition, BC Housing uses a facility condition index – this is an industry standard established by the US Federal Real Property Council.
FCI = Total of Building Repair/Upgrades/ Renewal Needs ($)
Current Replacement value of building components ($)
This calculation can be applied to the following scale to determine the condition of assets:
0 – 5%: Good Condition
5 – 10%: Fair Condition
10 – 30%: Poor condition
Higher percentage means more likelihood of failures, higher costs as well as challenges with staff and tenant morale.
Depending on the needs of individual housing providers, there are several options that providers can go through once operating agreements end:
- Adjust rents, or change the RGI-market mix of the portfolio
- Apply for grants or enter into new agreements with service managers (e.g. rent supplements)
- Pursue strategic partnerships, sell assets, refinance, or follow through with energy upgrade
- Share space, transfer assets
- Redevelop site, or intensify building site
It is important to start planning proactively, making sure that organizations are prepared for these big changes.
ONPHA wants to connect section 95 housing providers – we are creating a new member services moderated listserv! You can join by emailing firstname.lastname@example.org.
Let’s connect, let’s create a community of providers who can share some of these big ideas and challenges.