Spend­ing too lit­tle can cost big dol­lars

Calgary Herald New Condos - - New Condos - BERNIE WIN­TER

Dur­ing the past year, con­do­mini­ums in Al­berta have too of­ten been a news item be­cause of own­ers be­ing af­fected by costly re­pairs.

There have been hor­ror sto­ries of build­ings need­ing to be evac­u­ated, with spe­cial as­sess­ments of $60,000, $100,000 and even $187,000 per owner be­ing levied. Len­ders and de­fault in­sur­ers are be­ing cau­tious. What does this all mean? When a build­ing has the need for im­me­di­ate re­pairs that are to­talling mil­lions of dol­lars, there is typ­i­cally one of two sce­nar­ios go­ing on — de­ferred main­te­nance, or build­ing con­struc­tion de­fi­cien­cies. Of­ten, it is a com­bi­na­tion of both. Both of these sce­nar­ios are de­tectable and solv­able if the gov­er­nors re­spon­si­ble for the man­age­ment of the condo pro­ject take the steps re­quired to in­ves­ti­gate, mon­i­tor and plan ap­pro­pri­ately for im­me­di­ate and on­go­ing main­te­nance, as well as long-range cap­i­tal re­place­ment ex­penses.

Take a look at one of our condo pro­ject clients (which I shall not name).

The pro­ject was built in the early ’90s and is now about 20 years old.

The build­ing was well-con­structed and in­cluded ameni­ties such as un­der­ground park­ing, an in­door pool, ten­nis courts, court­yards, so­cial rooms, of­fice, and more than 200 res­i­dences.

For the past 20 years, the own­ers of the units, sup­ported and de­manded that the board of direc­tors keep the fees as low as pos­si­ble.

Many own­ers rented out the units and re­ally didn’t care to in­vest in the prop­erty. Their goal was to cover their mort­gage and fees with the rental in­come.

Be­ing able to rent for low rents en­sured the unit was never va­cant.

For the past 20 years, 70 per cent of the units con­tin­ued to be rented with this “no spend­ing” mind­set from the board of direc­tors and the ma­jor­ity of in­di­vid­ual own­ers.

Af­ter 20 years of ne­glect and mis­man­age­ment, the prop­erty needed ev­ery­thing from me­chan­i­cal sys­tem re­pairs and re­place­ment, to park­ing lot paving.

Clean­ing and re­moval of junk stored in com­mon ar­eas re­quired sev­eral truck­loads be­ing hauled to the dump.

Do you think the own­ers wel­comed the need to spend money and to en­force the by­laws?

This is what it took to get this prop­erty cleaned up and back to a pris­tine, re­spectable con­di­tion that an owner would be proud to live in and be able to sell for top dol­lar.

Own­ers did not thank the board for the years of sav­ing them money; in­stead, they be­came an­gry and protested and pe­ti­tioned to re­move the board and prop­erty man­ager that were now pro­vid­ing lead­er­ship and clean­ing up this pro­ject.

Within less than two years, the now com­pe­tent board of direc­tors, un­der the lead­er­ship of a com­pe­tent prop­erty man­ager, had re­vived this prop­erty.

All own­ers are ben­e­fit­ing from its facelift, in­clud­ing those that protested and re­sisted.

Some own­ers lost their prop­erty to fore­clo­sure be­cause they were de­ter­mined not to pay their share.

They lost their in­vest­ment for not be­ing re­al­is­tic about the need to in­vest in the prop­erty to net a re­turn on that in­vest­ment.

There are too many of these projects that are strug­gling to re­pair what is needed and that are in dis­ar­ray due to by­laws not be­ing en­forced and condo fees be­ing kept low.

In the end, the cost to sus­tain prop­erty val­ues is real, mea­sur­able and for the most part, pre­dictable.

For many of the con­dos which have been the fo­cus of re­cent news sto­ries in Cal­gary, when I took the time to check our files, I dis­cov­ered we have com­pleted a num­ber of doc­u­ment re­views for these con­do­mini­ums.

In all of the re­ports we did on these con­dos that be­came news­wor­thy, we had in­formed the buy­ers that there were not enough funds in the re­serve — that the re­serve ac­counts were not healthy.

We noted that there were sev­eral ref­er­ences to things such as wa­ter, en­ve­lope and mem­brane prob­lems, de­ci­sions to do tem­po­rary re­pairs, en­gi­neers re­ports stat­ing there is a lot of work ma­jor re­quired ... and on and on.

We de­tail item af­ter item in our re­ports so that buy­ers are in­formed be­fore they pur­chase.

This in­for­ma­tion is avail­able in the doc­u­ments that are avail­able to own­ers as well as buy­ers — so why are own­ers sur­prised when they get the bad news?

These large as­sess­ments are fore­see­able and in­evitable when condo own­ers en­cour­age boards to keep fees low.

When we do a re­view, we are not al­ways able to de­ter­mine the amount of the cash call needed to get caught up. How­ever, com­mon sense says that as the years go by with­out ad­dress­ing the ma­jor is­sues, the dam­age grows along with the costs of re­pair.

At the end of the day, the board of direc­tors and the pro­fes­sional man­agers know that they need to mit­i­gate the dam­age early and plan for re­me­di­a­tion to keep costs man­aged.

It is not easy for board mem­bers to raise fees when the econ­omy is drop­ping, or to do a cash call (spe­cial as­sess­ment) when they know their neigh­bours are ex­pe­ri­enc­ing an eco­nomic crunch.

The fact is that it is the duty of a board of direc­tors to main­tain the prop­erty and to en­sure prop­erty val­ues are sus­tained.

Yet too fre­quently, this duty takes a back seat to the wrath of own­ers who re­ceive an in­crease in fees.

In the end, the costs will in­crease, the as­sess­ments will be­come un­man­age­able and con­do­minium own­er­ship will con­tinue to get a bad rap.

The real so­lu­tion is for own­ers to re­spect that they are in­vest­ing in the con­do­minium and stop re­sist­ing the costs re­quired to main­tain that in­vest­ment.

Con­struc­tion de­fi­cien­cies ex­ist in all build­ings. This is a fact.

Some have more de­fi­cien­cies than oth­ers and in some cases, there is neg­li­gence by a de­vel­oper or con­trac­tor.

This is true for all prop­er­ties, sin­gle­fam­ily homes and com­mer­cial build­ings, not just con­do­mini­ums.

It is the duty of the “gov­er­nors” of the prop­erty — whether they are the owner of a sin­gle-fam­ily house or the board of direc­tors of a con­do­minium — to iden­tify the prob­lems, mit­i­gate the dam­ages and to get the re­pairs or de­fi­cien­cies reme­died.

As con­dos are gov­erned by vol­un­teer boards, it is im­por­tant the own­ers sup­port these vol­un­teers by liv­ing in ac­cor­dance with the by­laws.

They must not only pay fees and as­sess­ments on time, but pay at­ten­tion to no­tices and news­let­ters and at­tend the gen­eral meet­ings so they are in­formed of the prob­lems and style of man­age­ment these boards are ap­ply­ing.

Spend­ing too lit­tle, too late re­sults in big dol­lars be­ing needed at some point in time.

Own­ers need to sup­port boards that do their home­work us­ing pro­fes­sion­als to en­cour­age the boards to spend what it takes to main­tain the prop­erty — and to re­spect how hard it is for board mem­bers to in­crease fees and levy as­sess­ments on fel­low own­ers and them­selves.

Be­ing a board mem­ber in a con­do­minium can be one of the most thank­less jobs one ever has.

How­ever, when you can walk the prop­erty proudly — know­ing it is your vol­un­teer ef­fort that is vis­i­bly mak­ing the con­do­minium not only a home with peace of mind, but a great in­vest­ment — the re­wards are many.

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