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I was hoping to get some advise from other board members regarding a tough situation my condo is faced with. We are a small condo complex of 30 owners. The complex is only 14 years old but the developer clearly took shortcuts when building the complex. I moved in 3 years ago and have been Board President for the last 2 years. I inherited only $30,000 in reserves and structural problems that a reputable engineer estimated would cost approximately $600,000 to repair. Making matters worse I have 1 unit owner who's bank started a foreclosure 2 yrs ago that is dragging along. He owes $60,000 in maintenance and fines and 2 other owners who I have started legal action against who owe $25,000 in maintenance and fines.
Anytime I mention a raise in maintenance (bylaws allow only a 10% raise) I get resistance from owners and board members. I assessed the condo $160,000 over 12 months (a compromise, I asked for $250K over 12 months) to do necessary repairs which was met with groans. I mentioned the need for another assessment for at least $75,000 and people are not happy. Any advise on how to avoid a complete financial collapse without being tied to the stake by the owners? The problem is past boards did not make an honest effort to build the reserves and now we have all kinds of problems with no money to deal with them. Any help would be appreciated.
Thanks for the advise. I looked into this and it seems like a good idea. The problem is these loans are not short term. The shortest term is 10 years. When I project 10 yrs to problems not included in the engineer's evaluation (roofs are now 14 yrs old and were not included, driveway/parking has sinkholes, exterior will need painting...all not included in engineers report) taking out a 10 year loan for less than $750k-1Million doesnt make sense. Even if I take out a 500K loan, paying it off over 10 years (with interest) still means we need assessment to cover the costs. A 10% raise in maintenance only amounts to an extra $23,000/year for us. That will not cover the loans. We already are running the place dirt cheap so cutting costs wont be the answer either. Thanks though.
It's easier said than done, but I would say just bite the bullet and assess again. People won't like it but you can't let the building fall apart. Sounds like you're doing this all yourself, though. At the least, you need to delegate some of the work - can't the treasurer share the burden of communicating tough facts to owners? Sometimes we as board members are so caught up in the immediacy of owner/shareholder reactions that we don't let ourselves plan ahead. If you can get through the misery of another year of dissatisfied owners, you will have saved your building. Best of luck!!
Does someone know what should be the suggested OR minimum reserve fund in the 100+ coop building? Can you refer me to the official source of information?
I heard that it should be a certain percentage of the annual building maintenance.
Please advice.
This is a tough situation. Your unit owners need some no-nonsense talk: "Our building is in bad shape, and it's just going to get worse if we keep pretending we can fix it with Band-Aids and a skeletal reserve fund. We've GOT to raise a lot of money and this is going to add to your monthly payments, whether in common charges or as an assessment. If we don't do this now, it's going to cost even more money down the road. We've already delayed this for too long, and we can't put it off any longer. We're all *owners* here, not renters; there's no landlord who can be pressured into solving our problems for us."
I agree with those who suggest that a bank loan is in order. Furthermore, you should borrow *more* than you think you need, not less. I'm a co-op guy and am not sure of the intricacies of a condo loan, other than that the security is the revenue stream of common charges. With one of your unit owners in foreclosure and two others in default, this may pose problems in getting a loan - especially since the condo association's interest is subordinate to the bank's. You may end up with nothing after the foreclosure goes through. (This is quite different from co-ops.)
It sounds from your description like your common charges haven't been increased in ages. This is a terrible idea for a building in your situation, especially when your by-laws cap the annual increase at 10%. I would push hard for a 10% increase immediately, plus whatever additional assessment you need to impose.
You also need to build up your reserve fund. Most sources advise that the reserves should be equal to at least 25% of your annual budget. If you don't have that much - or at least a plan to replenish the reserve fund over the next few years - then a purchaser's attorney will be rightly nervous and units will become difficult to sell. Once the reserves start growing, resist any urge to plunder the fund as an alternative to raising common charges.
Stress to the unit owners that you're not spending money needlessly and that your budget is already tight. Unless they want their apartments to become virtually unsellable, higher charges are essential and must be implemented immediately. Be straightforward and matter-of-fact, but firm. You're not frittering away money on amenities; you're making critical repairs to the building itself.
Thanks. This is very helpful and is along the lines of how i am thinking. The problem i face with my own board members is that they are concerned if I increase the maintenance and assess further it will drive more owners into not paying. I do not know if this is true or not but it makes for a lively debate. The problem is (an I feel bad saying it) there are a number of owners who should not own in our complex because they can not afford to live here. They were able to get by when there were no assessments and the complex was left to fall apart by failing to maintain the place. But now that repairs need to be done, they can not (or at least claim they can not) afford to pay the extra costs
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You could explore bank financing to fund the repairs. There are banks who will lend the condo corp money, and that might be one way to get your repairs done. Most likely common charges will rise to pay financing expense, but probably not as much as doing assessments. Good luck! Sounds like you're in a tough spot.
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