Building Components: Technological Advancements Make Upgrades Worthwhile

https://www.hoalendingxchange.comWith technology advancements, replacing worn elements may be less effective than upgrading to new materials. For instance, wooden decks may look fantastic at a shore side condominium complex. It’s too bad they need to be replaced every 10 years. They just don’t hold up to the elements. Until recently, using wood to replace wood may have been the only option. Now, it is not uncommon for modern materials like plastics, amalgamations, and even recycled products like rubber from tires to be used to offer beautiful options with the benefit of longer life and lower cost of ownership.

There was a time when most condominiums were referred to as “brick and stick”, referring to a simple concrete foundation and wood infrastructure and building exteriors. Today, new materials are everywhere. From the ground up, technological advancements are making modern buildings more efficient and less expensive to maintain over time.

Concrete is still the foundation material of choice but even concrete has seen its share of technological advancement. Additionally, many folks look to finished basement systems to keep them dry and add extra living space. New buildings routinely make use of foundation space that was once relegated to basement storage in many older condominium buildings. Even materials such as steel and pressure treated wood are being used in modern foundations.

External building products like fiber cement are changing how buildings can protect themselves from the elements. They hold their finish longer and offer a 30-year non-prorated warranty. That’s something that wood just can’t do. With the increased damage inflicted by major storms, many communities are faced with the challenge of replacing what they lost. It is actually a perfect time to consider upgrading existing building materials to something more durable and more likely to withstand Mother Nature’s next attack.

Glass-based products like windows and sliding glass doors are constantly being replaced. While the most visible benefit is great looking windows and sliders, there have been vast technology improvements in materials and energy savings that often allow these upgrades to pay for themselves in just a few years time. The U.S. Department of Energy estimates that almost 30% of heating and cooling energy is lost due to inefficient windows and sliders.

Roofing materials have seen technology advancements as well. New materials offer longer warranties and lower cost of ownership over time. Solar electricity can also be a consideration next time the roof needs to be replaced. Solar shingles are not only durable but they can even provide an energy or revenue source for forward thinking common interest communities. Companies like Dow Solar have received millions of dollars from the U.S. Department of Energy to pioneer this technology which they make available to builders and remodelers to incorporate modern construction. Perhaps your next roof will make you money instead of costing you money!

The bottom line is that technology has advanced almost all components of building. Buildings that were fully modern just 20 years ago can experience huge performance improvements by replacing dated and worn building materials with modern, longer lasting, and energy efficient products. Old buildings can look great and perform better by taking advantage of these new building materials. Your condominium or HOA may wish to take advantage of these advances and need funds to do so. HOALendingXchange can help! Simply fill out our inquiry form and our HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.

 

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Is Deferred Maintenance Becoming a Crisis?

https://www.hoalendingxchange.comI recently was processing a loan application for $2.8 million for a Washington State condominium association of 66 units. The loan repayment was going to cause the Association’s regular monthly level income to triple. Not surprisingly, the Association responded that they could not afford such an increase. I appreciated that perspective and agreed. The sad part of the negotiation was that they still needed the funds in order to keep the property in a habitable condition. They were effectively looking for me to be a Genie and turn the Loan application into a Grant request. They were frantic because they were out of options.

I have been specialized in lending to community associations nationally for over 20 years. I have, in recent years, noted a concerning trend with loan applications. The loan requests have gone from funding the replacement of a single component such as a roof to becoming wholesale renovations of the respective buildings. The per-unit project costs have gone from an average of $2,500 to $25,000. The core issue is the underfunding of the Reserve Fund for easily determined future capital maintenance upgrades.

There are States that require, by law, community associations to have professionally prepared Reserve Studies and even require that the studies be updated periodically. The irony is that those proactive States do not require that Reserve funding indicated by the required Reserve Studies be fully funded. One of the States with the most rigorous set of regulations related to reserve studies is California. However, contradictory to logic, it is my most prolific market for loans due to excessive deferred maintenance of associations with inadequate reserves. The state wants the associations to know they are underfunded but they do not require that they solve the problem. What exactly is the point?

Reaffirming my anecdotal experience of excessive deferred maintenance is the number of loan applications that are due to a property being “Red Tagged”. This is something have I only been exposed to in the most recent five years. It is municipalities stepping forward and giving community associations formal notice that they have a specific date to get required repairs completed or the property will be condemned and must be immediately vacated. These types of circumstances do not come about overnight. Typically, there are warning notices issued over extended time periods. Yet, the Associations do not take the steps required. The dialog that ensues with me once these notices occur is that the unit owners cannot afford the repairs. Which is also to say that they could not afford the little bit of extra added to the monthly dues that would allow for building of cash reserves.    Effectively, the unit owners never could afford to live in the particular property that it is about to be taken from them.

In theory, loans for capital maintenance upgrades are not a product that should exist. There is no valid reason for a community association to be significantly under reserved. There is a very accurate and sophisticated system practiced by skilled and licensed professionals to generate life cycle analysis of community association components. The report generated is able to determine the estimated level of cash reserve needed at any point in time for the association to self-fund improvements. Special assessments should be limited to the potential differences in those estimates when actual repairs occur. The additional reality is that most people cannot afford to live in the units they currently occupy because they “claim” they cannot afford the projected future capital maintenance need that should be added to their monthly association dues.

 

There are 3 realities to living in a community association:

  1. The property will wear out.
  2. The improvement projects will not go away or become less expensive.
  3. The only place the funds to support the improvement projects will come from is the unit owners whether by building reserves, special assessments or loan payments.

 

It is my perception based on the ever-expanding problem. In the near future, regulatory agencies such as FHA, the insurance industry or the mortgage industry are going to inject themselves into the problem and require proper levels of reserves. Community associations are not likely to solve this pervasive problem themselves.

 

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Borrowing Is an Option for Home Owners Associations

https://www.hoalendingxchange.comArriving just in time for your aging common interest community is a fairly new option for condominium, cooperative, and timeshare boards – an option sure to smooth those riotous owners’ meetings. It is another arrow in your quiver to solve those nagging maintenance problems that just seem to come out of the woodwork (or are caused by it).

Whoops, we need a special assessment on top of the monthly assessment increase you just approved three months ago! So, who could know that a sinkhole would form in the parking lot?

The option that more and more condominiums are discovering is the bank loan. This option is arriving on the condominium scene all across the country as more and more properties are facing the problems of aging. Many condominiums were built in the mid- to late- 1970s, making them 30+ years old. It is well past time for things to go bad. Or, framing the problem in terms of technology improvements and desires for aesthetic changes, there is a need for upgrades.

Another group of complexes that have a lot of work to do are those built in the mid- ‘80s. Unfortunately, it is not unusual for this group to suffer from poor workmanship or low-quality materials. These weaknesses are now resulting in premature problems.

Typically, condominium associations have been left to their own resources to support the cost of the repairs that are needed. The results have not been particularly favorable. The cost impact of these projects makes residents shudder. Often, the projects compound on top of themselves with the result being maintenance imprudently deferred.

One way out of this dilemma is planning properly for failing components and financing the current project(s) with a loan sought through HOALendingXchange to smooth the impact on unit owners. By utilizing a loan, the cost of the project is spread over several years instead of a few months and most owners will appreciate this approach.

There is a third group of associations that can benefit from financing through HOALendingXchange.  These are complexes that are subject to land leases. These associations can purchase the lease and pay off the obligation long before the lease would ever mature in order to potentially save a large sum of money! Perhaps there is a need to purchase adjacent land as a buffer from undesirable development or to acquire a parcel that has been accessible only by easement. Of course, facility additions like building a clubhouse, pool, tennis court, etc., also make sense to finance.

Now, how do you find a bank that can provide the financing?  Financing for condominium associations is relatively new. Changes in state statutes across the country have made this industry a viable and safe place for bank financing. However, most banks have little experience with this industry. The first chore is to find a financial partner that is comfortable and skilled with financing a condominium association. HOALendingXchange is the logical choice to find financing as matching borrowers and lenders at HOAs, condominiums, cooperatives, timeshares and other common interest communities is our only business. Simply fill out our inquiry form and our HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.

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New Funding Resource for Timeshare Renovations & Upgrades

https://www.hoalendingxchange.comThe competition for consumer disposable dollars in today’s economy is tough. People of all economic levels are being dramatically affected by declining real estate values along with increasing food and energy costs. The vacation product you are presenting to the market, therefore, needs to have excellent value, making it a cost-effective, satisfying choice for the timeshare owner. Keeping the resort looking fresh and new is of key importance.

With the rapidly increasing costs of construction, a loan for a project that you finance now (versus piece meal over an extended period) could help mitigate those cost increases and will improve the curb appeal now. HOALendingXchange.com works directly with lenders that have loan funds available for refurbishments/upgrades and new facilities (a clubhouse, pool, tennis court, etc.). Often associations want to purchase adjacent land to prevent unwanted development or to acquire a parcel that has been accessible only by easement. We can help.

Non-Real Estate based bank loans for timeshare associations have increased in popularity in recent years, as resorts built in the mid- to late-80s and 90s are starting to age significantly. The concept has been available to the residential community association industry for more than 20 years. The loan only uses the association’s cash flow as the basis for the loan along with an assignment of assessment rights as collateral. Many timeshare associations haven’t accumulated reserves based on a properly done and frequently updated reserve study, so they typically require a special assessment. Given the current economic climate, special assessments are falling ever further out of favor with interval owners. Associations that are subject to land leases or for amenities can also benefit from loan financing with the buyout of the lease. It is a particularly active transaction in Hawaii. These associations can purchase the lease and pay off the obligation long before the lease would ever mature.

Financing for timeshare associations is relatively new and must abide by laws each state sets out in a Common Interest Ownership Act or other industry specific regulations. The first thing that you may wish to do is contact the association’s counsel to determine if there are any legal obstacles. Associations may need to update their declarations if they don’t have a legal capability to borrow or assign their common charge assessments as loan collateral. Each set of declarations includes unique steps that empower the Board to enter into a financing agreement and encumber the assessment rights. It’s important to understand the details of the process and what will be required, so you avoid any surprises or delays in later stages.

Visit HOALendingXchange.com today. Many banks have little experience with financing for timeshare resort associations. Our application process is simple and straightforward. Simply fill out our inquiry form today and start your renovation or upgrade project tomorrow.

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Lending to Condominium Associations

https://www.hoalendingxchange.comLending to a condominium association is not unlike lending to a municipality. No loan losses from condominium associations have been reported by those banks with the most lending experience, most notably in Florida and California. There are special considerations when lending to a condominium association, several of which are discussed in this article.

Common Interest Realty Associations (routinely referred to as CIRAs) are legal entities formed from the organization of real estate property owners, generally as non-profit stock corporations. They proliferated in the 1960’s when condominiums became the most common form. This concept evolved into other forms of CIRA structures, including cooperatives, home owner associations (HOAs), and time shares. HOALendingXchange.com services all of these types of CIRAs.

Items that can be funded are diverse. The unifying issue is that the funding be project-specific. Typical funding projects are such items as roof replacement, conversion to vinyl siding, driveway resurfacing, and central mechanical system upgrades. Associations have sought funding for expanding recreational facilities and purchasing adjacent land as a buffer for easement controls.

Whatever your financing needs are, you can be certain that a lender at HOALendingXchange.com has experience in your area of need. Simply fill out our inquiry form and our HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.

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Downfalls of Deferred Maintenance

https://www.hoalendingxchange.comA euphemism that is far too overused in the community association industry is deferred maintenance. Deferred maintenance is nothing more than an admission by the governing body and home owners of a common interest community that a failure to accept the known expense of proper maintenance has been caused, tolerated, or otherwise not addressed by the governing body responsible for seeing to it that those funds are collected and spent for proper maintenance of the community’s common elements. This includes the home owners’ acceptance of the budgets put before them that allow for properly timed maintenance.

In best case scenarios, deferred maintenance leads to special assessments and/or increased common fees for current and future owners as they pay back loans and begin properly funding future maintenance projects. In worst case scenarios, deferred maintenance leads to disaster, not unlike the deck collapse witnessed just outside of New Albany, Indiana just a few years ago. Such events should be a wake-up call to all governing bodies of common interest communities.

The argument in favor of deferred maintenance is a simple one. Communities that wish to keep their common fees artificially low really only have one option to do so; that is to not properly set aside money each month for future maintenance. Other expenses happen no matter what and have immediate consequences if they are not. Insurance premiums must be paid or the property goes uninsured. Common utilities must be paid or the lights go out and the water dries up. Management fees must be paid or the community is left unmanaged. The only item that is easily removed from the budget is future maintenance. There is no monthly bill for it and there is no immediate penalty for not collecting it. Only when the signs of deferred maintenance appear does the governing body have to defend its actions. Typically the repair is dismissed with a simple statement of “there isn’t enough money in the budget to repair that item this year”. This is the falsehood that compounds itself and turns the sweetness of lower common fees into the bitterness of deferred maintenance.

The argument against deferred maintenance is far more convincing. One needs only to look at the facts to draw this conclusion. Planned maintenance comes with a planned budget. From the moment a common element is introduced into an association it begins the process of aging. Aging common elements will need to be repaired and replaced over time. It isn’t a question of “if” but rather “when”. Many items have known product useful life spans. Roadways, roofs, sidewalks, tennis courts, decks, and many other typical elements will be used and consumed by unit owners from the moment they are installed. This use needs to be paid for by the unit owners who are of record as these common elements are being consumed. That means the dollar amount to replace these items needs to be collected monthly and held in escrow by the association’s governing body so that the money is available when it comes time to replace the aging common element. Every day, a home owner uses a measurable amount of the common elements: roof, siding, driveways, etc.. Every member needs to pay their way as they live in the community.

There can also be significant consequences to taking the path of deferred maintenance. In the Indiana deck collapse case, it is now being argued that the deck should have been replaced by the association as it had exceeded its 10 year usable life span as certified by the installer. While there were no deaths associated with this deck collapse, the association is now on the receiving end of a major lawsuit. How will it justify not having addressed the replacement of this common element after it had outlived its suggested life span? Will deferred maintenance be cited as a reason? Will the courts see this as a reasonable defense or will the association have to replace the deck anyway and also pay for the settlement of the lawsuit? As you can see, deferred maintenance is not a proper way to save money. It often ends up costing so much more.

I encourage all members of governing bodies of community associations across the country to take a good look in the mirror and ask if they are guiding their communities down the path of great financial stewardship. If not, take a look at the facts and make a resolve to address the nightmare of deferred maintenance and to create a fiscal plan that includes a proper funding of upcoming maintenance projects. It may cause community associations to charge their members more each month but the money they are ultimately saving is in the best interest of all involved. It may even be the best way to prevent future tragedies like the deck collapse we have just seen in Indiana.

There are three inescapable truths all associations need to accept. The project will not go away. The project only becomes more expensive as it is put off into the future. There is only one place from which to draw the funds needed and that is the home owners.

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