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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Storm & Catastrophic Preparation – An Emergency Line of Credit

https://www.hoalendingxchange.comWe are in an age of dramatically more devastating natural events: frequent and expansive wild fires, intense hurricanes, stronger tornadoes and historic rains/snowfall resulting in record flooding. As never before, establishing catastrophe planning strategies supported by adequate insurance coverage is a critical element to restoring the facilities impacted.

There is a banking program specific to community associations that is particularly valuable for the environmental changes being experienced. The program has traditionally been referred to as a “Standby Line of Credit for Named Storm Damage”. The reason such a bank facility becomes valuable has largely to do with expediency and unforeseen dilemmas with insurance coverage. The general description of such a program is that it is an existing availability of cash specific to the occurrence of a particular catastrophe. The funds may be needed to protect damaged property from further deterioration, restore the property while waiting for insurance proceeds or to restore uninsured portions of a property. For instance, many communities have landscaping and ground cover features worth thousands if not millions that are not insurable. There may be unanticipated loopholes in coverage such as damage to a swimming pool from a flood not being covered.

An emergency Line of credit for named storm damage typically is structured as follows. The association applies with a community association specialized bank.    The loan amount is determined based on what level of restoration the association may want to accomplish in an immediate time period versus waiting for insurance proceeds. For instance, NOAA identifies the East Coast hurricane season as being from June through November. Consequently, a bank would establish an annually renewable line of credit for the time period of May 1st through April 30th. This allows for a community association to experience the catastrophe, draw on the credit line and hopefully have enough time to repay the amount advanced before the next hurricane season starts. A properly structured credit facility will have a term loan function built into the loan documents. Meaning, if the credit line is not paid off by the April 30th expiration date of the credit line, the principal amount outstanding will automatically convert to being an amortizing transaction. The term of this amortization period may be 3, 5, or 7 years. It is likely that if such a conversion occurs, the renewal of the credit line may not occur. Although this is the traditional product structure based on Named Storm Damage, the concept can be adjusted to accommodate regions susceptible to wild fires, flooding or tornadoes.

Approval for such a bank program may have some unique credit review criteria.   As insurance coverage is the anticipated appropriate payout resource, a bank may require review of the Association’s insurance coverage by a licensed public insurance adjusted to be sure the property is adequately covered. It is likely the association will need to have reserve balances that are sufficient to support the level of insurance policy deductibles. Other standard community association loan approval criteria will likely apply: delinquency level within an appropriate range; investor/owner ratio with an appropriate range; collateral being a first position assignment of assessments.

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Delinquency and the HOA

https://www.hoalendingxchange.comThe timely collection of fees and assessments is the lifeblood of any HOA, condominium association, co-operative, or timeshare. However, unit owners are not always able to pay their fees and assessments on time. Depending on the state you live in and the penalties for late payments ascribed in the governing documents, delinquency is handled in one a few different methods. This article describes some of the best practices common interest community associations can use to keep their delinquencies to a minimum and their collection efforts on track to keep the revenue flowing while the delinquency is remedied.

Most HOAs have rules about when payments are late and what steps the association should take to collect delinquent funds. Consult with your association’s governance documents to see how delinquencies are handled at your HOA. If the documents are silent or the penalties are not strong enough to encourage compliance, it may be time for new rules and a document revision to help ensure that there are adequate penalties and remedies in place for late payments. Generally speaking, a fine ($25 or so) is imposed for payments that are 10 days or more in arrears. Additionally, there are collection efforts at 30, 60, and/or 90 day intervals when payments are missed.

At 30 days, a letter of demand is usually issued. This letter details the delinquency, reaffirms the fine that went out 10 days after the payment was missed and details what further collection activities await if the payment is not made in timely fashion. At 60 days, the matter is generally turned over to the association’s attorney or collection agent for legal proceedings. The legal costs are generally paid by the association and assessed to the delinquent unit owner as outlined in the association’s governing documents. The simple desire to avoid all of these additional costs is usually enough incentive for the unit owner to make good on the debt at this time. The addition of the attorney’s fees on top of the unpaid common fees and fine really drive up the debt. It is not uncommon for these fees to top $500 or more depending on the part of the country you live.

Finally, if the delinquent unit owner is unable or unwilling to pay the delinquent fees, the association can begin foreclosure proceedings against the unit owner. Again, laws vary from state to state but, generally speaking, delinquency can be remedied via foreclosure action, although unit owners have very specific rights from state to state. That is why it is best for associations to work closely with legal counsel during this phase of collection procedures. Laws also vary from state to state about the right of priority (who gets paid first) when foreclosure occurs as there are usually multiple claimants in the foreclosure proceeding. It is a drastic and final measure for just this reason.

There are times when HOAs, condominiums, timeshares, and cooperatives simply need more money than they have collected for capital improvement projects that are needed. HOALendingXchange.com is the easy choice for community associations and HOAs seeking money. Getting started with your own HOA loan is easy. Simply fill out the HOALendingXchange inquiry form and HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.

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Capital Maintenance Loans Can Provide Funding for Community Association Projects

https://www.hoalendingxchange.comCapital maintenance loans are available to condominium and homeowner’s associations to fund projects when there is a lack of adequate financial reserves. Whether you are a Property Manager, Board President or a service provider to a common interest community, there will likely come a time when there just isn’t enough money to fund the next big project. Inflation, failure to plan, unforeseen expenses and more can create a cash drain on even an otherwise successful community association. In the past, special assessments seemed to be the only way a community could quickly raise capital to fund these projects. Today’s savvy community association leader knows that a capital maintenance loan is almost always a better choice to fund such projects for so many reasons. HOALendingXchange can help!

Upfront benefits include the ability to act on behalf of the association as a whole rather than relying on the special assessment process of levying and collecting assessments. Owners within the association will be asked to increase their monthly payments instead of having to come up with a lump sum all at one time. This is more in line with how they pay for other expenses in the association and will not, typically, create an undue burden, unlike the special assessment which brings with it an ominous “pay now or else” collection approach. Once the capital maintenance loan is secured, the association can get on with the business of evaluating bids, hiring contractors, purchasing materials, and spending their efforts where it is most needed in bringing the capital maintenance project to successful completion. They can do so with the confidence that they have the ability to pay their vendors and suppliers, which savvy negotiators can even use to their advantage to get a better price.

The types of projects that are eligible for capital maintenance loans are extensive. They range from everyday items such as roof replacement to far more complicated projects like marina restoration. Capital maintenance loans could be used for sidewalks and walkways that need repair or a complete parking lot installation. The one thing all of these projects have in common is a large price tag. Even communities with healthy reserves should consider the value of financing their capital maintenance projects with a loan instead of draining the reserve fund. It allows the community to remain fiscally strong and complete its capital maintenance projects.

HOALendingXchange was designed with community associations in need of capital maintenance loans in mind. Our community association lenders are experts at working with community association leaders and designing capital maintenance loan programs that are right for them. Every community association loan we arrange is as unique as the community our banks loan to. We make it easy for communities to apply. To learn more and see if your community association qualifies for a capital improvement loan, get in touch with HOALendingXchange today!

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Reserve Studies: Preparing for the Inevitable Maturation of Building Components

https://www.hoalendingxchange.comSome things just get better with age. Wine or cheese, for example, may actually improve as they get older. The same cannot be said for the common elements of a condominium or community association. From the moment the first unit is built, the battle to maintain, protect, and enhance the building components begins. A well thought out Reserve Study is the proper guide to win this war. It can be the difference between success and failure in the struggle to keep the community’s common elements in great shape as it battles the process of maturation of the building components. HOALendingXchange always recommends association’s keep their Reserve Study current and active.

One way to assure that your community association is properly prepared is to hire a Reserve Specialist to review or prepare your community’s Reserve Study. Reserve Specialists have a unique set of skills that combine engineering (typically construction management, architecture, or civil) with financial planning. This allows them to not only summarize a community association’s current state of affairs but to also offer advice on how best to plan and save for future projects. While no Reserve Specialist can guarantee your community’s success by following the Reserve Study guidelines, it is far more likely that your community will thrive under its guidance.

Speak with a qualified Reserve Engineer. The Community Associations Institute (CAI) offers the Reserve Specialist (RS) designation to qualified professionals who have prepared at least 30 Reserve Studies within the past 3 years. They require the RS candidate to hold a bachelor’s degree in construction management, architecture, or engineering (or equivalent experience and education). Some states actually require common interest communities to conduct proper Reserve Studies and to adhere to their guidance in developing common fee schedules and contributions to the Reserve Fund. Finally, designated Reserve Specialists must adhere to the Professional Reserve Specialist Code of Ethics.

Reserve Studies cannot completely predict when building components will fail but they can provide solid financial advice on how those components can be paid for once they fail within a specified timeframe. Just as insurance is there in case Mother Nature deals your community a blow, a Reserve Study will help you prepare for Father Time’s visit. It is not a question as to “if” but rather “when” with regards to repair and replacement of building components in your community association. Without a Reserve Study, your community is relying on luck and gut feel of the Board to make financial decisions that will have a major impact on all members of the association. If your community association doesn’t have a proper Reserve Study, there is no better time to start one than now. And if your community association finds itself in need of an HOA loan to pay for revitalization or replacement of aging common elements, we’ve made it easy to seek the funds for the project. 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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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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How Does Your Timeshare Association Qualify For a Loan?

https://www.hoalendingxchange.comAt HOALendingXchange.com, we endeavor to make the timeshare loan process as simple as possible. Our greatest focus will be on determining if your timeshare complex is managed well. We also will be looking for stability and consistent cash flow, and whether or not the loan could be repaid without straining the capacity of the association through its owners.

Our inquiry process requires submitting project information, details about the association (including a financial history), and a plan on how the loan will be repaid. You also will need to provide current year budgets with year-to-date actual results. Data on the aging of assessments is critical, as is the balance of unsold inventory and the velocity of inventory turnover.

A budget proposal reflecting the routine needs of the community for operating costs and regular maintenance with the added level of proposed debt service is necessary. Pay close attention to the collection record of your assessments. If these charges show an inappropriate number of delinquent intervals or frequent charge-offs, this is a red flag. The delinquency level that we are looking for is only of the interval or club owner paying the association’s assessments and other charges, not in the mortgages of owners to their creditor. The inventory of unsold intervals is of interest because it may suggest the level of marketability of the resort and therefore the stability of the cash flow. A professional life cycle analysis of common elements has hopefully been prepared and its recommendations implemented. Insurance coverage is also an important matter. The bank will be looking at your policy to determine if there is prudent coverage of risks, especially in storm-prone areas.

The structure of the timeshare loan is important. Keep in mind that your project costs will most likely increase. Keep the term of the loan as short as possible – most loans are typically between seven and ten years. Most importantly, it is likely that you will have to increase the budget to support the debt servicing need. Recognize that the complex is continuing to age and other extensive projects will always need to be addressed. The association board would be wise to have paid off this debt before the next large project appears. Otherwise, the new assessment cost will compound on top of what you’ve already financed. This situation is not just straining, it will cause high assessments that depress your property values.

Visit HOALendingXchange.com today. Simply fill out our inquiry form and our skilled lenders can structure a productive package for your association in conjunction with the rest of your professional team. The process may seem complicated, but it’s a good option for your association for necessary upgrades and future growth. 

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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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