CONDO ARCHIVES

Who’s Driving the Bus – Case Study

March 2021

Your condo building is about 40 years old.  It has 240 units, a reserve fund deficit of about $1 million and loan of $1.4 million.  After years of mismanagement and low monthly fees the situation is dire.  Neither condo board nor owners want to apply to the court to have an administrator assigned to them.  An administrator is a temporary option, paid for by a condominium corporation that has proven incapable of managing its affairs.

This is not a hypothetical situation.

There are three issues the current condo board needs to address.

Condo Fees

Condo fees were set at about half of what they should have been.  Maintenance has been neglected for many years.  As a guideline, Brown & Beattie, an engineering firm that prepares reserve fund studies, often calculates that reserve fund contributions average 30 to 40 percent of condo fees although many communities can fall to either side of this range depending on circumstances.

There is a reluctance to raise condo fees.  Yet that is the only solution for paying what it costs to maintain the building.  Owners have no choice but to accept a doubling of condo fees to pay for necessary maintenance and repairs.

Special Assessment

A special assessment of about $6,000 per unit is needed to retire the loan.  Failing to retire the loan means continued payment of interest charges.  An additional $1,000 per unit added to the assessment would provide the corporation with funds to replace old equipment and begin the process of fixing the building.

Cost Reduction

The condo budget should be scrutinized for ways to reduce operational costs.  Greatest opportunities are in the largest line items of a budget.

  • Energy costs generally account for 30 percent to 40 percent of a condo budget.  Implementing submetering would encourage residents to be more responsible in their energy use saving money for both them and the corporation.
  • Energy costs can be further reduced while improving resident comfort by replacing older equipment and using more energy efficient lighting.  Funds from the special assessment combined with available government programs should cover the cost of upgrades offering the greatest opportunity for savings.
  • Management costs can often be reduced by using fewer staff, outsourcing services and making greater use of technology.
  • Security and concierge costs can be reduced by eliminating hours of coverage and greater use of technology.

Starting in about a year condo fees should be able to decline somewhat as costs decline.  After three years of prudent management condo fees may reduce further as savings from cost reduction efforts are realized.

It is possible for struggling or failing condo corporations to stabilize and improve.  The board requires pragmatic individuals prepared to make difficult choices to put the community on a sustainable path.

 

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