Condominium Residents Fund and Build Their Own Garden

One thing that living in a condominium doesn’t really meet the needs of – green space.  Condominum at it’s heart is about higher density living (sometimes very high density), and green space requires land that could otherwise be monetized by a developer.

One of those “if I had my way” – would be to require some additional green space development, or land set aside, with the development of each condominium. Even though I love the urban environment, I’ve come to understand the power of a little green space on life. The condo I live in was specifically chosen because of a large surrounded courtyard, as well as being right beside a large public park and river.

With that in mind, it’s a great smile to read of John Zayac and Dr. Marie Simon, who leased the land beside their condominium to build a garden. If you follow the link, don’t forget to view the 9 or so pictures, they are gorgeous.

If we can use this site as an example of what dedicated condominium owners would do with some land, perhaps we can use this park to excite municipalities about the benefits of reserved green space with each new condominium development.

Green space helps with the anxiety and stress that can come from higher population densities. Unlike the lament that Kermit sings, it shouldn’t be so difficult being (creating) green.

Real Estate Lawyer Recommends Removing Mortgage Protections to Stimulate Greed

It really shouldn’t surprise me that a lawyer who “represents developers, builders, lenders, corporate and institutional property owners and real estate brokers” advocates that the very protections put into place because of the poor actions of industry he represents should be repealed, so the industry can wallow in greed to which they would “start making money in housing, and lots of it.”

Just to be clear from his opinion, Seth G. Weissman says –

Rather than looking at investors as vultures or potential mortgage fraudsters, an attitudinal shift needs to occur where they are embraced as the potential saviors of the housing market that they are. Until investors start making money in housing, and lots of it, there will be no recovery in the housing market. This will only occur when disincentives to invest are eliminated. Like in any other market, when fear is replaced with greed, housing inventory will decline, prices will rise and a sense of urgency to buy will be restored to the market.

Very heady words there – including saviour. The premise argued seems to be that higher house prices should be the directed effort the industry and that would be a good thing.

But good isn’t about increasing housing values. It’s about generating fair market value of the actual product between buyer and seller. That’s not what we had during the recent boom.

Like any boom and bust cycle (all the way back to tulips), investors focused greed created immense inequity between the true value of a product and cost of the products.

Investors don’t value the idea of a fair market value of the property – they value the ability to flip a product as quickly as possible at a profit. The investor is bullish on taking a product in a boom cycle and encouraging the market to continue to increase well beyond the rate of inflation (artificially – by creating a sense of urgency, but not an actual urgency). On the flip, they also look to strip the product of any removable value converting it into their own wealth. Indeed, anything left on the table for the new purchaser is lost revenue for the investor.

The wreckage of the last boom cycle is still showing it’s scars upon the market and individuals (it really has been scant months). The damaging wake of a greedy industry is responsible for why so many properties still have mortgages greater than their value. The market hasn’t had time to correct. The burst hasn’t completed.

To call now for the removal of barriers preventing naked greed in the real estate industry, and to once again fleece the public, even before the bust completes, well, is pure greed. But what else should I expect.

Condo Owners Often Pay Twice For Trash

It’s nice to see a proactive city council – East Greenwich, Rhode Island – looking at city pick-up of condominium trash.

Cities extensively benefit from condominiums – each condominium unit pays property tax, but the corporation (especially in townhouse and high-rise) usually have to pay for third party services often offered to single detached housing.

This is often true with trash pick-up. Condominium owners pay municipal tax and then have to pay part of their condo fees for non-municipal trash services.

So it is always nice to see a city council look at delivering fair services to all their properties, instead of taking the property tax and “running.”

With Great Responsibility Should Come Great Oversight

I’ve been reading about The FBI investigating corruption at the Home Owner Association level in the US, and about laws being proposed to help remedy the situation.

The investigation stems from the board using it’s authority to award contracts to which they have a conflict of interest. The argument outlined proposes that developers and lawyers have been purchasing a single condo in an association, then getting on the board to drive work to their (or associates).

It’s really not a terrible risk – the developer can buy a unit, and rent it (and later sell it) without the likelihood of any financial risk there, while generating millions in work (especially given the growth in building deficiencies).  It’s less of a risk because it’s very hard to find and stop conflict of interest.

Even without a plan to exploit the association or corporation, board members can pay themselves for work that could be done by volunteers, or over the years continually prefer one vendor over another because of perks – gifts, dinners, tickets – all things handed out in the name of marketing. Some – if you had the information – are easier to spot, the same contractor name popping up when they are the highest bidder of solicited quotes.

The problem is spotting these issues, which can be extremely difficult if the board has the same people on for a decade or more (not unheard of). Even the president of the United States has a term limit. No such thing with associations and corporations.

With today’s tools to communicate there should be higher transparency, more access to decisions, and better follow-through. It should almost be a legislative requirement that Twitter like feeds must be used by boards to communicate with their owners’ ongoing issues and solutions with their condo.

It is very clear that many boards act as a sort of Star Chamber and that will only lead to issues later on. I’m all for one on prosecuting these individuals and boards legally for infractions of by-laws and government legislation. With so many thousands of these quasi-legislative (and judicial) organizations, movement needs to be made now on opening communication.

GE Capital Retooling Real Estate Portfolio

It looks like General Electric Co. in the US has started to look again at retooling it’s real estate lending portfolio after losing over a billion dollars in the last year or so with their GE Capital sibling.

Over the last three years there have not only been significant losses from quarter to quarter for GE Capital, but the entire portfolio was shrunk 30% since 2008. There current $67.6 billion portfolio will be further shrunk to about $50 billion, down almost half from the $95 billion of 2008.

In the 2000 – 2007 economic boon GE Capital class lenders (vs. banks and other options) accounted for up to 10% of the loans, and they specialized in risky “value-add” developments (value add developments tend to focus on construction, improvement or rehabilitation of property – meaning the loans that require additional, and successful, development before reaching the value of the loan). In many cases during the crash, the development of property for these value-add loans failed to reach the level of the loan. Hence the significant losses and GE Capital removing itself from the lending market.

Their toe back in the water (as described by GE Capital spokesman John Oliver) is really that. They recently did an $85.5 million dollar placement.

What does this mean for the average US home owner or purchaser – not a whole lot immediately, but it may indicate that after three years of a very tight lending environment that some companies are seeing a possible (though with extensive due diligence) opportunity to generate wealth in the new-construction, improvement or rehabilitation of real estate. If that trend follows, that would mean we are approaching a nice bottom in the real estate market for selected regions and type of real estate. But at least new lending facilities are opening up period.

The US housing situation has taken a battering, and if I had my thoughts, I wouldn’t think that we’re going to see an upside any time soon. Even if the US government can figure itself out of the current budget fiasco, the makings of the fiasco still loom, and the economy hasn’t figured out what to do with the current unemployed, much less grow at a rate that can absorb all the new people entering into the workforce. To me there is still a very solid downward pressure on wage and benefits that will continue for many years, perhaps a good decade or more.

But if we can see some new growth for value-added development, not only may we see some pickup in the creation of new condominiums, but importantly for the US – maybe the rehabilitation of some of these monster-abandonment condos which now need significant funds to bring them to inhabitable status again.

Living Close With People and Restaurants

I’ve often mentioned that condominium living is communal living, and part of buying into a condominium is realizing that you’ll be living in close quarters with people of all types. With that in mind, you’ll have to learn to live with the idiosyncrasies of others to some extent.

There’s another level of communal living with many condominiums though – and that’s the location of the building. Often condominiums are used to infill downtown cores and beltlines, substantially increasing the core population density, shortening work commutes, and breathing new life into a city. In one aspect then, the building is part of a local municipal community/zoning area which may include non-residential businesses including, but not limited to, restaurants.

Well built condominiums will over pressurize hallways to keep individual unit cooking smells in the units and not propagating to others in the building. But keeping out the smells from neighbouring buildings is much more difficult.

Cities are not blind to the issue of a neighbourhood pub with an extensive menu of deep fried food, and the venting issues of the fryer. Modern technology can do a pretty good job a scrubbing out the smells from the exhaust.

But it is something to keep in mind when buying a condominium in the city – your neighbours are not only your actual within-the-building owners, but the shops, residences, and businesses around. Building a condominium does not generate a sudden onus on existing businesses to move or upgrade their site, and you may be living with a smell for some time.

When Lonnie and I were looking for our current condominium, there was a nicely located unit 10 floors above a commercial floor that was the ground for the building. While I was happy with the unit, when we left she noticed one of the establishments was a pub, and the back outside wall was dark with fat staining around the kitchen exhaust. If we had been there in the evening, we would have likely been made very hungry by the smell, and very put off living in that building. It was a nice spot.

In that case the restaurant was in the building, but it could have easily been next door or a street over. And it doesn’t have to be smells (for instance, dry-cleaners) but sounds – manufacturing, vehicle repair shops, or even a very busy intersection that runs at all nights.

When taking the condominium route, remember that you may be living with two different neighbours – the owners in your building, and the buildings and infrastructure near by.

Seniors Frustrated By Resturant Smoke

In Canada Many Corporations Get Paid Before Banks and Taxes

Reading up on Condominium news from all over, this article in the New York Times talking about condominium corporations that vet purchasers caught my attention for numerous reasons.

Near the end of the first page is the comment:

In case of a default, the city is first in line to recover outstanding real estate taxes or other charges, followed by the mortgage lender. The condominium is third in line, and usually all it can do is file a lien against the property and hope that it will be repaid when the apartment is sold.

In Alberta, liens by the condominium corporation against a unit have first standing – that is above banks and taxes. There has been a very strong focus in Canada that the corporation should be given the powers to ensure the viability and upkeep of the common property. We have relatively lenient lien laws and the ability to foreclose and collect (it’s not simple, there is still a process, but it is a proven and supported process with case law). That has made the survivability of corporations much higher than in the US when owners default on paying contributions and special assessments.

This inability of the corporation to have the required standing and power to recoup outstanding HOA fees (in the US) seems to have triggered a very aggressive position by boards to keep out “possible deadbeats. “

… increasing number of condominium boards are hoping to weed out financially questionable buyers by requiring extensive application packages. Demands can include years’ worth of federal tax returns, detailed lists of all assets and liabilities, several letters of references, and even board interviews.

It’s not clear from the article if the corporations actually have the power to even ask for these documents or this process. They do have the power (which is not available in Canada as far as I know) to reject a purchaser if they (1) the corporation purchases the unit or (2) designate a different buyer at the same price. I get the feeling that it is from this right of changing the purchaser that they generate belief (which may be allowed legislatively) to challenge a person’s right to purchase in the corporation.

This ability to deny rights of purchase is highly concerning to me – and part of my concern is, I admit, not knowing the legislation. But what are the grounds that a corporation in NYC deny an owner – and do they even have to give a reason? Could we face a board that wants to keep a development all racially pure (whatever strain of race that is) and just buy the unit or appoint a new purchaser without reason? It is a concern that a condominium has the right to choose who can, and cannot, live in their building. In Canada, if you have the cash, and can abide by the by-laws (which can not filter on race, creed, or other human right) you can have the unit.

I once said that condominium are very very localized government. Could you imagine say a city that had the same right to deny purchasers to live in their city? That every resident had to provide financial stability documents before living there even if they can pay the price of the unit. How very unsettling.

Chris Brown, the Anti-Model Resident for a Condominium

There is a lot that seems to be accepted as fact here – multiple loud parties, dog racing in the hallways (that’s a new one from me) and parking in handicap designated spaces by a non-handicap driver. Where to start –

It’s likely that the condominium (a building with only 7 units, so likely the entire building) is faced with a nightmare resident that disregards the entire condominium by-laws and treats his residence at the condominium without any regard for neighbours. I’ve always indicated that living in a condominium is a communal living experience, and has significantly more limitations on an owner’s rights than detached housing. Does that register in people – often not, and from personal experience the greatest violators of the communal living experience (requiring due respect of one’s neighbours) is younger owners. Chris is 22.

As well, he’s got a criminal record for assault, the records show him uttering death threats, and he runs dogs in the hallways. I will assume that he can be a very intimidating person to deal with, and likely works that angle strongly, which limits the ability of the building to deal with him.

Currently the building is in conflict with him. I am uncertain about the rules in California about boards evicting owners, but it can be done in many jurisdictions (that is, evicting on grounds other that failure to pay the condominium contribution or in the US the HOA fees). Given the tough boy role Chris has, I would simply move to pursue the legal remedies to have him removed. It’s annoying, but it’s the least confrontational approach at this time.

A condo isn’t a Crib, as it has other people who live there. For 1.6 million (the cost of the unit) he could have easily afforded a detached dwelling instead of communal living – with all the allowance for noise and off track racing he would wish. It’s hard to have sympathy for someone who simply makes terrible decisions – and it’s his decision to have his lifestyle take precedence over the other owners.

Fame, celebrity status, and money. That’s an awesome combination matched with someone with little respect over their neighbours.

That Mobile Home Park Could Be a Condominium

I always like to think that a condominium is really an agreement by neighbours to manage very, very, localized communal infrastructure.

If you live in a city, you belong to a localized communal group that exists to manage common infrastructure and services required to maintain and build a local community. In regards to your city, that generally means garbage, power, transportation, zoning, and community services (pools, parks, gardens). If you look at the list, both are generally the same issues – it’s all just a matter of scale and how local the services and infrastructure are. Importantly, both a municipal government and a condominium corporation have the unilateral rights to raise funds (through taxes and, for condominiums, contributions) to meet their respective budget.

Given that definition (and importantly, government legislation), condominium corporations can take all forms, shapes, and sizes. One of those shapes being a mobile home park.

Mobile home parks share a lot of common infrastructure and services – road structures, sewage, gardens, and community enforcement. They make a great candidate to be condominium corporations. They are also very inexpensive for a developer to create – in this case they don’t even have to provide the units, just the basic infrastructure. They are also a great target to convert from a rental property to a self-managed corporation. We see conversions happen a lot with apartment rental buildings changed over into a corporation, and the process is very similar for rental parks.

Are mobile home corporations better than rental parks – for the resident I would think so. The people you have living beside you have a stronger stake in maintaining a better living standard, and you have local residents determining how to best spend the contributions.

Well Below Assessment BS

I was reading an article about a class action suit (still pending resolution, no allegations proven) against the developer and owners of a condominium project. From the article:

The lawsuit alleges that Jurock and his associates provided purchasers with marketing materials stating the purchase price of each unit was about $10,000 below the appraised value. However, the lawsuit claims, they did not have appraisals to support that claim.

On an unrelated property on Mr. Jurock’s website (on the site as of 17 July 2011) is a Hot Property that is “Listed at only $599,000 (well below assessment)”.

So I asked myself, what does “below appraised value mean” – and came to the conclusion it means “the purchaser is being misled”.

It feels that the use of Below Market Value (BMV) is an attempt by the seller to install a belief that the purchase will generate an instant increase in equity when purchased. It’s the mythical money for nothing argument. Purchase this property, and you will instantly have an asset worth more than you purchased it for.

When in reality, the property is worth exactly what you purchased it for (actually, it worth what you purchased it for minus about 5% for the cost of reselling the property and changing a fixed asset into something liquid again).

And there are questions that the class action suit referenced above raises about appraisals – who has performed them (do they work for the developer), is the appraisal reflective of what is actually inside the unit (which could reduce the value), is there actually an appraisal, how long ago was the appraisal performed, and what is causing the property being sold below appraisal value?

As its own, I find an appraisal should be generally ignored or used as a very small part of your decision to purchase a property or home – and always raises more red flags then it answers questions.

Always purchase only if this is a place you want to live, and if you negotiated a price that you feel is appropriate for the market, location, building reliability, and your love of wanting to live in that home (even if you are buying as an investment property – if you wouldn’t love to live in your investment, then it’s likely hard for someone else to emotionally commit to rent the residence as well).

It is almost impossible (I verge on saying totally impossible) to buy a property that on completion of the transaction magically becomes more valuable than it was sold for.

I guess when I see the term BMV, I think (and sorry to car salesmen, I’m running off of a stereotype here) that the realtor is scuzzier than a used car salesman.