When Investors Abandon Units Owners Suffer Greatly

Ten weeks ago, Bank of Canada Governor Pat Carney warned that housing prices are now 4.5 times average household disposable income, or 30% higher than the 3.5 average of the last quarter century (In Vancouver they are 9.6). Further, he indicated that this is being driven by greed among speculators and investors. In Toronto, 60% of construction sales are by investors.

If the market value of condominiums comes down and as such triggers lower rental rates, investors will abandon under-water mortgages and incomes that don’t meet their bills. It’s hard to see this in the active market we have now, but all overly inflated values must mute, or drop, in value at some time.

Legislation in many regions of North America fail to do a very good job protecting owners in multi-residential dwellings when other owners stop paying their condominium fees, triggering a foreclosure on the deliquent units in order to recover the owed money to the corporation. For palces with poor legislation, when a unit is foreclosed on, the proceeds of the sale first go to the mortgagee, and not the condominium. The causes a chain of events that only further depress the value of the units, and jeopardize a large number of other owner’s homes.

For West Meade Condominium complex in West Nashville Tennessee, the chain of events has happened – 57 investor owned units in a 112 unit complex stopped paying their contributions, leaving the condominium $355,000 short on budget and repairs. Because there isn’t the money for maintenance, the building (and the value of all the units) is suffering. Because of decreased property value, the 57 units which have been court ordered to sell will likely garner less than the mortgage values. This leaves 55 upstanding owners in the hole for that sum on top of their own commitments to the corporation.

West Meade Condominium, without the owed amount, will be unable to meet ongoing insurance and utility bills, forcing the condominium into bankruptcy. Imagine as an upstanding owner having to move out of your home because of another owner’s fiscal imprudence.

In better jurisdictions, the condominium has first standing to collect fees owned. That means before the banks, and even before back taxes, the condominium gets paid out of the proceeds first. This is a fantastic situation. By giving the corporation first standing in a foreclosure (and also creating generous legislation allowing condominiums to bring their units to foreclosure on non-payment of contributions), the government protects the other owners from fiscal ruin, from non-maintained buildings, and from spiraling downward housing prices.

Good legislation for condominiums is important – especially given the fact that some owners can cause unchecked misfortune to others due to the nature of shared housing. With housing being a primary equity and destination of most people’s productive lives, housing requires more thorough consumer protections.

Banks are a form of commercialized savings. Housing is a form of self-directed savings which has significantly more public equity than all the banks combined. We’re willing to create massive legislation to protect bank based savings, we need the same friendly legislation for the most common and accessible public form of savings as well – people’s houses.

HOA (U.S. Home Owner Associations) Seem To Have Excessive Authority and Privacy Invasion Rights

As I do research for posts, I am finding a lot of stories that refer to HOAs denying the purchase of a unit, as well as demanding all sorts of information from interested purchasers in order to determine if it should deny such purchase.

NYT ran a real estate article about Steve Siddell’s attempt to find a great home in the city. There is one section of the article that caught my attention:

He submitted his application, which included an inch-thick stack of paper, in a neat binder. The co-op board requested 11 more copies …Weeks passed; his frustration grew. After about two months, he was interviewed … A few weeks later, the rejection letter arrived.

This seems both intrusive and abusive. The amount of information required and the type of information, the lack of timeliness in initiating the interview, and lack of timeliness in rejection, and even the right to review the purchaser at all seems, simply, wrong.

As each state has different legislation, there is a multitude of “but that’s not allowed in this state” arguments available but a quick search of the web seems to indicate that board intrusion into private sales seems rampant country wide.

Some states do allow HOA right of first refusal, meaning they can deny a purchaser (without reason) completion of the sale if the HOA itself buys the unit, or can find a replacement buyer at the same price.

While I disagree that such a right should even exist, in states which allow it there is ample opportunity to abuse the system and pry into people’s lives. It opens up all sorts of questions about information that can be requested – and all sorts of strange requests can be built that avoid human rights violations (race, gender, disability, sexual orientation). Many now ask for resumes, job history, references, past addresses, driver licences, social security numbers, credit reports, travel history (in the guise of how much of the year the owner will be onsite), education, marriage status, fiscal equity levels, and tax records (which might show charitable donations reflecting political or religious leanings).

As a kicker – the HOA doesn’t need to generate an explanation why they deny a sale. While racism and sexual preference bias isn’t an allowable right to say no, we know (for example after the 9/11 tragedy, the anti-Muslim expression) that people do act on those feelings. And while they might not be in the position to act on first refusal and buy the unit, they can significantly slow down the review process (say, for months) and the decision (say for weeks) in order to force the purchaser to withdraw their request because of timeliness issues.

In Canada, we have pretty strong privacy laws that would block condominiums – which are set up as not-for-profit corporations – from prying into a purchaser’s life like that.

The sale of a unit is a private transaction between two parties that the condominium has should have no right of access to, and there is no justifiable reason to review the sale and purchaser of a condominium unit.

For those that fear non-payment of monthly condominium contributions – they happen (some buildings have more than 60% delinquency) and have been happening even with new purchaser review. There’s no belief the board is better suited than a bank to determine fiscal ability to pay in the future.

There is no reason for HOAs to pry into the private life of a purchaser.

Condominium Fires – Is it Safer Living in Single Detatched Housing

As I prepare for each blog posting, I inevitably come across stories of “man dies in condo fire” and “One dead in Tampa condominium fire.” It seems that every evening I’m learning of more fire related deaths in condominiums.

The US Fire Administration has some amazing numbers, and they provide good news and bad news in a recent report.

Multifamily residential dwellings (apartments, townhouse, row houses, condominiums and other tenement properties) are generally safer than one and two family dwellings when it comes to fire – with only 3.0 deaths/1000 fires compared to single/two family dwellings with 6.5 deaths/1000 fires.

The downside is, if the fire spreads (isn’t confirmed to its point of origin) multifamily deaths reach 9.6/1000 fires, with injuries reaching 82.0/1000 fires. That’s about 1.5 times as many deaths, and 3 times as many injuries.

It’s a complex report (please read it) – and it appears that multifamily dwellings are more prone to fires (being 27% of the reported fires), but this might be due to higher reporting. In multifamily dwellings there is generally a more active and monitored smoke and fire response system, often tied into the city fire system. The stove top fire (57.5 of all multifamily fires) may be reported more often because of neighbours experiencing smoke.  This reporting likely happens less frequently with single family dwellings.

The big issue to me is regarding non-confined fires. As soon as that fire leave the stove, the garbage room, the mechanical item breaking down, death per 1000 fires jumps from 0 (seriously, zero deaths with confined multifamily dwelling fires) to 9.6. It means if a fire gets going, it gets going bad.

For large multifamily dwellings it might seem inconvenient to run fire testing every year – gaining access to all units, running that annoying bell over and over for a day or two. But it’s really important to ensure rapid response of the fire department, and the evacuation of the residents, if that fire ever spreads from the kitchen, or the bbq, or wherever the originating source is.

Developer Sells “Panoramic Manhattan Views” Knowing He’s Building a Condo That Blocks View

I seriously wouldn’t mind working in the developer business – with a position to repair and rebuild the industry’s reputation. It seems like one of those impossible opportunities with no chance of success. I would love that challenge. People like Jamie LeFrak of the huge New York The LeFrak Organization would make every moment exciting and challenging.

As an upstanding developer, he specifically marketed 16 luxury apartments in the Shore Club condominium as having panoramic views of Manhattan. He did this while fully aware that he’s building a 32 story building that will block the view.

A court case brought by the 16 purchasers has been ruled in their favor for false advertising. They group has been awarded 3.8 Million in damages, interest, and another one million to cover legal fees.

P.S. – For Feng shui reasons, the Shore Club has no 2nd, 4th, 13th, 14th, or 24th floor – which means if you buy on the 25th floor you are actually on the 20th. That seems awesome – now you can have that 25th floor experience even with your fear of heights over 20 floors! [sarcasm]

Over Supply, Investor Demand, Interest Rates, May Decimate Toronto Condominium Prices

I often suggest to my American friends that the read the Globe and Mail for a non-partisan, third-party, observation of the US. They are so bombarded with the us-or-them approach in US media (everything is either a Republican source or a Democrat source) that the Globe’s articles on US politics and economy have become a powerful neutral source of information for many of them.

So it’s in the same light that I read a recent Wall Street Journal on the likelihood significant correction in the Toronto condominium market. I mean, if a US paper wants to spend reams of paper informing their citizens about a growing risk in our condominium market, maybe its worthwhile listening.

To summarize –

1. The WSJ equates Toronto to Miami – where foreign buyers created a real estate bubble that burst, leaving exceptionally large numbers of abandoned units.
2. There are 40,000 units under construction, increasing the supply by 20% in the next 24 months.
3. Bank of Canada Governor Carney has expressed condominium prices are being driven by investors not owners
4. 60% or so of all pre-construction unit sales are investors, not owners
5. Ratios are rising rapidly between yearly rent and unit cost (moving above the magic ratio of 1:16 yearly rent to unit cost)

As the condominium prices driven by investor demand have risen to about $305,000 – even a one percent increase in lending rates would require $255/month increase in rent to cover the new rate. Interest rate increases matched with a 20% increase in available units (which should help suppress the costs – or in investor terms, equity) in units, Toronto could see a very big and self-feeding drop in unit prices over the next two years.

So says a non-partisan observer looking in.

A Condo you will never be able to afford – $98.5 Million USD

The tag line is:

Not only do you live at the centre of the universe, you overlook it

And for that right person who feels that they live (nay, are) the centre of the universe, there is now a condominium in construction that will have enough square footage to hold every cranny of your massiveness. The one57.

There are actually two (2!) of these apartments at this price – the 75^th floor 13,554 ($7,267/sqf) square foot, and the (for the more refined) 90^th floor 10,923 ($9,018/sqf) square foot residence.

I can honestly say that I don’t have the funds to live there.

Owners Throw Hissy Fit Regarding Tenants with Mental Illness

There is an awesome line I once heard – “if you have to spend time explaining what you aren’t, you likely are”. Hence the snicker I had when I read the statement from Michael McMahon of the Admiral Dewey House condominium, in Framingham Massachusetts:

None of us want to come across as ignorant, or superstitious, or prejudiced, but…

Ah, then of course you’re not coming across that way.

The residents of the Admiral Dewey House are upset that two of the units in the building (of 20) have been bought by Cascap Inc – a non-profit that owns and manages properties for state contracts they have. The issue arises that Cascap bought the properties to meet a contract from the Department of Mental Health – to house people with mental illness.

The situation seems pretty clear cut – the units were bought by a corporation, and as such Cascap Inc are not live in owners. The people there will be classified as tenants. Cascap Inc. tenants will have all the same rights, responsibilities and requirements of any other tenant renting a unit from another owner. The corporation and the owners have no extended rights to violate the privacy of these or any other tenants. Neither can they deny the rights to rent, or to inhabit, based on those silly things like race, gender, disability or sexual orientation.

As to the specific issue of these two units being rented by Cascap Inc under contract with the Department of Mental Health – well Mr. McMahon has this to say:

If you think that somebody who is purchasing a unit doesn’t take that into [Cascap Inc’s] acquisition decision, their purchase of a property, then you’re crazy.

Nicely chosen words there Mr. McMahon. Of course you aren’t ignorant, or superstitious, or prejudiced.

Condo Pools and Hot Tubs Can Be Difficult To Maintain

One of the condominiums I have lived in (I was renting at the time) included an amazing pool that was underutilized. It always felt clean, maintained, and well kept.

After reading an article from the Toronto Sun about a condominium hot tub with 75 infractions in two years, and reading that it can sometimes take weeks for cryptosporidium to make one sick (a parasite that can survive in poorly treated pool water), I kind of go ugggh.

I do believe that a well maintained pool adds significant value to a condominium – not only in price of the units, but more importantly lifestyle and easy access to a great physical activity. If a pool is indoors, it is even better for inland and Prairie Provinces with harsher climates and little access to public beaches.

Especially for seniors housing, access to an onsite pool can do absolute wonders in maintaining and bettering the health of the owners – if the pool is used. While city run pools may be plentiful, transportation and mobility issues for seniors may make an at-home pool truly valuable to them.

Thankfully for pool and hot tub maintenance, most indoor facilities only exist in condominiums that can also afford a full time maintenance or janitorial person.  Having a person who’s dedicated to the building will allow easy, regular scheduling of water and pool equipment testing. It also allows for dedicated training or education programs to ensure your maintenance person is qualified to maintain the facilities.

If you live in a condominium with a pool, always feel free to request the most recent inspection report from the board. Don’t take any refusal to share the report for an answer. Your condominium fees go to support the pool, and you should always feel good about any issues that could impact your health.

Great Letter That Made Insurance Company Payout Special Assessment Claim

Once and a while, you really just have to blog a post that says “go over to this site and read it.” So that’s what I have here.

The Consumerist (a great site) reprints a reader’s letter to their insurance company, in full, that was successful in getting the coverage he bought fulfilled. His coverage included payout for special assessments – which the condominium applied to owners in order to fix the glass railings around his condo.

The tone and approach are perfect for anyone else that is suffering issues with their insurance not fulfilling their product payouts.

You Can Be Patriotic – Just Without the Flag

Condominiums have both upsides and downsides. In a previous post I’ve indicated my dislike of sections of my bylaws. They are draconian. None the less, they are norms that I am required to meet, and I was aware of them before buying into the condominium because I was given the bylaws for review.

In Tennessee Dawn Kamin is flying a flag in disregard of her condominium bylaws.

Fox News seems to be making hay with this issue because it’s an American flag (Fox loves the American flag). I would be quite interested to see Fox News response to this story if the flag was a foreign nationality, the white flag of surrender, the United Nations flag, or a multi-coloured rainbow. I don’t think there would be quite a show in the news about poor, downtrodden, owners being subjugated by their condominium.

There is really one way for this to be solved in the owner’s favour – to convince her fellow owners to update the bylaws and include the right to fly the national flag. Otherwise Dawn, patriotic none the less, is out of bounds.

It doesn’t matter the nature of the flag, just that the flag isn’t allowed under the condominium bylaws. Love it or leave it – living in a condominium adds a whole additional layer of rules and regulations to how you live your life. In most cases, the rules will work fine with your life and style. If you really are focused on absolute individual freedoms then condominium living may not be for you.