Condo to Apartment Conversion Forces Owners to Sell

All condominium legislation, anywhere, includes a clause on dissolution of the condominium and doing something else with it. The primary use of this legislation is proper and quick handling of condominium that has suffered catastrophic failure (fire, storm, structural failure). If the building is unsafe to live in the owners can choose to sell the property instead of rebuild.

The clause can also be used when the majority of units (often 90%+) chose to disband for other reasons. In Orlando, state legislation in the last four years has made condominium dissolution easier, and some failed condominium developers have bulk sold their units to investors that are dissolving the condominium and turning them into rentals.

For the Element at MetroWest, Orlando, this is exactly the case. An investment group now owns about 70%+ of the 328 units and have moved to turn the building private.

For owners that still remain, they have little choice. The investors can give them part ownership in the new endeavour and boot them, or give them fair market value and boot them. The only problem is units have devaluated by 71% – but the mortgages remain the same.

Owners won’t have much recourse. While some will fight it, it is likely they will only be fighting for a slightly better market valuation or extra payment to move.

I have to agree – based on the immense amount of stories that feature massively empty complexes, or non-paying owners – a conversion to apartments may keep the building, neighbourhood and tax rolls maintained.

I have always encouraged condominiums to foreclose on delinquent owners of condominium fees – because the building must be maintained and the other, responsible, owners protected from another’s negligence. In this case, we have owners – responsible and fee paying owners – that none the less are being gravely injured now by terrible developers who were unable to sell the product they created. And those few responsible owners that bought are now being harmed anyways.

Move In, Have Money, Demand Change

Having just congratulated the Ministry of Sound for proactively participating in local redevelopment, and successfully preventing a 41 floor condominium from being built too close to their business of “being noisy”, I have a great example of the reverse.

Miss Lin Yu Yang, of the Rivergate Condominium in Robertson Quay, Singapore, is successfully getting the attention of local government officials to cut out local street drinking and early morning use. The Rivergate is located in the Robertson Quay, an extremely popular night club, hotel and restaurant area. The very famous, huge, nightclub Zouk is located there.

Having recently purchased a ~3.2 million USD condominium, Miss Lin has become distraught over the level of night life noise. It’s too much for her, and she wants the first Singapore no-alcohol zone to surround her home.

Seriously. You’re going to spend that huge amount of money on a condo, and not do your research if it is suitable for your living needs? Drive by at night?

If I had enough to buy an expensive unit like that – I would definitely require a week long residency – even if I had to rent the unit out for that week.

As Miss Lin is quoted:

If we ask them to stop, they may say: ‘You think that just because you are rich, you can tell us what to do?

Well, yeah. I think they would.

Ministry of Sound – Proactively Being Loud

I’ve never liked the type of person that moves into a new neighbourhood and then complains about the noise, traffic, prostitution, smells, sound and vagrants. They’ve always seems like arrogant pricks to me. When you’re buying into an existing neighbourhood, you are buying into the neighbourhood. The good (hopefully, I mean there must have been something good that would have attracted the person to the block) and the bad.

When it comes to the bad, a big complaint of these new residents is sound.

The Ministry of Sound, a hugely successful nightclub and record label resides in an area of London that in undergoing revitalization and new development. Instead of waiting for the developments to go up, and the new owners’ complaints to come in, the nightclub has – for 2 years – been very active with petitions, leafleting and advertising against the new developments.

This last week Southwark council’s planning committee against the development proposal – a 41 story tower block, proposed by developers Oakmyne, that would have been built near the club.

I’m very excited about this development. It reaffirms that existing businesses (and the Ministry of Sound is a landmark and cultural icon as well) can continue to flourish, and councils recognize that when new development is erected is often has a significant negative impact on existing business. In almost every case the new developments force out old business. This time that whole battle is avoided, and the existing business is respected.

Board Insanity Stories #98457892374 – Only Allowing Rentals to “Families”

I’m not sure I want to even start with guessing what the definition of a family is – blood relationships, marriage, are adopted children ok, how about a two person same sex union, or one lady and seventy-two cats?

Thankfully a condominium corporation has been able to figure that out for me! Carleton Condominium Corporation No. 24 of Ottawa, Ontario, has been able to clarify that challenging definition:

unit owners can only rent to single families, which includes parents and children, married couples or people in a ‘conjugal relationship,’ two or more persons intending to live together permanently, two or more persons who own the unit, or someone who is a caregiver for someone else.

Caregiver? Really – an assisted living support nurse can be family? The intention to live together permanently (really, how can that ever be challenged or proven) is a definition of family – so Felix and Oscar, or Bert and Ernie, those lovable non-gay roommates, would count?

What’s up is Carleton Condominiums attempting to remove student renters from their condos, whom occupy about 20% of the units. The board claims these student rentals are rooming houses renting by the room, with upwards of 8 people per unit. The condominium is close to transportation and popular with students.

I’m pretty sure this will be appealed to either a court or the Human Rights Tribunal of Ontario.

As to that definition of family, I love the idea of “conjugal relationship” – does that mean if each of the eight students commit to some sort of regular orgy that they classify as family? Right on – I knew university is supposed to be an awesome experience!

Nice to See: A Very Active US Department of Housing and Urban Affairs

Often referred to as HUD, the US Department of Housing and Urban Affairs has been tearing thought the news lately with an aggressive policy of charges against condominiums and HOAs failing to offer basic accommodation to the disabled.

Hurray! This week HUD charged Philadelphia Parkway Condos with violating the Fair Housing Act for refusing to revise its “no pets” policy for residents requiring assistance animals.

Indeed, the Parkway Condos go out of their way to attempt to circumvent the necessity of allowing assistance animals. From HUD’s charge:

In a new 2011 policy, the POA issued detailed “Instructions for Physicians for Documenting Disability under the Federal Fair Housing Act,” which required exhaustive documentation to support a doctor’s opinion about the necessity of an assistance animal, and stated, “it may be necessary for you [the doctor] to testify under oath in federal court about your opinion.”  The 2011 policy banned persons using assistance animals from accessing the main lobby, shuttle bus, social rooms, fitness rooms, mail room, and laundry room, and required them to use the service elevator.

Says John Trasviña, HUD Assistant Secretary for Fair Housing and Equal Opportunity:

Assistance animals are not pets. They play a vital role in helping people with disabilities conduct everyday activities and fully enjoy their homes … Condominium associations have a responsibility under the Fair Housing Act to grant reasonable accommodations when they are needed.

I can only full-heartedly agree. Condominium and HOA should, by nature, be designed for accommodation. This not only includes the requirement for allowing owners with disabilities pet exemptions, but others – for example, those with Multiple Sclerosis to have air conditioning (for buildings that ban it for “the look it applies to the exterior of the building”).

There is no reason that exceptions cannot be made for those in need. An exception to the bylaws in no way harms neighbours, effects resale value, or lower the community’s standard of living.

People who believe they are victims of housing discrimination in the US can contact HUD at 1-800-669-9777 to get advice and report the incident.

Follow Up To Post “Toronto Condo Sales Are Freaking Insane”

While the post was just two days ago, there have been two great articles that back up my concerns, and add a few more. For good reading (what I see) on the likelihood of a Toronto condominium bubble burst – check out the following:

Troubling Signs for Toronto’s Condo Market

Absorption Rates

While I do shout concern about a correction in Toronto, I don’t think it’s anywhere near Miami’s folloy, where prices dropped 50% from their peak. While Toronto shows the same investor levels for pre-construction purchase (70-80% in Toronto, and then in Miami) – Toronto has two things that would help mitigate some drop: it is a financial centre (financial center condos will always outperform the rest of the market), and it’s not a snowbird getaway – it’s a primary residence location.

The bigest take away from all these articles recently – $800+ psf is definitly already gone, and it looks like reasonable top end cost is about $700 at the moment, and a 20% reduction or bubble pop would put top costs at $560-$600 psf.

Downtown Grocery Needs Targeted By 7-Eleven

When it comes to downtown grocery: retail space can be very expensive, grocery only runs a 1-2% profit margin, and delivery of goods to the store can be a cumbersome process. It’s no wonder in a recent interview Ken Barnes, regional development director for 7-Eleven indicated Toronto’s booming condominium market is pushing the need for more convenience stores.

With the lack of full feature supermarkets (even micro grocery stores – those under 5000 s.f.) there is definitely room for a full on assault by the quick-stop developer.

The problem will be that convenience stores have half the number of “heart-healthy” foods as neighborhood grocery stores, and only one quarter of a supermarket.

This lack of access to healthy food for heavily urbanized (and Calgary has a core with not even a single micro grocery store open late) citizens has been blamed for rise in obesity and general health issues for urban dwellers.

It can be hoped that there’s some nice individually packaged bananas at least in these shops.

Toronto Condo Sales Are Freaking Insane – Still Think it is Speculation Driven

Toronto is Hot Hot Hot baby! The National Post is reporting – for only January through August 2011 – 18,055 new (NEW) condo units were purchased for $8.1 billion. That’s about $449,000/unit. Like I said – HOT!

We know that more than 50% of those are investor (non-resident) purchases which run highly leveraged (usually 25% down) . The Financial Post runs a good article where one of the showcased examples is an investor with seven properties – holding 2 million in value with 700k equity.

Based on some averages, the investor is spending about 100k/year on mortgages, condo fees, insurance and tax. The investor – if 100% rented all the time is likely pocketing about 34k/year. The game here is the investor is hoping the 7.5% yearly appreciate in condominium value for the last 15 years continues. With that, he’s pocketing and extra $150k/year. Not bad for the risk – $185k/year in income and equity.

So here are the concerns.

For the full year, Toronto may add upwards of 27,000 new condo units on top of current inventory. That’s 45% more than any other year on record. There is also that much inventory slated to be added each year for the next 3 years.

Second, real estate is hot because US, Europe, and many other jurisdictions are facing or have experienced a housing crash with no certainty of recovery. While New York announces the most expensive pre-sale units in history, large multi-story developments have been shelved right left and centre. If Europe tanks, housing prices are going to go low, low, low. With that, international investors have been buying Canada because of our stable economy and the start power of Mark Carney.

When local markets pick up in the US and Europe the money parked in Canadian real estate will flee back to their home countries.

Finally, even in the Canadian banking town Toronto (and I’ve said that banking cities will always perform well for real estate compared to the rest of the country), incomes are flat and the middle class is being squeezed (Bank of Canada indicated last month that income disparity grew significantly last year). That means there is a question if rent levels (which equal investor cash flow) can be supported – or if they will stagnate.

If we are lucky, because Toronto is our financial capital, we could see Toronto continue to appreciate every year until we have prices similar to New York. It’s not out of the question. But investor money is fickle. Both foreign and local money is sensitive to price change, and a slow down in Toronto cost per sqare foot will create a feedback cycle that would be vicious.

Condominium and HOA Fees vs. Fines

It should always be clarified that there is a very distinct difference between fees and fines for condominiums and HOAs.

Fees are a monthly or yearly amount that are levied to cover the maintenance of the common property – the building, hallways, plumbing, heating, roof and other building envelope issues. For HOAs it may be to maintain the streets, signage, and landscaping. In both cases the levy is set out years in a budget, it is approved by the board, and the costs are shared between owners based on a formula (usually equally or based on a unit’s percentage of the square footage).

Fines are the option of the board to impose on owners that violate any of the bylaws or quasi-official rules.  They are intended as a means to encourage compliance of the owners with the corporation or HOA rules.

When I talk about how important it is for Condominiums and HOAs to collect the money owe to them, and I support all legislative rules to ensure the organizations are paid what they are owed – I’m talking about the fees. It’s important that the condominium or HOA always be correctly funded as to their budget for the maintenance of the common property.

When it comes to collecting fines for by-law infractions, well, I think they can be collect at the bottom of the barrel. There are a bunch of reasons. The easiest arises from the ease that board use in levying them and the lack of any appeal or challenge to them. The board is judge, jury and executioner when it comes to applying fees. It’s a condo Star Chamber.

It’s truly sad that there are so many boards that use fines as cudgels on their neighbours, and more importantly, to make life unbearable in condominiums and HOAs. It’s especially noticeable that more and more HOAs have rules “for the board and loyal owners” and ones for “new and disliked owners”.

It’s scary – Stepford HOA scary.

Bankruptcy Doesn’t Dismiss Outstanding HOA Fees

Housing represents the largest equity holding for most people in the world. Housing represents the majority of people’s working lives, and often is their security for retirement.

With that in mind, that’s why I fully support all legislation that prioritizes and guarantees that condominium corporations and HOAs have first standing to any monies recovered in foreclosure, bankruptcy or other sale. See, it’s important for government to protect people’s housing because it represents such a vast amount of equity. Government takes steps to protect people’s equity when it’s in a bank, and it does that when your money is “banked” in your house as well.

An owner failing to pay their fees harms not only their own property, but jeopardizes the housing of other, responsible, owners. Simply put, there’s no right for an owner to take a free ride on his neighbours shoulders by failing to pay their contribution, and having it shouldered by others.

Many states and provinces have very proactive laws that ensure HOAs and Condominiums have first standing in foreclosure. In Alberta, Canada, the condominium corporation – on the sale of a property – gets paid any outstanding fees before mortgages and even government taxes. Law makers realized that by ensuring that condominiums receive any money it is owed, it protects the other owners and has the highest return on economic stability.

In a similar vein, an owner in Odenton, Maryland, has found that bankruptcy doesn’t remover the requirement to pay their HOA fees. Indeed, and I congratulate the law makers, they have made those fees “nondischargeable” (a judge cannot dismiss the fees). By doing so, they have ensured the fiscal health of all the other owners. Even though Joan Sullivan no longer lives in the HOA, she is paying installments on the debt she owes.

And that’s a good thing.