Catastrophic Condo Failure Is Not Caveat Emptor – Buyer Beware

The Bellavera Green Condo, Leduc Alberta, has suffered a massive, catastrophic, failure requiring all 150 of the residents (85 units) to vacate the premises. The reasons: code-failing fire alarm system, missing or damaged firewalls, condemned exterior staircase, non-sustained heat and electric, a second phase abandoned – unsafe and unsecured, and inability for emergency vehicles to access the building.

It is unclear who has title to the units (it’s not clear if the developer handed over title to occupied units), who to go after for costs, and the developer – Kevyn Frederick – has conveniently disappeared. As with catastrophic failures of this type, residents who have mortgages will remain responsible for their payments even if they can never return to their units, or have other costs until such time they could reside again at the Bellavera Green.

In all, 150 people (and those that rely upon them) have suffered grievous fiscal harm due to the mismanagement and greed of yet another developer. And I lay the blame clearly and solely at the foot of the developer and none others. Developers have full and final control over the building and plans. It is their choice to follow legislation, or to cut corners and ignore building codes. The rest of the infrastructure – including building inspectors – is just there to try to catch errors. But these errors are not there because they haven’t been caught; they are there at the failure of the developer. Trying to pass responsibility off on inspectors is a lot like saying “you didn’t catch me, so I’m innocent.”

That’s why fools who imply that the Bellavera Green owners who put down money and purchased mortgages have a responsibility to the failure of the condominium because of “Caveat Emptor” – or “if you were stupid enough to buy into this building then too bad for you” are pathetic and dim-witted.

The whole issue of Caveat Emptor, for a situation like this, was thrown out with Supreme Court of Canada judgement of Winnipeg Condominium Corporation No. 36 v. Bird Construction Co [1995] 1 S.V.R. 85, January 26 1995 (further discussion here):

First, it is reasonably foreseeable to contractors that, if they design or construct a building negligently and if that building contains latent defects as a result of that negligence, [purchasers] of the building may suffer personal injury or damage to other property when those defects manifest themselves.

In this case, the act of negligence: that it fails to meet code, and there is a real and true concern over devastating fire; so that personal injury or damage: the effects of such fire, that –

The reasonable likelihood that a defect in a building will cause injury to its inhabitants is also sufficient to ground a contractor’s duty in tort to subsequent purchasers of the building for the cost of repairing the defect if that defect is discovered prior to any injury and if it poses a real and substantial danger to the inhabitants of the building.

And the ruling seems to support my thought that the sole responsibility for catastrophic failures like this lay solely in the hands of the developer:

Apart from the logical force of holding contractors liable for the cost of repair of dangerous defects, a strong underlying policy justification also exists for imposing liability in these cases.  Maintaining a bar against recoverability for the cost of repair of dangerous defects provides no incentive for plaintiffs to mitigate potential losses and tends to encourage economically inefficient behaviour.  Allowing recovery against contractors in tort for the cost of repair of dangerous defects thus serves an important preventative function by encouraging socially responsible behaviour.

In the end, the owners are in for a long term amount of lost monies and (more importantly) time that will be required in moving forward with their lives. It’s a sad thing, and the province needs to put better protection in place to help stave off this type of abuse by developers in the future.

Little Sympathy for Residence Fighting Development for Mentally Challenged Homeless

As a start, I have a condo that is 2 block from a stroll for prostitutes, 4 blocks (the other way) to a homeless shelter, and there’s a long term facility for homeless going up as well within that distance. And I’m ok with that.

Hang with me then, when I indicate little patience for residence who fight the inclusion of a shelter for mentally challenged homeless in their community – and let’s be clear – Astoria, New York, is a large community. Even in Council Member Peter Vallone Jr. challenge to the development he indicates that there are at least 8350 residence within one block. The shelter will house 50. That’s a .006% population increase. It’s nothing.

Having .006% of your population requiring special needs because of being mentally challenged should be considered part of your civic and community based care and support network. It should be something the community says “we live in our community, and every day our community supports and assists people a little less fortunate”. Civic pride, not civic shame.

Toronto and Singapore Experience the Shoebox Condo

Some trends cover the world, but the underlying reasons may be different. For example, Singapore and Toronto both are experiencing a surge in shoebox condos (500 sqf or less) but for significantly different reasons.

With Singapore, prices on condominiums are averaging $1185USD/sqf – putting the price of anything lager than shoebox well outside the financial means of most local residents.

In Toronto, price is not nearly as sensitive (running about $630USD/sqf), but tax legislation is pushing units to list at $390k or less or suffer, and one bedroom condominiums now make up almost 60% of new construction. This forces smaller shoebox units to be built in order help create consumer choice in a market that prefers one bedroom condominiums.

In both cases though – Singapore and Toronto are both seeing massive preconstruction sales to investors and foreign buyers. This is likely a strong incentive to build shoebox condominiums, as they become more “affordable investments” and require smaller capital down. If that’s the case, shoebox condominiums are creating a new form of downtown transient population – encouraging renters to populate the cores of each city.

I live in an 1150 sqf 2 bedroom condo – with wife and 2 cats. At 500 sqf, one of those would have to go! (I love you hunny!)

Municipalities Should Never Be Residential Condominium Developers

They were teased by the success of small scale urban development projects that successfully helped their community. But when the Borough of Collingswood NJ decided on being the developer of their own downtown condominium project, they took on a multi-year headache now culminating in over 8 million in debt for the municipality.

The 120 residential units, the commercial units, and the parking facilities of The Lumberyard Condos were the cornerstone plan in revitalizing their municipality. An 18 million loan to the municipality started the project in 2006. Now, 5 years later and with only 2 of the 3 phases completed, Collingswood will issue a six million ordinance to help cover the remaining 8.3 million on the loan and now focus on renting the remaining 14 (of 24 units in phase 2) to help pay down the remainder.

In March, the Mayor James Maley indicated the project was picking up, and 8 of the 24 units had been sold. It appears that things weren’t looking up that much, and only 2 more units sold in the last 6 months.

Development risks should really be left to developers – and not to municipalities where the cost to citizens, as in this case, is expensive against both tax revenue and in the energy expended by the municipality in working with this long losing project.

I agree that municipalities should take a very active role in wooing developers if they feel a population “mini-boom” is required to keep their city alive. I also believe in the municipality, in hand with the wooing, set out strict development requirements that would have generated a project that meets their vision and goals.

But they should always refrain from being the actual developer.

When Developers Face Resistance

While I can sometimes fail to be the biggest fan of developers – based on experience; and there are a few that I love and champion with proven track records, a commitment to quality, a stand behind fixing deficiencies quickly and without balking – I admit fully that they can often face significant barriers in getting proposals accepted by the municipality and local residents.

Such has been the case for the Ilkay Development Corporation attempt to build out a 236 hectare parcel skirting beside the Juan de Fuca Provincial Park and sitting on the ocean edge.

It’s a sordid history – the land was bought in a bankruptcy and for a while appeared to be illegal bought (second link) by the developer.

The plan to put in 257 summer cabins (they are not being marketed for year round inhabitation), rec centers, parks, maintenance buildings and helicopter pad is being heavily resisted locally.

Local residence, activist groups, and now a movement from within a local native band – where the band council supports the development – all oppose the development.

Even if the local residents and interests prove strong enough to stop the current development plans (likely and second link) the land still has mineral extraction rights, so if it isn’t developed it could be massively deforested. The land can also be legally subdivided for massive mansions on huge lots. Even if they win against the condominium summer cabin development, they’ll need to fight again to stop other development. Of course, if they can stop one development they may be more likely to continue their fight to stop development successfully.

Where is comes to forested land, lake front land, land abutting a provincial park (and this development has all three) – the development process is always complicated. It’s should be a risk that the developer took into account buying the property.

I’m not in a position to determine if it’s a good development. In south Florida – similar development has been terrible, with beach front upon beach front being privatized. In Alberta, there has been a very good approach to development near and in Provincial parks that had been good to the developer and the community.

In any case, it is likely that this is far from finished, and it is unclear what options the developer will choose to take in attempting to recoup their time and investment if the plan isn’t approved.

Link: Times Colonist Special Report on this story

Parking Spaces the New Investment Vehicle in Gridlocked Housing Market

For high density housing, multiple parking stalls attached to a unit can be a major incentive for purchasers. Where developers will commonly building only slightly more than one parking spot per unit, the option to have a second stall is always appreciated – especially with the wealthy who often own multiple vehicles.

There are normally two types of parking associated with condominiums – assigned and deeded.

Assigned parking is normally common property that the board assigns to units, sometimes on a yearly or multi-year basis, as an exclusive use area much like balconies. The space is common property, but you are the sole person allowed to access it. Transfer of the stall is at the control of the board.

Deeded acts much like your unit – often with its own tax roll. These can be sold or traded just like a unit can be, but often with caveats on who can buy. Deeded titles normally have unit factors attached to them as well – so selling or buying them will change your monthly condominium contribution.

A good condominium corporation will have bylaws in place that limit ownership of a stall to those who also own units. If you sell your unit, you are also required to sell your stalls to other owners (normally the person buying). Bad corporations allow anybody to own parking stalls – which over time tends to put them in non-owner hands, managed by people who have little incentive in the maintenance of the building as a residence.

For many urban centers, parking spots are maintaining their value or rising – even when units are dropping in price. A parking unit in Boston (200 sq. feet) sold for $125,000. Toronto sold a spot for $100,000.

These are in part driven by municipal regulations that are either lowering the minimum number of parking stalls developers are required to build per unit built, or in some cases capping the amount of stalls within very dense regions in order to reduce traffic issues. Both of these will force parking stall prices higher, especially when newer developments (with fewer parking spaces) get infilled into spaces previous held by lower density and higher parking ratio buildings.

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]

City Looks to Convert Municipal Space into Business Condominiums to Address Debt and Ongoing Costs

It’s amazing how many situations exist that the condominium structure can be used to successfully rehabilitate developments.

The city of Lorain, Ohio, is looking to convert some of its municipal space into business condominiums and then sell them. They space, the St. Joseph Community Center is woefully underutilized – with almost 2/3 of the building vacant. By converting municipal space into business condos, they can sell part of the building (reducing outstanding loans to the state level) and generate condominium contributions to the maintenance.

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.

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.