By Casey Tolan, Curt Devine and Francesca Giuliani-Hoffman, CNN
An independent budget review warned the Champlain Towers South condo association that its financial reserves were severely underfunded in the face of urgent structural repairs just over a year before the building collapsed, according to a document obtained by CNN.
The condominium association only had 6.9% of the recommended level of money to complete repair and replacement projects and stay financially secure, according to a March 2020 report from Association Reserves, a company that analyzes finances of housing associations.
The report states that various components of the Surfside, Florida building had no years of “remaining useful life.” These included the driveway and the garage – where some experts believe cracking concrete may have contributed to last month’s deadly collapse.
The study, which has not been published before, highlights how wrangling over valuations and underfunded reserves has strained the repair situation at the South Champlain Towers.
The association is expected to have just over $ 706,000 in its reserves in January 2021, according to the report, while the association’s reserves have recommended it stockpile nearly $ 10.3 million to account for necessary repairs. .
Based on this shortcoming, the report found that the Champlain Sud board of directors was at âhigh riskâ for âspecial assessments and deferred maintenanceâ. About a year after receiving the report, council decided in April 2021 to collect a special assessment of $ 15 million from condo owners to raise funds for repairs.
Robert Nordlund, founder and CEO of Association Reserves, told CNN in an interview that about three in ten condo associations nationwide that his company’s valuations are high risk, with less than 30% of reserves. recommended. He said the report shows how important it is for condominium associations to store enough money to make regular repairs.
âI just wish they’d hired us five, 10 or 20 years ago,â he said of Champlain Sud’s board of directors.
The board had never before received a reserve budget study, according to a separate PowerPoint presentation to residents in November 2020. The presentation hinted at the controversial landlord debates over big-ticket items. âComplaining or yelling at each other doesn’t work! said a slide of the presentation, underlining the statement.
The lack of reserves made it difficult for the condominium association to raise money for repairs. Another presentation to residents in December 2020 stated that “two large HOA [Homeowner Associations] the lenders have refused us’ for the loans.
The loans were turned down because the condominium association was in a “higher risk category” due to its relatively low monthly maintenance costs and lack of funds saved on reserves, according to the presentation.
âWe should have a lot more money in the bank for lenders to be comfortable,â the presentation said. “We haven’t done any reserve studies or put enough reserve money aside to prepare for this day.”
The condominium association ultimately secured a $ 12 million loan from the Valley National Bank in March 2021 to pay for the repairs, according to financial documents obtained by CNN. The special assessment of $ 15 million was designed to repay that amount.
Nordlund said he thought his company’s report was “a wake-up call” to the condominium board, spurring the assessment.
The report, which included a visual inspection of the building, also includes photos of damaged concrete on the balconies and facade. Nordlund said as part of the report, its employees reviewed the engineer’s 2018 study warning of “major structural damage” in the building’s concrete. He said the designation of zero years of remaining useful life for areas such as the garage was likely inspired by this report and meant repair projects “must be done immediately.”
A spokesperson for the Champlain Towers South condo association did not comment on the budget report. Association attorney Donna DiMaggio Berger told CNN’s Chris Cuomo last month that under Florida law, association boards create operating budgets with reservations, but a majority members of the association can vote to waive the reservations.
“In far too many communities we have members who vote to give up reservations every year,” she said.
Peter S. Sachs, a Florida lawyer specializing in condominium law, said the report showed the board tried to “do the right thing” by getting a thorough analysis of its reservations. But he said it also reveals how “previous councils may have been asleep at the wheel or unable to overcome political resistance from unit owners” to raise money for maintenance.
The collapse is expected to inspire new regulations forcing condominium associations to save reserve money and avoid postponing necessary maintenance, said Eric Glazer, a South Florida-based attorney who is part of a committee that will advise the task force examining Florida condominium law following the collapse.
âFlorida needs to step up and force people to put money aside for rainy days,â Glazer said.
Florida law already requires condominium associations to hold reserves for repairs that cost more than $ 10,000, but a majority of homeowners can vote to waive the requirement, state legal experts have said.
In 2008, the state passed a law requiring condominium associations to conduct reserve studies at least every five years. But that rule was repealed in 2010 amid criticism from some lawyers and property managers, NBC News reported Thursday, and regular surveys are no longer needed.
According to the Community Associations Institute, a professional association, nine other states across the country require associations to conduct some form of study on reserves.
Nordlund agreed that the building collapse could lead to changes in the practice of condominium finance. After the disaster, he said, “we went through this file, looking, did we miss anything?”
“We are in the area of ââthe budget, not in the area of ââsecurity,” he said. But if the board had conducted a budget study earlier and acted faster to raise money and make repairs, he said, it could have meant “averting a tragedy.”
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