Wednesday, February 6, 2013

Condominium Maintenance and Building Repair Market Trends

Our first quarter 2013 session began with a return of our Forum friends, J2 Building Consultants, specialists in multi-family, high-density real estate buildings.

Jens Johanson, Principal and Travis Brammer, Senior Project Coordinator, began their session with this analogy: How often do you go in for your annual physical? How often do you have your teeth cleaned? How often do you change the oil in  your car? Clearly, the point is, if there is trouble 'inside', finding it early is better than finding it later.

Everything Has a Useful Life

Everything, including our buildings, has a useful life. Yes, your reserve study gives you the useful life of all your real estate assets -- "roofing, painting, paving, decks, siding, plumbing, windows" -- but what about the condition of the structure? What does the association know about the structure, including framing supports, sheathing, water barriers and so forth?

As an example, one client association responded to a ground-floor unit owner who complained of standing water in front of her sliding glass doors. The board brought in a cement specialist, believing that somehow the water under her carpet was related to the underlying cement was in contact with the ground. The cement specialist sealed the cement under the floor, the area re-carpeted, and within weeks, the unit owner complained again of water in front of her door.

The board brought in J2 as building consultants and with an intrusive inspection, revealed the cause of the standing water. The cause was traced to a nail-head size hole on the third floor above the complainant's unit, which had apparently been leaking since initial construction. The rot pattern formed a pyramid that terminated in front of the sliding glass doors.

Every building leaks. Over time, the water intrusion will become visible.

The take-away in this story is this: don't assume that you know what causes the visible damage being caused by water. Calling in contractors or specialists in repair will of course result in a repair of the apparent damage. Best practices dictate calling in building consultants -- and there are others who compete with J2 who are competent -- who can find the source of the water intrusion.

Another possibility is damage caused from inside a unit, such as a plumbing eruption, or a water heater failure. The full extent of the damage to the structure must be understood and addressed.

A visual inspection by a building consultant who specializes in condominiums, and who is familiar with our Northwest weather patterns can produce the information the association needs in order to be fully informed as to the condition of the buildings' structure.

Owners call in cable television vendors who drill holes through siding, weatherproofing layers, sheathing and into the unit's wall board; uninspected areas of the building in low-traffic areas can contain gaps in flashing, animal intrusion sites -- as small as bees or wasps -- that can invite water into the structure. Damage may only appear years later, but at the risk of repeating . . .

"Every building leaks. Over time, the water intrusion will become visible."

Today's Market for Repairs

In today's market, professional fees and the costs of construction materials are remarkably lower than they were during the real estate construction boom times that peaked here in 2007. Some rates and costs are down 15%-40% depending on the specialty.

With a visual inspection, the association's board can become aware and learn more about the condition of their structures. This inspection may lead to an intrusive inspection, which can reveal the total, true condition.

A consultant can work with the board to understand funding issues, whether funding is from owners, insurance proceeds, or tax-incentive rebates. Tax-incentive rebates are useful and can be substantial when an association replaces a roof, windows or other water barrier components.

Association Valuation and Owner Liability

When board members realize the value of the association they lead, often this number underscores the weight of the responsibility they carry as volunteers. For example, 33 units valued roughly at US$150,000 each, means that the association's real estate assets are worth about US$4,950,000.

[You can calculate the approximate value of the real estate assets in your association here.]

As an owner, be aware that the total cost of your ownership in a condominium community includes your financial responsibility to maintain assets you own in common with all other owners. Without great and current Reserve Studies, funding reserves commensurate with owners' financial health, consistent and effective maintenance, the buildings will deteriorate until only a special assessment can pay for the required repairs.

Generally, not only is a special assessment tied to your ownership status, you may also be personally liable for paying a special assessment. Your governing documents will explain your total financial responsibility.

Understanding the structural integrity of your buildings is a key piece of data that you need to know in order to appreciate your total cost of ownership.

The question then becomes: What's it worth to the association to pay for a structural inspection based on the total value of the investment that we own in common?


What holds us back? Generally, it's the fear of discovery. We don't want to know that that lump may be something cancerous; that the toothache might mean a dead tooth requiring extraction and replacement; that the ping under the hood means a failing engine part.

Commissioning a structural inspection now can lead to a reasonable process that matches the association's requirements. For example, once an inspection is complete, a vendor such as J2 prepares a Scope of Repair. Then J2 continues to advise the board through the bid process, whereby the Scope of Repair is let for bid, three qualified bidders identified, and a rough estimate given for the price of repairs.

Once repairs are complete, evidence of structural integrity can highlight the stable and underlying value of units, which can mean dramatically improved unit valuations for resale. By some documented evidence, this increase can be about 18% in today's market.

Here are a few parting tips:

  • Don't ignore maintenance
  • Don' fall for cheap advice
  • Understand the structure of your buildings and its condition
  • If there are problems, prepare a Scope of Repairs and send it out for bids
  • Get the work done within the funding parameters set by the association

Final, Blatant Commercial

J2 Building Consultants will prepare a proposal for services at no cost. Whether you need a second opinion for an inspection you've already commissioned, a visual inspection, and more, J2 nearby and interested in working with boards by making them their clients.

Our buildings will outlast us all.