What The Condo Collapse In Miami Can Teach Us In Colorado
The Tragedy Highlights Common Challenges Facing HOAs in Denver and Nationwide
The association in Surfside faced a difficult yet not uncommon set of challenges leading up to the catastrophe that took the lives of nearly 100 of its residents. The collapse has sparked much conversation in the HOA industry around a host of issues. While we at CAP don’t have all the answers, we know that associations everywhere will ultimately need to find ways through these common challenges to avert a range of repercussions.
At the end of the day, we are a premier HOA management company in Denver focused on sustainability and community. We are an “Agent” contracted to act on behalf of the HOA and its Board of Directors and at their direction alone. We have little authority, virtually no decision-making power, and we can be terminated as easily as a landscape or cleaning company. Yet we do have a special seat at the table. The most comprehensive management companies are financial advisors, strategic planners, project managers, community engagement professionals, parliamentarians, board meeting peacekeepers, and IT providers, all in one. We run the ship but are not its captain.
From this special vantage point, we watch the intimate workings of the dozens of HOAs in our portfolio here in Colorado, and have experience with dozens more we no longer serve. We have a pulse on trends, we can see patters between associations, challenges which are unique, challenges which are common, pitfalls that drag associations down, and choices that ruin an entire community. We know the prerequisites for an HOA that is “successful” and those for an HOA which is bound to “fail.” As more light was cast on the issues leading up to the collapse in Miami, we saw familiar traits.
In the early 2010’s, our company onboarded an association facing a crossroads of its own with a backstory not unlike the Surfside Tower, and we saw a similar game unfold. As we digested the news from Miami, we couldn’t help but think back to this former client, the parallels between these two HOAs, and the seemingly obvious yet stubbornly difficult-to-realize ways to avoid said disasters.
This former client bore many of the same traits as the Condo at Surfside when they partnered with CAP. It was built in the 70s. They had recently received an engineering report outlining a long list of imminent structural repairs: balconies, siding, facades, staircases, walkways, roofs, plumbing, fire systems, and more. These repairs were compounded deferred maintenance needs which the HOA had in the past chosen to postpone. But when they started working with us, they could kick the can no longer – the municipality here in Colorado had issued “red-tags” for the structures which would ultimately designate the property as unfit for habitation. Contractors had submitted quotes based on the engineering report and the sum total of the necessary projects was almost impossible for owners to digest. Tens of thousands of dollars per resident would need to be assessed to fully update the property. Many owners did not have this kind of liquid cash, understandably. Owners felt a range of emotions: anger at previous boards and owners and at a developer long gone. Some with our client here in Colorado, just like some residents in Surfside, formed factions of disgruntled owners to challenge board, sow misinformation around the project, and grind progress to a halt.
When an HOA needs major repairs, it is the result of many factors. Generally, one thing is not ultimately to blame. It is true that during boom development years that builders may have worked too quickly and that construction deficiencies exist as a result. It is true that the elements and passage of time take an invisible toll on physical structures. It is true that the cost of maintaining mid-rises, high-rises, and condominiums is high. It is true that little regulation exists nationwide to require HOAs to follow a reserve study or enact predictive maintenance plans. It is true that the multibillion-dollar real estate corporations in Colorado that we call HOAs lack a guiding partner in keeping them out of the quagmire of a compounded deferred maintenance project.
We have seen traits on boards that we encourage them to avoid. Just last year, we met with a potential client during a sales meeting. The property was around 25 years old, with a roof and siding replacement project on the horizon. The cost was estimated at around $15k per home, and the reserves were insufficient to cover it. This HOA in Colorado was unsure how to move forward, but they knew one thing: they aimed to “pay less” for services and were determined not to increase the dues. One retiree board member even made a fateful comment: “I’m older, the other board members are older. We (the Board) aren’t paying $15,000 for a roof for someone else.” Based on that comment, we withdrew our proposal. That kind of thinking is the antithesis to a common interest community, and the kind of vision that leads to the scenarios outlined here.
The real issue here is what to do next. How do we prevent the thousands of HOAs in Colorado and Denver and the tens of thousands nationwide from reaching this point? We feel we have some of these answers and look forward to the industry considering more as the years go on.
- State and federal legislation should be passed requiring HOAs to hold a current reserve study. Associations should be required to fund their study within a certain threshold.
- HOAs in Denver need a partner for long term community planning. This planning should include:
- Financial planning
- Long term predictive maintenance plans
- Community engagement so that owners are invited into the fold before projects become urgent
- Sustainability assessment and planning based on the triple bottom line of “people, planet, profit”
- HOAs need to prepare for upcoming regulator changes in advance of their passage. HOAs move too slowly to pivot and react within a year or two.
- Boards of directors must set aside personal considerations and act as representatives of the entire community and the physical property itself. This can be achieved by the HOA adopting guiding principles and values of sustainability and resiliency. Deliberate committees can supplement the realization of this vision.
- The association should undertake a sustainability assessment, exploring how to modernize older components to consume less resources and stay ahead of inevitable regulatory changes.
- HOAs and the greater industry should consider better lobbying practices to push for proactive legislation. Too often special interests stall legislation that could benefit HOAs by being better organized.
- An entire industry exists to help HOAs operate in a sustainable, resilient way. Management Companies and/or other organizations need to consult HOAs the way we would a municipality or large commercial property. Predictive maintenance, long term planning, engineering reports, financial modeling, stakeholder events, and community engagement are all key elements of this process.
- HOAs need to become more civil and constructive in their operations. Part of this involves better engagement. There are generational differences at play, and considerations amid a pandemic. First steps are parliamentarian training for boards of directors, enacting Roberts Rules of Order during meetings, and engaging conflict resolution professionals when needed.
As we look to the future, we must consider HOAs as part of the greater townships and cities they are part of. This means giving them the allies they deserve and reasonable regulations on new developments that ensure they are not blindsided with staggering repairs ten to twenty years in. In this endeavor CAP Management and HOA companies in Denver like us will continue to do our part.