By Deborah Goonan, Independent American Communities
It’s becoming more common than ever to see reports of condo associations faced with huge special assessments. For the owners at Kennelly Square Condominium in Chicago, a recent $18 million estimate to repair their building would mean per-unit special assessments ranging from $30,000 – $80,000.
The story is so typical. A 1970s-era building, constructed as apartments, converted to condos in 1979. Decades of wear and tear have taken their toll, but the association has very little money in reserves. Apparently, no one wanted to increase monthly assessments high enough to save money for future repairs.
Now the City is forcing the issue, requiring Kennelly Square condo association to comply with current building codes.
Some owners would rather put the entire building up for sale, to allow a deconversion of condos back to apartments. A real estate broker interviewed by DNAinfo is convinced that condo owners can get an attractive offer from an investor or developer.
Well, the offer might seem more attractive than coming up with a veritable fortune, then handing it over the condo association for extensive maintenance and repairs.
What If Your Condo’s Special Assessment Was $80,000? It Could Happen Here
By Ted Cox | January 24, 2017 5:37am (DNAinfo.com)
OLD TOWN TRIANGLE — And you thought your condo’s special assessment was big.
An Old Town condominium building is facing an estimated $18 million repair bill — leaving some residents on the hook for one-time payments of as much as $80,000.
Bruce Theobald, a condo owner at the Kennelly Square condominium at 1749 N. Wells St., said the more than 260 unit owners had been told that estimated repairs were $18 million, requiring a special assessment.
According to Theobald, that would mean “rough numbers” of about $30,000 for a studio, $50,000 for a one-bedroom and as much as $80,000 for a two-bedroom.
Another excerpt from the article above, according to the Broker-owner:
Theobald said a “growing faction” of condo owners are pushing for a sale, and he was cheered during a condo association meeting last week where the board agreed to seek an appraisal of the building, a tentative first step toward putting it on the market. He sent an email to condo owners last week stating: “Deconversions have become popular as of late, and a deconversion could bring you a price of as much as 40 percent to 50 percent over the current market value of your unit.”
Who will be willing to pay top dollar for a massive fixer upper? If the building is too costly for current owners to repair, what makes them think a real estate investor will be willing to pay more than the bare minimum to acquire the property?
Investor owners – those who do not reside in their condos, and who rent them to tenants – may be quite happy to cash out. If they happen to take a loss, they can write it off and take a tax deduction.
But what about owner-occupants? What about recent buyers at Kennelly Square – especially unit owners who still have a mortgage to pay? How likely is it that they will garner sale offers large enough to pay off their loans? Will sale proceeds be enough to finance a move to the next property?
I would not count on it.
Situations like Kennelly Square are quite common, and as the supply of condominiums continues to age, condo owners are very likely to see more of these dilemmas.
After 25 years, major components of common interest communities, especially condominiums, have reached the end of their useful life cycles. For example, after a quarter of a century, it will be time to replace roofs, parking lots, elevators, deck and balcony materials. In another decade, windows and doors might also require replacement – and those two major replacement jobs might be the responsibility of individual owners, not the association!
Very few condo associations maintain fully-funded reserve accounts to pay for these major expenses. Either condo owners must agree to pay hefty special assessments, or investor-owners will begin pressing for a wholesale sell-out and deconversion.
What if there are no buyers for the condominium building or complex? You guessed it, condo owners are SOL.
That is why I cringe when I hear starry-eyed first-time homebuyers refer to a condo as their “dream” home. Likewise, I just shake my head when someone tells me they have purchased a condo as a low-maintenance place to live out their retirement years.
That might work out if you and your condo association neighbors are independently wealthy, able and willing to spend a fortune on special assessments.
But very often, the most “affordable” condos to purchase happen to be units in vintage buildings – the structures that are highly likely to require expensive repairs. The Money Pits of the condo world. The kind where assessments are likely to double in a few years, and where special assessments loom on the horizon.
Not unlike Kennelly Square.
More like a nightmare than a dream.