By Deborah Goonan, Independent American Communities
Imagine scraping together the down payment to buy a half-million dollar condo, only to be hit with a $145,000 special assessment a year later.
That’s the nightmare for several homeowners in Pinnacle Condominium Association, a 36-unit, 8-building complex in San Rafael, originally constructed in 1980, managed by RealManage.
According to a report in the Marin Independent Journal, the recently approved $5.22 M exterior renovation project breaks down as follows:
- $2.2 million for replacement of worn out cedar shake siding
- $752,000 for replacement of 37 roof decks
- $916,000, or 17.5% in soft costs, including “project management, legal costs, permits and architectural and engineering work,” with $600,000 reportedly going to project manager CIDology
- $1.352 million in additional exterior improvements
Also, according to the report, votes representing 18 units approved the special assessment. Specifically, the Association recorded 12 votes opposed, 3 votes thrown out for technical reasons, and 3 non-votes.
In other words, half of the unit owners have decided to burden the other half with special assessments representing close to 30% of the most recent sale price of a unit in Pinnacle Condo Association.
Understandably, owners opposed to the extensive project are unhappy, and they feel their concerns have been ignored.
It’s a perfect example of tyranny of the majority, and an unavoidable feature of life in an association-governed common interest community.
Condo owners who do not have enough cash on hand — or sufficient equity to refinance their units — can opt to participate in a 20-year loan at 4.75%, adding $947 per month to their $500 regular monthly condo assessments.
That’s $1,447 per month in condo fees for the next 20 years, plus any future increases.
San Rafael condo owners hit with $145,000 special assessment
By Richard Halstead, Marin Independent Journal
POSTED: 01/16/18, 5:55 PM PST
Members of the 36-unit Pinnacle Condominium Association in San Rafael have approved a special assessment that will result in each condo owner having to pay $145,000 to fund a $5.22 million exterior repair project.
“That is a major special assessment for a building this size,” said Marjorie Murray, president of the Center for California Homeowner Association Law in Oakland, a clearinghouse for consumer education and referral services for the estimated 9 million California homeowners who now live in a common interest development.
Not all members of the Pinnacle homeowners association support such a large assessment. When the assessment was put to a vote on Dec. 18, only 18 members voted yes. Nine members voted no and three ballots were not counted because they lacked a signature and/or unit address on the outer envelope.
“For us, it’s a pretty raw deal,” said Erik Lovlein, who together with his wife purchased a Pinnacle condo in November 2016. “We knew the siding was a bit old and needed some updating, but we had no clue.
“There was zero debate on the topic,” Lovlein said. “If we don’t do this, the entire world is going to come to an end, let’s vote — that is how it was presented.”
Why opponents are critical of Pinnacle’s major exterior renovation
There are many red flags in the background details of this condo horror story.
Several condo owners are uneasy about the scope of the project, and its likely outcome.
Brian Smith, founder of the Association’s proposed project manager, CIDology, previously owned a company, I.W. Bison, that was sued by at least two other condo associations in California.
One of those litigated projects involved a $4 million roof repair, the other involved $3 million in exterior renovations. In both cases, condo associations’ legal claims alleged continued water intrusion following extensive work done under the direction of I.W. Bison. Both of those cases settled out of court, and terms of those settlements remain confidential.
Smith’s new company, CIDology, not only manages major renovation projects, but also manages the voting process in the association and arranges for financing with “HOA bankers.” The company also conducts a reserve study for funding future projects.
Is it wise to allow a construction project manager to “work with your management team to craft each of the voting documents and prepare for mailing?” After all, CIDology directly benefits when the association approves a project.
Could this conflicted arrangement also explain why Pinnacle Condo Association is using only $300,000 of its $800,000 reserves for the recently approved $5.2 million project?
Management conflicts of interest?
Pinnacle’s management company, RealManage, is a large community association management company based in Texas, and a favored darling of industry trade group Community Associations Institute (CAI). The company provides multiple community association services, including budget management, project management, enforcement of restrictions, and collection of delinquent accounts.
Steve Jordan, chief risk officer for RealManage, is the Pinnacles’ property manager. Part of Jordan’s project management includes, in this case, working with CIDology to oversee the $5.22 million project at Pinnacle.
Read between the lines: Jordan will be responsible for collecting exorbitant assessment payments that his company has had a direct role in recommending as part of budget planning for Pinnacle.
Hamid Shamsapour, president of the Pinnacle Condo Association’s board, has recently worked for the City of Larkspur as a project engineer from 2011 – 2013, a fact that is likely to expedite permit approval process for Pinnacle’s construction projects from nearby San Rafael, both located in Marin County.
And, because the City and County taxpayers are not funding Pinnacle’s project, there will be no public transparency or analysis of the construction budget.
No wonder Jeffrey Cereghino, a San Francisco attorney who represented one of the associations that previously sued Brian Smith when he owned I.W. Bison, recommends that Pinnacle condo owners obtain a second opinion and an independent analysis of repairs needed, prior to moving forward with their major renovation project.
Another important lesson for housing consumers: know that condo buyers are rarely able to obtain accurate property appraisals prior to purchase. That’s because the lender’s appraiser does not routinely consider the condition of the property’s common property.
Likewise, the buyer’s home inspector concentrates his evaluation on the interior of the unit, not exterior elements such as siding, roofs, decks, parking areas, and shared recreational amenities such as pools, spas, or patios.
Contrast the condo buying process with the process of purchasing a single family, non-HOA burdened, “fixer upper” home.
When considering a single family home in need of renovation, the buyer normally obtains a lender appraisal that considers pre- and post-renovation value, a home inspection that considers the condition of the entire property, inside and out, and several contractor estimates for renovation projects.
The wise home buyer or investor knows that, to prevent conflicts of interests and inflated costs, it is critical to obtain independent evaluations and cost estimates from the appraiser, home inspectors, and contractors.
All factors considered, the buyer is then in a strong position to negotiate a fair sale price.
As this story illustrates, a condo buyer or owner often has little direct control over their association’s “fixer upper” evaluation, budgeting, and renovation process.