DEFINING THE PROBLEM
DEFINING THE PROBLEM
The Great Social Experiment is entering its adolescence and like the next generation - it needs a guiding hand. The question is...who are the adults?
I'm warning you now - this is longer than usual. So make sure your coffee is hot.
In my last newsletter, I introduced the topic of Deferred Maintenance and Depleted Reserves by alluding to the 2020 Kittredge deck collapse. In the wake of disaster everyone was considerably concerned about decks and hidden rot, but as disaster became case study, the impetus driving repairs diminished. What I didn't mention is that 2020 Kittredge is a fairly new building. What does this mean for thousands of California communities many times older than that infamous building in Berkeley?
In "The 50 Year Problem," and "Why Did They Build These Buildings So Crummy," I will discuss some of the reasons behind the epidemic of leaks, and runaway entropy within many HOAs. But first I want to discuss the types of problems I'm seeing, and begin to unwrap why I believe they are so elusive.
- There sits a 16-floor condo near Lake Merit in Oakland whose reinforced concrete has abandoned its role as a structural building material and is aspiring to the indignity of a bath sponge. Each storm seems to reveal another mysterious leak. Balconies, windows, doors, patio, planters - all leaking.
- A townhome community in Moraga is half-way through a deck replacement project which they can barely afford, and may now need to put on hold as their 40-year-old french drains, 5' - 6' below grade, have deviously switched from draining ground water to draining cash.
- In Napa, a once beautiful garden community cycles through community managers in search of a sorceress who can transform decades of unpainted wood siding into...well actually they can't agree on that.
- In Marin, three communities from three different management companies within a stone's throw of each other all sag against termite and rot compromised framing. All three perch grandly, on stunningly beautiful, and impossibly inaccessible cliffs, making maintenance - no less reconstruction - prohibitively costly.
What do all of these communities have in common? Besides the obvious sagging plaster, rot, rust, and dangerously ill-advised attempted fixes - they simply don't have the capital to correctly solve the problems at hand. Each one would be incapable of fully resolving even one category of blight without raising money - no less the queue of repairs looming on the near horizon. But don't imagine that these communities are slum-bound ghetto dives because they aren't. Retired bankers, iPhone toting hipsters, and stay-at-home moms all call these buildings home. So what's going on? Why are otherwise responsible homeowners allowing their homes to spiral into disrepair?
As I talk to these HOAs' managers and directors a disconnect soon becomes evident - but exactly what elements are disconnected is less discernible.
You know the process:
The clubhouse falls into disrepair, and then disuse, and then is locked for good.
The landscaping is simplified.
The architectural elements that made the community unique begin to rot or rust - and are eliminated in the pre-paint repair cycle because it's just too expensive to replace them.
Sidewalks heave and cracks are ground to oblivion because replacement and tree root abatement is too expensive.
The community's charm is slowly eliminated from the budget.
At risk of oversimplification, the problem is - wait for it - that owners have not set aside enough money to adequately maintain the structures.
Feeling a bit underwhelmed?
Like I said - it seems simple, and is - sort of. Insurance, management, landscaping, pool maintenance and probably all other costs have incrementally risen over the years and, predictably, building maintenance followed the same trend. Costs climbed, in some degree in-sync with inflation, and some HOAs matched the increase with higher dues; others inexplicably did not. But that's not really the point...
Here's the point - Building maintenance at some point suddenly leaped off the chart and began a steep unanticipated climb. Not unlike the fine print clouding a "No Doc" loan's balloon payment, HOA's have had a balloon expense hiding within their walls and roofs. Yet, unlike a cheap mortgage, the lurking balloon wasn't in the fine print. I will talk about this more in "The 50 Year Problem," and "Why Did They Build These Buildings So Crummy." Suffice to say, reserves imagined to offset these balloon expenses are mysteriously...missing.
Go ahead and point fingers. It's cathartic to a degree to blame previous boards of directors, the previous management company, or the reserve fund analyst; but in all honesty, it's hard to blame anyone directly. Boards do make bad decisions, managers do give bad advice, and mandatory reserve funding has draped the industry in a false sense of security. But can an individual or entity really be blamed? Not really.
In any one HOA, how many individual humans have shared the responsibility to discern the future needs of this multi-million-dollar structure, form a plan of action, and then pass along the vision to an unpaid, untrained, ever changing set of director/owners? The fact that any effective business is ever carried out by an HOA BOD is a marvel of mankind's ability to communicate and reason. The many stable and solvent HOAs out there deserve our admiration and praise.
But there are hundreds of communities without options. And there are many more on the horizon. Their fate will affect the whole.
In the next few Newsletters, I will transition from discouraging current events to some historical reasons for the bad news. And then, we'll start looking for that silver lining - or if necessary, get out some magic markers and start tracing one ourselves.
