Condo conundrums

While the condo sector is showing resilience in some regions, the broader condo sector is addressing many challenges, from economic uncertainty to supply chain disruptions. As property managers provide operational oversight and guidance to condo boards and associations, there are various trends and challenges they should be prepared to navigate.

Interest rates

Similar to owners of other housing, condo owners who locked in lower interest rates during the last decade are choosing not to sell. This means fewer moves or transfers, affecting condo associations that rely on moving fees for ancillary income.

Brian Lozell, CPM^®

“If an association budgeted for 20 people to move in per year at $100 or $1000 per transfer fee, that’s a loss of income,” says Brian Lozell, CPM^®, vice president of Associa Chicagoland.

Lozell says they’re not yet experiencing delinquencies from condo owners who opened an adjustable-rate mortgage and are struggling to pay, but he does foresee the repercussions.

“If their ability to live in that condo unit and pay their assessments and mortgage was based on those interest rates, the rising rates would affect that,” he says. “If people have to choose between paying their mortgage or their assessment fees, they will choose the mortgage. I think we’re about three years away from a crisis.”

Supply chain issues

Delays and scarcity of materials create issues for new condo construction, but even more so for projects and upgrades in existing condo buildings.

“We’re seeing that we need to increase the frequency of our reserves studies,” says Lozell. “Materials may not be available, and the engineers or architects are advising us that what was once a three-to-six-month lead time is now 12 to 18 months.”

Suzanne LeValley, CPM^®

Suzanne LeValley, CPM^®, has decades of experience in property management and is the owner of consultancy All Things Condo, Inc. She says condos tend to wait until the last minute for repairs or upgrades, but doing so can present problems given the existing supply chain issues. LeValley, who lives in Calgary, Alberta, recommends that condo managers and boards start preparing their timelines and finances for an increase in material or labor costs, as well as delays.

“Even if the project is a year or two down the road, property managers must be proactive in planning and budgeting for these projects,” LeValley says. “If they wait until the last minute or an emergency, they may end up with shoddy vendors who don’t do a good job. There are many bad consequences of having to make hasty decisions in that environment.”

Energy efficiency expenses

Like most other properties, condominiums are facing various energy efficiency codes and requirements—and the expenses can add up.

Property managers can help mitigate these larger expenses, and lower costs, by making simple changes, like transitioning to LED bulbs or smart thermostats. LeValley says that many condos don’t spend on these projects until required to do so, and Canadian banks are stepping in to offer attractive financing to condos to complete these upgrades.

Some condo owners are taking it upon themselves to create energy-efficient offerings. “On the other side of this coin are owners who have said, ‘We want electric vehicle (EV) charging stations in my parking garage stall, and we will pay for them because it will increase the value of my unit when I sell it,’” she says.

Local laws and regulations

Depending on the jurisdiction, condo buildings may be facing new or impending legislation around structural integrity, safety, tenant protections, reserve fund requirements, and accessibility, to name just some.

In Florida, for example, condominiums more than three stories tall must comply with a statewide recertification that, for many buildings, must occur by the end of the year. This new legislation was passed after the Champlain Towers South condominium collapse in 2021.

Lozell remembers another example that occurred in Chicago in 2022. During an unseasonably warm spell in the spring, three people in a senior living center died after the property did not turn the heat off. In response, the city passed an ordinance requiring residential high-rise and senior citizen buildings to establish “cooling centers in enclosed common areas,” among other measures.

“This places a significant financial burden on buildings that were not prepared,” Lozell says. “The city already had a heating ordinance in place, which makes sense in Chicago.”

New amenities

Rather than renovate the entire sun deck and pool areas, one Chicago condo association bought new furniture. | Photo courtesy of Brian Lozell, CPM®

Amenities—especially those related to luxury or health and wellness—are the key to drawing prospective buyers. But Lozell says these high-end amenities are a more significant priority for new condo developments than existing buildings.

“Existing buildings are more likely to enhance an amenity, like the pool or gym, that they already have,” Lozell says. “There is always talk about adding something new, but when the price tag shows up, they say, ‘Maybe we don’t need that.’ It’s easier and cheaper to put those in upfront. You have to look at the ROI.”

Even for upgrading or enhancing existing condo buildings, many owners prefer to spend their money on their individual units rather than contributing to a common space upgrade, Lozell says.

Preparing for what’s next

Equipped with her years of experience, LeValley spends a great deal of time consulting with condo boards. She says an essential part of that work is helping them construct a financial recovery plan.

“You must look at the whole picture. If operating costs went up 20% last year, that’s 20% that wasn’t put into reserves,” she says.

She advises condos to look past just last year’s financials to get more realistic expectations. “Look back two or three years,” she says. “You may say, ‘OK, utilities went up 6% this past year, not 2% like we’ve been budgeting.’ I hear things all the time, like, ‘We paid a lot for snow removal last year, but maybe this winter will be better,’ and then they reduce their budget for snow removal. That’s not a strategy.”

LeValley says an essential role of any condo property manager, regardless of the financial situation, is to restore the concept of community in the building. “Everyone has the same objectives, and they are all very basic,” she says. “If you can get people pulling in the same direction with strong communication and advice, you can get them to make the best decisions for the building.”