By Scott Wyman September 16, 2010 06:37 PM
Big banking won out Thursday over a Fort Lauderdale neighborhood’s hopes that the city would order the demolition of an abandoned condo complex that’s become a haven for crime.
Debris is strewn across the 58-unit complex along the north fork of the New River. The doors and windows have been stripped away. Vandals have destroyed walls and ripped out copper wiring and plumbing. The city has been paying for metal shutters to keep away squatters.
City inspectors declared the New River Condominium to be a health and fire hazard, but banks won two delays over the summer to prevent its demolition. Residents of the River Gardens/Sweeting Estates neighborhood had hoped Thursday would bring an end to the delay, but instead a city board gave banks another 32 days to try to come up with a plan to salvage the property.
The extension came even though the banks offered the board no evidence of any plans being drawn up. They also had failed to follow through on promises to pay for the shutters – which are costing Fort Lauderdale taxpayers $6,000 a month.
“This is an unsafe structure and there has been delay after delay and continuance after continuance,” neighborhood activist Pamela Adams said.
The neighborhood, along with city building inspectors, began pressing in June to take the drastic step of razing the five buildings just off Sistrunk Boulevard. The complex had been converted to condos in 2005, but then came the recession and now almost every unit is either owned by a bank or in the process of foreclosure.
There’s been no running water for a year. The condo association is defunct. Police officers refer to the area as The Hole because it’s where suspects on the run often disappear. Nearby homeowners say drug-dealing and prostitution is rampant.
Bank lawyers told the city’s Unsafe Structures Board that they are committed to trying to find a way to redevelop the property and understand the city’s patience is at an end.
“I can’t believe it is so unsafe that it must be demolished immediately,” said Justin Hekkanen, a lawyer for Bank of America, which has an interest in about two-thirds of the units.
Members of the city board said the delay was almost certainly the last. Although some of the board said the banks had had enough time to act, others feared that demolition would guarantee the land sit vacant for years as a legal fight ensues over what would happen next.
(This article was graciously sent to us by Shu Bartholomew, Editor of "On the Commons" a weekly Internet radio broadcast.)
(This article was graciously sent to us by Shu Bartholomew, Editor of "On the Commons" a weekly Internet radio broadcast.)
And what do we learn from this?
1. Failure is inevitable in many condominium projects—the only question is: when?
2. Banks and associations are on opposite sides in a failing community. Their interests do not coincide.
3. Once an association has reached beyond the Fourth Stage[i] there is little it can do to salvage the project.
Moral: Reserves must be adequate to anticipate all building maintenance and repairs. Not just those that are “visible and accessible” but also those that are hidden behind siding and roof coverings. Reserves will not be adequate if they are not 100% funded and if assessments are not adjusted regularly for inflation and later-discovered issues. Also, a failing project may not be recognizable until passed on to a succession of later owners whose investments become compromised by the inability to correct serious building issues.
[i] The Fourth Stage
Given that many, many associations have failed to anticipate the full extent of eventual reconstruction costs, they will, sooner or later, exhaust both contributed and borrowed capital sources. This includes such one-time influxes of capital as that provided by insurance recoveries or litigation settlements. Once all outside sources of capital are exhausted, the ravages of obsolescence will be hard to forestall. By this Fourth Stage in the project's evolution, the owners have long since refused to provide meaningful contributions of additional funds; lending institutions have refused further advances; and the projection for immediate or future repairs is well beyond any projected accumulations in the reserve accounts. Non-payment of assessments begins to climb to the point where the association's ability to pay for essential services, including utilities and management, is fading fast. Essential repairs are being deferred to the extent that the basic habitability or safety of the buildings is coming into question. Non-owner occupancy has risen beyond 50 percent, and refinancing or mortgage lending by most traditional lenders is precluded. Behavioral problems increase, vandalism to the property becomes more than just occasional, and political problems within the association make recruitment of board members and management very difficult if not impossible. The ship is rudderless and sinking.
Beyond the Fourth Stage, a project's fate is hard to predict. Certainly if the deterioration of the physical condition seriously affects habitability, health, and/or safety, local jurisdictions will be forced to intervene and will demand that those conditions be repaired. Given that the lack of ability to reach consensus on funding is the reason that these conditions have been allowed to develop, it is unlikely now that the owners, mostly absentee, will see any point in throwing "good money after bad." Their cash flow and equity may be nonexistent or negative, and the condition of the project makes a sale impossible. They continue to hold their interest in the property only because they receive rental income. The local jurisdiction may condemn some or all of the buildings, accelerating the onset of obsolescence. Absentee owners, deprived of rental income, will simply walk from the project and abandon the property. Resident owners without alternative housing will stay as long as the local jurisdiction will permit occupancy. Criminal activity will make if difficult for anyone to continue to occupy the premises. Redevelopment or other government-backed programs might be called upon in rare cases to rehabilitate the property. However, in most cases, the project will be valueless, uninhabitable and unsellable. Continued ownership will become a clear liability to the remaining investors and wholesale abandonment will ensue. In most cases, legal title to the separate interests will default to various lenders.
An example of such a project was observed in San Bernardino, California a few years ago. It consisted of fourplex condominium buildings, approximately 35 years old, now gone beyond a Stage Four. Units were boarded up or burnt out. Whole buildings had been bulldozed and only empty lots remained. There were a few inhabitants, possibly squatters. The surrounding neighborhood was in only slightly better condition, but fully occupied, lessening the chance of a municipal redevelopment project. The varied condition of the units suggested that they remained under separate titles. The complexity of titles, including the interests of lenders, most likely prevented any uniform scheme to convert the property to a better use.
Berding, “The Uncertain Future of Community Associations” 2005 Pages 14-15. This essay was written several years ago and is eerily similar to the article above.
