Calgary Leaky Condos

[jwilbrin]

This past week I heard about yet another sad first time investor story that just broke my heart.



A couple purchased two condo units in a building on 17th Avenue SW, Calgary about 3 or 4 years ago as an investment. The 10 year old building has been plagued by leaks. This year they discovered the problems and damages were far worse than anyone expected.



This couple received two special assessments of $75,000 each. The $150,000 special assessment coupled with the fact that their properties are worth less than what they paid for them, they declared bankruptcy.



Oddly enough I noticed the condo building across the street from their building is now also going through some major restoration. Test spots are being cut out of the stucco above windows and patio doors, scaffold is going up etc.



Just last week I noticed a condo building that I have long admired as a meticulously maintained property suddenly had 6 listings in it. This is a building that rarely saw properties come up for sale. Thought that was strange until I drove by it yesterday and saw scaffold, tarps, dumpsters and stucco being removed -- telltale signs of water issues and possibly some big special assessments.



Driving down 14th Street this past week and saw two more condo buildings with several decks and window covered in tarps. Major signs of water damage to stucco.



There appears to be more and more media coverage on this problem as the government realizes the problem is far worse than what everyone thought. I guess it doesn't help when condo owners/boards are keeping their dirty little leaky secret hush hush.



Would love to hear what Calgary Realtors are seeing out there and what your take on this situation is.



Here are some interesting links:

http://www.globaltvedmonton.com/Calgary+dirty+secret+still+unsolved/4218817/story.html

Calgary`s dirty secret still unsolved...



http://www.660news.com/news/local/article/226644--structural-problems-with-condos

An industry expert warns troubles with leaky condos in Calgary...



http://www.calgaryherald.com/business/Calgary+condo+owners+await+solutions+long+soggy+saga/4785689/story.html

 

[Lucas]

That is a very unfortuante story.



I'm a Realtor in Edmonton and have sold many condo's to many different investors. While its impossible to guarantee that a complex is without major structural and/or latent defects, one can significantly mitigate the risk by doing an interior inspection of the unit; this actually saved a client...there were a few drywall cracks in a unit we had an offer on that ended up being MAJOR foundational issues with the ENTIRE building, as we found out later. As well, the inspector should look closely (with the correct equipment...i.e. moisture readers) for water/structural damage. Additionally, a brief exterior inspection of the unit, the stucco/parging (for shifting and/or water damage), the grading of the ground surrounding the building and the general condition of the roof (if you can see it), eavestroughing etc...A good inspector will include a relatively quick exterior inspection as well.



Another filter that should be MANDATORY when purchasing a condo is a review of the condominium documents. I always send my clients documents to a professional document reader as they are very familiar with what to look for when studying document sand often they will have a working knowledge of various complexes in their city. Its important not to rush this particular step as it is the MOST important one in the process...The doc's will tell you EVERYTHING about the complex. I always call the management company (if there is one) and the acting condo board members on behalf of my clients to try and get a sense on what is happening in the complex as well as the general culture of the building(s).



A few other things to watch closely to mitigate the risk of being on the wrong end of an assessments:

• Pavement/sidewalks - If they are in bad condition they can be really expensive to repair...often resulting in a large assessment
• Small number of units in the complex - Often the smaller complexes are the most poorly managed and if there is a major repair, the onus falls on fewer owners.
• Roof - If the roof is peaked, its easy to see the condition of the shingles...Obviously, they will prioritized for repair before leaking occurs to prevent significant damage and roofs can be very expensive to fix.
• Scanty Condominium Documents - If you don't receive all the important documents, walk from the deal.
  Fences - Usually, to keep the peace, fences are among the top priority as well to maintain...if they are falling down, expect an assessment to follow closely.
  Really shabby common areas/Elevators - If they are shabby, its an indication of poor managment...and poor management leads to assessments.
  Underground Parking - They are complicated to build and I have seen a few issues with them in my day...usually structural. The repairs are VERY expensive and the assessments are large when they happen.
  Understanding the structure of the entire complex - I know of one complex (in Edmonton...I won't name it though), that is built on a concrete slab on unstable soil (very sandy/silty) and in hindsight, the foundation should have been different to accommodate this. At one point values in the complex went down by 50% in a few months and they were talking about assessments of over 100k. We learned this from the Condo doc's so my client walked but of course we felt horrible for those that owned in the complex.

Aside form my previous examples, I haven't noticed a spike in condo related issues in the past few months. That said, considering the rate in which some of the recent condo's went up (especially the walk-up style), it wouldn't surprise me!!



Didn't mean to steal the thread...just wanted to impart some thoughts/experience I have/had with condo's...



Thanks for the links...good read!!



Lucas

Associate, Re/Max Excellence Edm.

780.965.7029

 

[Thomas Beyer]

This is a great illustration why it is paramount to understand RISK in real estate.



Every asset comes with potential or existing liabilities / obligations i.e. RISK !



Ensure that you understand that risk, price it properly and do not only look at income or upside potential, but also downside potential.



It is very important to do careful due diligence, such as an inspection or study of often lengthy condo documentation. As a buyer of these older condos most information is available through the condo documentation. Many buyers tend to forget to read them, and some realtors, eager to make commission, also do not encourage buyers to do their homework.



One such company is Condo Check .. that does it for you for a fee. See here: http://www.condo-check.com/webpage/1002642/1000414



Alberta also needs new legislation like BC or ON as the liability for developers is close to nil for this shoddy workmanship ! I heard of a similar story this weekend for a large 3 or 4 year old condo complex in Canmore. In BC the developer or his insurance would cover those major deficiencies. In Alberta that legislation does not (yet) exist !!

 

[bizaro86]

[quote user=Lucas] Small number of units in the complex - Often the smaller complexes are the most poorly managed and if there is a major repair, the onus falls on fewer owners.



Rules of thumb are ok, but I don't like this one. Take the time to judge whether the building is in good condition, and whether the condo corporation is in good condition. If the answer to both those is ok, I wouldn't be scared off of a well managed smaller building.



I'm familiar with the building the original poster mentioned that is having a six figure special assessment. It has sixty units in a great location. It's a larger building, and it has larger problems...



[quote user=Lucas]Underground Parking - They are complicated to build and I have seen a few issues with them in my day...usually structural. The repairs are VERY expensive and the assessments are large when they happen


One of the big factors here is post-tensioned cable systems. If the building has post tensioned cables, it should be listed on the surveyors report filed with the land titles. You can (and should) get a copy of this before buying any condo. If it does have post tensioned cables, make sure you get a copy of the engineers report, as they should be inspected every five years. If that isn't happening, back away from the building. Of course, if you were buying the whole building you could get an engineering inspection done yourself, but that's probably too costly for one unit.



Regards,



Michael

 

[bizaro86]

[quote user=ThomasBeyer]It is very important to do careful due diligence, such as an inspection or study of often lengthy condo documentation. As a buyer of these older condos most information is available through the condo documentation. Many buyers tend to forget to read them, and some realtors, eager to make commission, also do not encourage buyers to do their homework.





This is very good advice, as usual. I would add that this doesn't only apply to older condos, however. The building the original poster mentioned with six figure assessments was completed in 2004. A number of owners are declaring bankruptcy, so most of the building will turn over in foreclosure. And that's only if they are able to collect enough money to get the work done. Otherwise it won't get fixed at all, and a number of the units are currently uninhabitable due to leaks.

 

[RedlineBrett]

[quote user=jwilbrin]



Would love to hear what Calgary Realtors are seeing out there and what your take on this situation is.







There are horror stories every year and it always seems to be buyers of cheaper product that get hurt most when stuff like this happens. During the boom it was price gouging by builders/sellers. Shortly after that the story was condo conversions, now it seems to be the bigger complexes that were rushed to completion (to take advantage of a hot market) are having issues come to light.



Like Thomas says there is always risk. While one of the 'rewards' for purchasing a condo is diluted liability for major issues and maintenance the risk associated with it is lack of control and often times lack of knowlege going in. Reviewing condo docs is essential but I have found that many boards are lazy about preparing up to date documentation and many monthly meeting minutes summaries are as much as six months old when you request documents for review. Often times the only way to know for sure is to get the email address of the condo board president or manager and email questions directly to them and hope they answer so you have something in writing.



These buildings that have problems end up being red-flagged and the story doesn't take long to work its way through the real estate brokerages. It's one of the reasons it pays to have a good realtor to steer you clear of these problem buildings.