27 million reasons why a condo would ‘deconvert’

 Lake Michigan from the North Shore, Chicago

In a deal worth $27 million, Edgewater Beach condominium owners in Chicago plan to sell their lakefront building to Greenstone Property Group, a New York- based real estate investor that will convert its 188 units to apartments.

Almost 80 percent of unit owners accepted the offer in a vote over the summer. Under Illinois law, bulk con- dominium sales must be approved by 75 percent of unit owners. The sale is expected to close this year.

“I think owners were beginning to realize that if we don’t sell, we will be required to raise several special assessments to fund crucial deferred maintenance issues, many of which are not prepared for,” says Shawn Swift, president of the Surfside Condominiums board. “We felt it was important that all owners have the choice to decide the building’s fate collectively, rather than a board of directors’ decision to move forward with $3–$4 million in special assessments over the next two years.”

Owners will receive approximately 40–50 percent more on average for their units than if they were to sell on their own, explains Swift, and without the worry of paying hefty assessments in the future.

“We have also negotiated favorable leaseback terms for any owners who wish to stay in their units post-closing,” Swift adds. “The buyer will honor any cur- rent leases in place between an owner and their tenant. About half the building is currently being rented.”

The sale will be one of the largest condominium-to- apartment conversions—also known as deconversions—in the city’s history, according to the Chicago Tribune.

“Condominium deconversions became popular a few years ago because of the increased rental rates in Chicago,” says Patrick T. Costello, a shareholder at Keay & Costello law firm and a legislative liaison to CAI’s Illinois Chapter Legislative Action Committee.

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Why are common-interest communities so uncommon in the U.K.?

Big Ben, London

Community association living is widely popular in many areas of the world. In the U.S., for example, there are 70 million people living in 344,500 common-interest communities, one in eight live in a condominium in Canada, and three million Australians live in strata communities. Condominiums have taken off in Europe too, especially in France and Germany. However, one country remains a laggard in this trend: The United Kingdom. Despite legislation introduced in 2004 to jump-start condominiums— or commonholds as they are referred in the U.K—less than 20 have been developed.

The commonhold system was introduced to phase out the most popular form of housing in the UK: leasehold. In a leasehold arrangement, the buyer rents a flat from the freeholder, or landlord, for a specified number of years. The freeholder is responsible for managing and maintaining the common areas of the building, such as hallways, roofs, and facades. The lease is typically long-term—often as many as 120 years—but begins to decrease in value as the lease nears its end. Many individuals have taken issue with the leasehold system. Complaints range from burdensome fees imposed by landlords to the costliness of extending a lease and the fundamental nature of a leasehold as a wasting asset.

With all the complaints surrounding leaseholds, one might wonder why there’s a lack of enthusiasm for commonholds? In theory, self-management of commonholds removes conflict with the landlord, and ownership alleviates the ticking time bomb worry of a lease. The Law Commission, an entity responsible for reforming laws in the U.K., has a few ideas as to why commonholds remain so sparse.

Some potential issues affect homeowners. When changing from a leasehold to a commonhold, the law requires unanimous consent from every inhabitant 21 years or older, the freeholder, and every lender with a mortgage. Naturally, getting this many people informed, let alone on board with such a big change, is difficult. In addition, the commonhold association, the U.K. equivalent of a community association board, is a company under the current law. As such, leaseholders could face criminal penalties for violating the law. This standard is much too risky for any homeowner. Regulations also might be too stringent in some areas and overly flexible in others. For example, maintenance obligations are unchangeable regardless of age and price of the building, but on the other hand, fire insurance is the only type of insurance buildings are required to have, whereas other types of buildings require flooding and theft insurance.

Overall, commonhold’s failure to launch might simply be due to lack of a financial incentive for developers and a gap in public awareness over this type of housing. These types of large-scale transitions can be difficult and require public backing. However, the U.K.’s housing reform endeavors are an admirable effort to jump-start conversation between potential homebuyers, legislators, commonhold owners, and developers.

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Thank you, neighbor! How communities grow and thrive

Buying a home in a community where you are surrounded by courteous and considerate neighbors enhances your well-being and living experience.

Since 1978, Good Neighbor Day has been an annual reminder to communities nationwide that good neighbors help communities grow and thrive. From cleaning up local parks to picking up after your pet, these simple tasks can go a long way to creating stronger, safer communities.

That’s no surprise to residents of the Forest Edge Cluster in Reston, Va., which celebrated its 50th anniversary on Sept. 22. Named for the buffer of trees and creeks surrounding the neighborhood, Forest Edge has evolved from 11 flat-roof homes in 1968 into 96 additional composite-design homes, according to Reston Now.

The community celebrated its anniversary by inviting current and former residents from the past 50 years to reunite and reminisce alongside neighbors. Nearly 100 residents attended the celebration, where they talked about their experiences living in the association. A resident who owns a nearby bake shop donated a cake, which was cut by the community’s first homeowner, Jeanne Rich.

“When I decided to run for the board, I wanted to bring back a sense of community, and now we have achieved that,” says Kathy Oris, Forest Edge board president. “We have folks who volunteer to help in numerous ways—from pulling weeds at the home of an elderly neighbor to dragging and spreading mulch at tot lots. Nobody receives a salary or compensation, besides a thank you and a smile.”

Community associations would not be a success without good neighbors. Come to think of it: We should be celebrating Good Neighbor Day every day.

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Hot Home Trend: Color Block Your Kitchen Cabinets

By Melissa Dittmann Tracey, REALTOR® Magazine Getting a little mismatchy in kitchen cabinet color designs is no longer being viewed as an unfinished reno job, but instead perfectly stylish in fitting with today’s trends. These “tuxedo kitchens,” as they’re nicknamed, are where the upper cabinets may be in one color—like in all white—and then the […]

How one CAI member helped clients during and after Hurricane Maria

San Juan, Puerto Rico: A work crew clears brush created by Hurricane Maria from a city park more than three months after the storm struck. 

Hurricane Maria made landfall in Puerto Rico as a Category 5 storm on Sept. 20, 2017, bringing devastating winds and flooding and leaving much of the island in the dark. More than 70,000 homes were destroyed and the official damage tally in Puerto Rico and the Virgin Islands totaled $90 billion.

The effects continue to linger on the island one year later. Puerto Rico Electric Power Authority reported last month that power has been restored, though some residents deny that claim and say they must still rely on generators.

CAI member Robert MacKay, president of community management software company Manage My Nest, has helped his clients in Puerto Rico communicate with one another during and after Maria.

The company, which is headquartered in San Juan, did whatever it could on behalf of clients. This included using the platform to send out communications on clients’ behalves while landlines were down, working with suppliers to send necessary resources, facilitating and executing email blasts, and more. “There was no set menu—just whatever we could do to help,” says MacKay.

One community manager at a high-rise condominium used the platform at 6:00 a.m. during the hurricane to advise residents to stay away from windows and remain in hallways, he recalls. Nearly an hour later, they were able to alert residents that the windows were breaking and to go to stairwells.

MacKay is confident that the island will return to normal despite the widespread devastation. “The people of Puerto Rico represent a resilient culture. You could see people outside working together with FEMA to salvage what they could. People rationed diesel fuel with generators between communities. Residents in the community used a shovel and a wheelbarrow to clean the beach. It was amazing to see. They love their island,” says MacKay.

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Hurricane Florence: Will FEMA help your community?

Photo credit: Mark Hiebert

As community association managers and boards of directors prepare their residents for Hurricane Florence, they are burdened with the knowledge that the Federal Emergency Management Agency likely will not be there to support disaster recovery in their community.

That’s because FEMA classifies community association streets as private and won’t remove debris without prior approval.

What’s not understood by FEMA and many members of Congress is that the local municipality may have mandated the developer privatize streets in the community, resulting in association residents bearing the financial, legal, and operational responsibility for maintaining and insuring the streets. The residents have to pay for the streets when their neighboring community may not. These residents pay the same local property and federal taxes as everyone else, but they are being penalized because their streets are “private.”

So when CAI’s government affairs team hears a monster hurricane is heading toward the coast with a dangerous storm surge, damaging winds, and catastrophic rainfall, we step into high gear contacting members of Congress, governors, and FEMA officials. We plead with them to consider providing explicit guidance to first responders to remove debris from private property following the storm because it will likely be an immediate threat to public health and safety. We followed the same routine preparing for and recovering from hurricanes Harvey and Irma in 2017 and Hurricane Matthew in 2016.

Understandably, FEMA usually waits until after the storm wreaks havoc to give guidance to first responders. Yet it becomes very difficult for managers and board members to appeal to their governor, FEMA, and Congressional representatives to authorize debris removal on private property while trying to navigate the destruction and loss that tends to follow a hurricane. It is preposterous to ask residents who are trying to deal with the devastation of loss following a disaster to call their Congressional representatives to get help.

The Disaster Assistance Equity Act will solve this inequality. If you aren’t facing Hurricane Florence, you can prepare your community for a future disaster by contacting your Congressional representative and urging them to co-sponsor the legislation.

For more perspective from CAI’s government affairs team and tips for requesting assistance from FEMA, visit the CAI Advocacy Blog.

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Community Associations Prepare for Hurricane Florence

Community association homeowners in the path of Hurricane Florence are readying disaster preparedness plans.

Florence is forecasted to make landfall between South Carolina and North Carolina as a Category 3 or 4 storm late Thursday night or Friday morning and could stall over the region, bringing catastrophic flooding similar to what the Houston area experienced last year with Hurricane Harvey. As of Tuesday afternoon, more than 1.5 million people are facing mandatory evacuation in coastal areas due to destructive winds and a dangerous storm surge, though Florence’s impacts will be felt far inland too.

Crane Pointe Homeowners Association residents Dennis and Susan McGaha have done everything possible over the past three days to secure their home in Hampstead, N.C., which is located in between Surf City and Wrightsville Beach, just a few miles from the coast. The McGaha’s preparedness plan included securing all loose items—from pool floats to flowers—and adding window shutters and extra drain pipes.

Additionally, the couple gathered their most valuable possessions: family pictures. Every framed memory now lies in a plastic box, enclosed in one of the most secure rooms: the laundry room on an elevated space. The couple also has a weeks’ worth of sealed medicines and clothes.

When it comes to their neighbors’ preparedness it’s a mixed bag. While some have already headed inland, others have not installed a single shutter, according to the couple.

While homeowners like the McGaha’s prepare for the worst, additional storms behind Florence also are threatening more of the East Coast as the Atlantic hurricane season hits its peak.

Homeowners should include the following items in their disaster preparedness prep:

• Water—one gallon of water per person per day for at least three days for drinking and sanitation
• Food—at least a three-day supply of nonperishable food
• Battery-powered or hand crank radio and a NOAA Weather Radio with tone alert
• Flashlight
• First-aid kit
• Extra batteries
• Manual can opener
Cell phone with chargers and a backup battery

CAI encourages all communities and their residents to be ready for Hurricane Florence and beyond. Associations, management companies, and business partners should review and compare their disaster plans.

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