Condo Media - August 2016 - 32

INDUSTRY
BY NENA GROSKIND

PERSPECTIVE
THE DEBATE OVER OBTAINING LONG-TERM
LOANS TO FINANCE MAJOR CAPITAL REPAIR
AND REPLACEMENT PROJECTS

hould community associations
obtain long-term (25- or 30year) loans to finance major capital repair and replacement projects?
This is a question you should ask
if the conversation at an industry
gathering seems to be dragging. It
is guaranteed to ignite an energetic
debate between those who think a comprehensive approach to replacement
planning (doing everything at once)
is a sensible solution all associations
should consider, and those who think it
makes no sense for most and could be
detrimental for many. In this industry
perspective, a banker explains why he
won't finance these large-scale, allencompassing projects, a construction
industry executive explains why he passionately recommends this approach,
and a consulting engineer explains why
he doesn't think it's a good idea.
Wesley Blair,
Senior Vice President,
Brookline Bank
Some banks are willing to
provide long-term (longer
than 10 years) financing for condominium projects, but Blair isn't one

CONDOMEDIA

of them. He doesn't think they make
sense for banks or for condominium
communities.
For bankers, he says, the loans are
"highly labor intensive," requiring
considerable time and effort to educate
board members and managers, both of
which can change over time. "So you
constantly have to explain the loan to
people who weren't around when it
was made. Things tend to get fuzzier
and more complicated over time," he
says. "It becomes like playing whisper
down the lane, and inevitably, someone is going to challenge the loan payments. If we went to court, we'd win,
but who wants to fight those battles?"
Proponents of long-term condominium loans say communities should
analyze their properties holistically-undertaking a comprehensive
envelope replacement project financed
with a single loan rather than tackling
a number of smaller projects during
that 20- or 30-year time frame. The
theory is that the loan will match the
life expectancy of the renovations,
"but that may not be the case," Blair
says. This approach also assumes that
nothing else will go wrong in the com-

munity over that 30-year period. "But
as a banker," Blair says, "that's not a bet
I'm willing to take. A lot of things can
happen in 15 or 20 years."
There is no question that communities are going to need new siding, new
roofs, and new windows as they age, he
agrees. "But I don't think the solution
is to do all of that work at once and
finance it over 20 or 25 years. That just
doesn't feel right to me."
Far better, he believes, for associations to undertake renovations
as needed, not all at once, and to
finance them either from reserves or
(if reserves aren't sufficient) by assessing unit owners, leaving it to them
to figure out how best to finance their
share of the costs. A major advantage
for owners, he notes: The interest they
pay on a home equity loan is deductible; their share of the interest on an
association loan is not. Some owners
may not be able to afford the payments
on an equity loan, but if they lived in
a single-family home, he points out,
"they would have to replace the roof.
If condominium owners can't afford to
maintain the property," he says, "they
can't afford to own it."

Condo Media - August 2016

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