Desperately Seeking Neighbors Mostly-Vacant Condos are Straining Owners and Resorting to Auctions

Desperately Seeking Neighbors

A lot of people buy condominiums because they never want to have to mow a lawn or shovel snow again. But eight owners of University Park Lofts in Worcester, Massachusetts, had no choice after the developer at the mostly-vacant 37-unit community ran into financial problems and stopped servicing the property. For more than two years, they became default handymen and landscapers in an effort to maintain their investment in the converted factory. The original developer eventually went bankrupt.

They also took to the web. Their blog details years’ worth of owner frustrations and efforts to find solutions – from banding together to buy a shop vac to clean up the underground garage that floods in the spring to weed-picking parties. Neil Foisy, one of the blog's authors and a current trustee, got tired of waiting for graffiti to be painted over, so he grabbed a brush and paint himself.

New Englanders have a long history of coming together for the good of the neighborhood, but unlike famous 19th century utopian communities, the Lofts’ residents weren’t seeking a transcendental life. They had to go communal to deal with the fallout from living in a building owned by a bankrupt developer.

Now – after three years and one foreclosure auction – the trustees of University Park Lofts, who include two out of the three authors of the blog, are taking a decidedly un-transcendental approach: They’ve filed a lawsuit against the bank that foreclosed on the developer, HE&PG Realty. (The third blogger, Crystal Anson, moved out of University Park Lofts in October, writing that she believes stress and the energy drain of the drama surrounding the condominium contributed to the end of her relationship with Foisy.)

While the litigation is still pending, the trustees are unable to comment on life at the Lofts. But “we definitely have quite the story to tell,” Foisy said, via telephone.

Bad Timing

That story has become more common, since the housing downturn has hit new condominium developments especially hard. Such condominiums, experts say, are victims of bad timing. They were begun during the housing boom but weren’t completed until the bust, making them hard sells – and making life difficult for the handful of residents who moved in before the downturn hit. Take the Vangekalos of Fort Myers, Florida, who made national headlines because of their unusual accommodations: The family of five are the only residents of a 32-story high-rise condo.

And would-be neighbors are in short supply. Many banks have tightened lending criteria, loaning only to those who can make a 20 percent down payment. Other banks also are leery of making loans in under-occupied buildings: Mortgage giant Fannie Mae will only issue loans for buildings with a 70 percent occupancy rate or better.

The University Park Lofts residents aren’t the only condo owners who have been forced to take the lawnmower into their own hands. Reports of condo painting parties and special assessments divided among nine or 10 owners in 100+ unit properties can be found as far away as Las Vegas and Texas. People who bought into a development that was either only partially completed or that lacks promised amenities may have legal recourse, but that can take time to sort out through the courts. And if a developer has gone into bankruptcy, maintenance still needs to be performed and bills paid – and that may fall on the backs of the residents on site.

“Let's take the unit owner in the 32-story condo – that’s got to be a pretty lonely existence.… But there’s lots more practical things to consider when you’ve got a failing condominium,” says Peter B. McGlynn, senior partner and chairman of the litigation department at Bernkopf Goodman LLP in Boston. “The fact that there’s less people in the building doesn’t mean that the building is going to be less expensive to maintain. Everybody has to pony up more money. If they don't have it, what happens? The lawn doesn’t get cut, snow doesn’t get plowed, walls don't get painted. The place looks shabby. If the condominium can’t pay its bills, then vendors, contractors, have the right to place liens on the complex. As a result, theoretically, someone could foreclose on the common areas.”

In cases such as University Park Lofts, when it was the developer who couldn’t pay his share of the dues on the unsold units, “that’s even worse. When you have a developer who still has control of property and can’t pay his bills, you have a huge deficit problem. The developer has not only a fiduciary responsibility, but a legal responsibility. But if he doesn't have the money, he’s not going to pay the bills,” says McGlynn. “You have horror shows of condominium projects wherethe pool is empty, the windows are broken, fire alarms are going off.”

Residents living in a distressed development might want to give themselves a crash course in legal documents. “Look at the purchase and sale agreement, look at the deeds and condominium documents. Sit and read all those things. See if there’s anything in there that might be a promise or representation or agreement that doesn’t seem to have been fulfilled,” says Diane Rubin, a partner at Prince Lobel Glovsky & Tye’s Real Estate Practice Group in Boston. “With a troubled property, you want to be as informed as you can be. Understand what’s going on and what your options might be.”

“Good Money after Bad”

But if the developer has gone bankrupt, suing may be an exercise in futility, cautions Paul Grucza, regional vice president of RTI Community Management Associates in Texas, and a past president of the Community Associations Institute (CAI). “Do they want to put good money after bad to try and get something from court?” he asks. “There are some cases out there. We are going to have to wait and see how they’re adjudged. There are legal options one can take against developers, but the reality is, if bankruptcy is there, the likelihood of success is minimized.”

Grucza recommends taking a hard look at the costs of running the building, and see where things can be scaled back until more people move in to share the maintenance fees. “Let’s take a look at the building you’ve got: What can you do to adjust to bring costs in line? Can you look at worker’s comp or fidelity insurance? What about amenities? Can the pool or gym be shut down for periods of the week?”

With tales of squatters moving into vacant condos in New York City, security also can be an issue for residents of a troubled development. “Prudence dictates you secure as many entrances as possible. You’re not going to have a doorman [in an underfunded situation]. You may have to hire some form of security expert to install electronic key access,” says McGlynn. He also recommends residents contact local police and see if they might be able to step up patrols. “They know big empty buildings are a breeding ground for squatters, crime, assaults. Finally, it all depends on finances. It may very well be that those individuals may have to pool money together to hire a security firm to provide surveillance – augmented by the police and their own common sense.”

“I’ve got a real concern about security in an under-occupied environment,” agrees Megan DiPrete, manager of community development and planning at the Central Massachusetts Regional Planning Commission in Worcester, Massachusetts, which serves 40 communities in Central Massachusetts. “You’re obviously going to want to get to know your neighbors very well. Knock on doors. Bring a soda or a hamburger over.”

And DiPrete believes that, for security’s sake, residents may want to consider a do-it-yourself approach if maintenance is slipping. “If I had hedgeclippers and noticed hedges were growing up over the door, for darn sure, I’d get out there and clip them.”

Boom Times for Auctions

In addition to condo owners with tool belts, another sign of the times is an increased number of condo properties that were auctioned off last fall. In October, the Back Bay saw its first luxury condo auction in decades, when 10 unsold units at the Back Bay Bryant went on the block starting at $1.075 million – roughly half the original asking price.

In September, Connecticut saw what is believed to be its first real estate auction ever, when Lofts 881 in Bridgeport went on the block. Units went for up to 50 percent off the original asking prices, but “it was relatively successful in Bridgeport. They timed it so they could have the auction before the holidays and the cold weather gets here,” says Paul Yasutake of Park Avenue Realty in Bridgeport. “I think it’s a strategy that has worked. It’s one way of attracting buyers.... Even if you have to take a loss, it’s better than holding on to empty condos. That’s a nightmare for a developer.”

Also in October, 55 units of the high-profile Nouvelle at Natick in Natick, Massachusetts, sold for as low as 36 percent of the original asking price. Before the auction, only 37 of the 215 condos had sold. The rest are now for sale at prices similar to the auction: Nouvelle’s website lists 1,167-square-foot two-bedroom apartments for $335,000, less than half of the original $709,000 asking price.

The growth of condominium auctions is hardly limited to Massachusetts. “That’s pretty much the story throughout the U.S. This is not just ‘Why is this happening to us in New England?’” says Gordon Greene, manager of real estate auctions for the Chartwell Group, LLC, in Cleveland, Ohio, which conducts real estate auctions throughout the country.

“Residential real estate auction has just been growing year after year,” says Chris Longly, deputy executive director for the National Auctioneers Association (NAA) in Overland Park, Kansas. From 2003 to 2008, he says, it increased 47.7 percent, adding that the NAA does not include foreclosure auctions in its data.

“A lot of these condos have sat for years,” says Longly. “It’s hard to determine the value. And in some cases, there aren’t a lot of comparables out there. We’re going to help determine what the market is willing to pay.”

Also, a successful auction can bring occupancy rates above banks’ desired threshold and make it easier for new people to buy in. But for buyers looking at foreclosed units or under-occupied buildings, “It’s one thing to be buying the last 10 units in a building that’s 80 percent full,” says Sheldon F. Good, founder and former CEO of Sheldon Good & Company, who pioneered the real estate auction model in the 1960s. “It’s another thing to be buying three units in a building that’s still vacant.... I’d be careful about buying in an empty building.”

And while auctions may provide swift relief for sellers, there is an undeniable downside for existing owners. They bought earlier at a much higher price and see the value of their unit dragged down through the auction process, where one-time quarter-million-dollar condos could be sold for only half as much by the time the final gavel falls.

“There are those people, the neighbors living next door, saying, ‘Wait a minute, I paid $250,000,’” for my unit, says Longly. “That is tough. But that is the economy. And it’s everywhere.”

Yvonne Zipp is a freelance writer and a frequent contributor to New England Condominium magazine.

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  • How is the assesed value of a condo determined? If your price at closing is $100,000 do you pay R/E taxes on this? I thought in MA no real estate is taxed at 100%.
  • The developer at our condo complex was foreclosed on and the unit owners were left to maintain the property which we did do. Now a new developer has purchased the property and wants HOA fees for the year that we maintained the property and she was not the owner. She is threatening us with legal action, Can she collect for fees when she did not own the development.