Now is The Time Check Today’s Financing Options for Projects

If you’re on a board in a New England condo or HOA, now is the time that you should be talking about making any of the major improvements that you’ve discussed or considered over the past few years. Even if you have a plan in place to do a roofing project or paving job in the next few years, that plan should be reconsidered because of the state of financing today.

According to David J. Levy, PCAM, property manager and owner of Sterling Services in Holliston, Massachusetts, it is still possible to get favorable pricing from contractors today—but that might not be the case in a few years. Add to that equation that interest rates are still pretty low at banks, and it makes perfect sense to get jobs done now.

“Look at what’s happening around you and it’s not hard to see that contractors are looking for business, and you can get very favorable terms right now,” he says. “This won’t last. It makes sense for a condo to jump on the opportunity and do the work that they need—even if they had scheduled it for the future.”

Ralph Noblin, an engineer consultant with Noblin & Associates in Bridgewater, Massachusetts, does a lot of roofing and siding work for condos and HOAs around New England.

“Clearly there are more construction projects going forward and as it continues, contractors will be busier and eventually prices will rise,” he says. “It’s still pretty good right now. Prices are higher than they were last year and they will definitely be higher next year.”

A Helping Hand from Contractors

With competition growing and work not as plentiful as it has been, Levy has even seen some contractors lend a hand in financing projects, with vendors offering to assist buildings in acquiring services via alternative financing programs.

“They won’t advertise it, but for their best customers, they will provide some help,” he says. “You can negotiate something that works for both parties.”

As an example, Levy cites a $1 million paving project in Wayland that was done using a loan and supplier financing two years earlier than originally planned because of the favorable deal. This kept the condo from having to impose a special assessment.

On another project, a contractor offered Levy a deal with just 50 percent down when completed and zero percent financing over the ensuing 18 months, allowing the community to do a three-year job all at once in a 12-month period.

“They were looking to do a paving project in three parts—in 2014, 2015, and 2017, and a board member pointed out how interest rates are low and it’s easy to see that they will be going up,” Levy explains. “By accelerating the process, it was able to get a loan at five percent over five years and a $23,000 discount for doing it all at once. It just makes sense to do the work before interest rates go up.”

The problem with a lot of this is that getting board members to change their mentality is tough and once they have a plan in place, it’s not always easy to get them to rethink a project—even if it means saving money in the long run.

Schernecker Property Services, a full-service contractor that focuses exclusively on property maintenance and capital improvements for New England condominium and multi-residential properties, is offering a unique program that eliminates upfront payments, deposits, and special assessments.

Under the SPS30 program, new siding, roofing, and windows are financed with a fixed monthly fee stretched out for 15 years that is less than what a building would spend on exterior maintenance and improvements.

According to industry insiders, this comprehensive exterior replacement program can keep condos from delaying necessary work or wasting money on repairs when full replacement is inevitable. The SPS30 exterior replacement solution includes a 30-year workmanship and materials warranty and 30 years of maintenance.

Turn to Banks

Attorney Henry A. Goodman, a partner at the law firm of Goodman, Shapiro & Lombardi, LLC in Dedham, Massachusetts, says that banks are falling over each other to loan condo associations money in states with a super-lien.

“As far as financing big projects, I only see upside now,” he says. “If you have a project that needs to be done quickly and you start special assessing people, a lot of people can’t afford that and that can lead to problems. With banks, you can get a five-year and perhaps a 10-year loan at a favorable rate, putting less pressure on the unit owner, so they can pay it out over a period of time.”

Levy adds that for a 15-year loan at a locked rate, a board can have more transparency in its budgeting and plan for a long project. Banks are realizing that this is the way to get condos interested.

Noblin says special assessments were very common back in the early ’90s because banks weren’t too crazy about loaning money to condos, but things changed as the years went on and that created less need. He feels that condos should be going to the banks today to get their financing.

“In my opinion, if a condo is considering doing a major project, they should do it for several reasons,” Noblin says. “Clearly the condition is not going to get any better and usually the extent of a project is just going to increase.”

He gives an example of deteriorated siding and trim on a building, with something rotting underneath, like plywood or framing. By waiting, the scope of the project will increase. You could get leakage, run into mold concerns—and, of course, it looks bad.

Busy Beavers

Noblin says that contractors’ business is starting to pick up now, because favorable pricing and low interest rates are creating ‘a perfect storm.’ Boards that don’t act soon and schedule work will see prices rise and availability of good deals drop in the years ahead.

“A lot of these places are at the end of their useful life because 1985-‘87 were sort of boom years for condos and a lot of those items on buildings are 25 to 28 years old, and it’s time for replacement,” he says. “Roofing has probably been replaced once, but siding is the big thing now. It wasn’t the highest quality back then and you are seeing major replacements being done now.”

Decks and pavement are also areas that are becoming popular among condos for replacements. The time has come to do the projects and since the economy is getting better and interest rates are still low, more are being scheduled.

Alternative Money

In addition to borrowing money, some associations are relying on reserves and special assessments to obtain money for big projects. However, our experts don’t believe now is the right time for the latter.

“I am seeing less special assessments now,” Levy says. “Loans are easier to get so why would you do a special assessment? It makes much more sense to go with a loan.”

Many homeowners are still “under water” on their mortgages, so that can create difficulty in getting them to ante up for capital work and any major improvements. Goodman says he’s always been against special assessments, calling it bad business because of proprietary liens that pop up. He suggests looking for any other way around them, and borrowing money and adding to the regular condo fee seems to be the smartest move now.

“I do feel that everything is relative. What is pricing today vs. pricing tomorrow. Things might be cheaper today, but what will be the value of the dollar down the line?” Goodman asks. “I also suspect that if you need to borrow money, you’re going to get a better rate today than you will in a couple of years. Both the funding and the work are probably cheaper today. It’s only a matter of time before interest rates are going to increase.”

Financing big projects seems to make sense, but you have to take everything into consideration. You shouldn’t just start doing things that don’t need to be done, but approach things with a real examination of what the property needs.

“There are some people who believe that a low interest rate is an indictment for need. Is there a need or a want?” Levy says. “Another downside is that many owners have limited, if any equity, in their condos. Thus they are very nervous about ‘investing’ more into their property. Yet in upscale properties, many owners have limited mortgages, if any mortgages, thus they are typically the ones where they understand the opportunity—yes, the opportunity—a recession creates in getting favorable terms.”

Keith Loria is a freelance writer and a frequent contributor to New England Condominium.

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