Wednesday, July 7, 2021

A lot of condo owners may be in very deep trouble


Charles Hugh Smith, whom we've met in these pages on many occasions, points out that buying or owning a condo in a beachfront building, like the one that collapsed in Florida last month, may involve far greater maintenance costs than expected, and might even result in the loss of one's investment.  Bold, underlined text is my emphasis.

8. Repairing serious structural damage in a reinforced concrete high-rise is a special skill, and few contractors have the requisite experience (and liability insurance) to do this work. As the insurer, how do you cover the possibility, however unlikely, that the repair uncovers further damage or fails to strengthen the structure sufficiently?

9. Reinforced concrete high-rises built decades ago to the building codes of that time may not be up to snuff should ground settlement exceed modest limits or structural weaknesses develop. Age and water are enemies of all structures, but multi-story buildings are especially at risk.

10. The value of units inside reinforced concrete high-rise condos will adjust to the results of inspections which reveal structural weaknesses, as the cost of repairs must be factored in. Unrepaired structural weaknesses may impair the creditworthiness of the units, limiting owners' ability to borrow the money needed to pay for potentially burdensome repairs.

11. The cost of repairing serious damage could easily exceed the original cost of the entire building, due to the risks and unknowns regarding the seriousness of the damage and the liabilities of every entity involved in the assessment, plans, insurance and execution of the repairs.

12. Owners who cannot afford the repairs or whose initial purchase cost was modest may elect to (or be forced to) abandon their unit, surrendering their equity (which may be severely impaired by the uncertainties generated by the knowledge of structural weaknesses). These abandoned units may well be difficult to sell, given the unknown total cost of repairs, and so they would revert to the control of the condo association, which would then be responsible for funding the unit's share of the repair bill.

If enough owners abandon their units, the remaining owners may find the threshold of repair costs per unit far exceeds the market value of the units once the building is repaired. In this scenario, the only option left is to surrender the building to demolition to eliminate the liability of it collapsing and damaging other structures or injuring others.

If that scenario seems farfetched, consider the ease of underestimating the costs of repairing structural damage in high-rise buildings, the liability exposure of all parties and the risks and unknowns intrinsic to the multi-stage process of repair.

There's more at the link.

I note that another block of condos, five miles or so from the collapsed building, has already been evacuated for safety reasons.  What's more, a friend of mine who's a building inspector in Florida says that he and every other inspector he knows have been absolutely swamped with panicked inquiries from condo associations up and down both coasts of the state, demanding safety inspections at once, if not sooner.  Some inspectors have allegedly tripled or quadrupled their rates, but despite that are still booked solid for weeks and months to come.  He says it's panic stations out there, because many condo buildings exhibit spalling concrete and rusting rebar in places, but previously no-one gave much thought to that as a potential indicator of collapse.  They assumed it was just normal wear and tear.

Even worse, he says rental agencies he knows, that routinely let hundreds of condos to tourists every year, are suddenly finding some of their customers demanding updated building risk assessments before they're willing to put down deposits on their holidays.  Some condo buildings can't provide them, due to the shortage of inspectors;  others show evidence of rust and/or spalling, so that even if they're actually safe, they don't look that way to casual inspection.  Result:  canceled reservations, particularly affecting older buildings.  If this grows worse, what will it do to the tourist economies of coastal states?  Nobody knows yet… but a growing number of people are getting very, very nervous.

I can't blame vacationers for being cautious, of course.  Miss D. and I went on vacation to Gulf Shores in Alabama a few years ago, staying in a rented condo on the beachfront.  (You may remember my wife being mean to me while we were there.)  It was a newer building than the one that collapsed in Florida, but I couldn't help noticing that it, too, had patches of spalling concrete and rusted rebar.  At the time, I didn't think of them as potentially dangerous.  Now… let's say I'm grateful nothing dangerous happened while we were there!

I'm sure we all want to know how many condo buildings have structural problems like that.  In the corrosive salt sea air of the beachfront, there may be hundreds or even thousands of them around the coasts of the USA.

  • What's the value of the condos in the affected buildings?  We may be talking billions of dollars in total.
  • Do the owners of those condos have sufficient funds to meet the costs of repairing them (which will naturally be levied proportionally against the owners)?
  • If not, what's going to happen to those buildings?  Will they be abandoned and demolished?  Will they apply to municipalities and State governments for some sort of repair subsidy?
  • Are there enough inspectors and (qualified, licensed, bonded) contractors to repair them all before more of them collapse?
  • Who decides which building gets priority for repair?
  • What about the individual condo owners?  Where will they live while repairs are made (which could take months or years)?
  • If they lose their condos altogether, and their investment in them, can they afford to buy another home?  If so, where, and what kind of home?  I suspect they may not want to buy another condo anytime soon!  What might this do to property values?
  • Will the condo building's insurers cover the loss, or deny it on the grounds that the condo association should have carried out routine maintenance as required, thus preventing the building from deteriorating so badly?  I suspect a lot of insurance companies are frantically looking for escape clauses in their contracts, because the loss they may face is potentially astronomical.  Look for new condo insurance policies to be far more restrictive and limited in their coverage - and probably a lot more expensive.

Ain't we got fun?



libertyman said...

Ah, the good and bad parts of condominium living. I lived in one for twenty plus years and dealt with many problems, but none quite so fundamental as the structural integrity of the building. The people whose condominiums vanished are still on the hook for the mortgage, I am sure. The condo association is unlikely to be able to cover a significant amount of the loss, insurance or no. There will be no entity left to sue for the likely wrongful death of the hundred plus people who were crushed. So sad in so many ways.

libertyman said...

Doubtful too that the condo management company will actively do anything, since their income now becomes zero.There goes any group representation for the owners. If I were ever to move, it would be to a single family stand alone type of housing association. My old condo was a "starter home" for me as for many in the small development, but I am done living a 2x6 away from my neighbor, thank you.

Toirdhealbheach Beucail said...

BRM, this is the horrible larger impacts of beyond the initial truly devastating losses.

Part of the problem - possibly? - is that we do not have a true body of history on the these sorts of structures in these environments. This condo was, I believe, about 40 years old. If you think about it, we have hundreds of years of history with building mediums like brick, stone, and wood and know pretty well how these fail and how they function in almost all environments (for example, the West Coast learned after the 1906 Earthquake that brick simply will not do in earthquake prone areas). We lack a similar history for concrete/rebar multistory structures.

My guess - an uneducated one - is that the existing and perceived liabilities will result in a legal nightmare and many of these units will simply become economically unfeasible. There may be a whole new industry of destruction, hauling away, and recycling of building materials coming to Florida.

Unknown said...

Rebar corrosion is the #1 cause of failure of steel-reinforced concrete structures.

A white powdery substance (efflorescence) on the exterior surface of concrete is a sure sign that moisture is migrating through the concrete.

Don in Oregon

MNW said...

We do have some experience. Epoxy coated rebar is not allowed in many places because of corrosion and the associated spelling.

A lot of concrete structures (including bridges, viaduct, etc) built through the 90s and with it are not lasting as long as they planned.

The salt air, battering for storms, and unstable soil make for a pretty good scenario for failures.

WL Emery said...

I'm living in Ohio. I'd like to know how to deal with an uncooperative condo association and property manager. The ass. ignores the condo rules and regulations and refuses to provide proof of where the condo fees are being spent.

Skipping right past the obvious 'Hey, this is B.S.!', what can be done?

Toirdhealbheach Beucail said...

MNW- Thank you, that is information I did not have.

That said, it sounds like this particular sort of thing is now known and recognized as a hazard. I assume the mitigation is expensive and time consuming and there is a question of who will pay. Also, do you know for newer buildings if there is a plan to mitigate the issue?

Beans said...

WL Emery. I am afraid that it is time for you and other concerned condoites to get a lawyer that specializes in condominium/HOA agreements and such.

As to the condo collapsing, there is speculation that besides poor maintenance, the rebar in the building was insufficient for even at the time. Which means that some corrupt construction company and a corrupt building inspector were involved. Kind of like why the Murrah building collapsed when faced with an explosion that it was designed to easily handle (the rebar was found to be lacking in quantity and not tied together, so the explosion lifted the face up and moved it over so it was unsupported and then everything fell.

Concrete, properly stabilized, of the proper mix, properly sealed, with no other issues, is a wonderfully strong material. Chintz on the rebar, on the mix, on the sealing, on the maintenance and it's a waiting game for an inevitable collapse.

Tschifty Mccoy said...

Ok...but isn't it coincidence that just as Desantis starts kicking regime ass all over the place a beach condo comes down which threatens to collapse the Florida economy?

If you don't think it's possible that the oligarchs would collapse a building to advance their agenda then you slept through 2020.

Sam L. said...

Fortunately, my house is around 100' above a small creek, with a goodly ridge further down where the Mighty Columbia River flows out toward the Pacific Ocean...and the Ocean tides come in...from (roughly) 40 miles away.

ruralcounsel said...

So maybe the property valuations of those places aren't what they should have been? What are the odds the city will refund some of those property taxes?

Jonathan H said...

I'd like to learn more about this building versus other buildings.
There are, broadly speaking, several methods of building all or most of a building with concrete - is this an issue that affects a few buildings, or maybe just this one building, or does it affect buildings all over the country?
As mentioned above, were short cuts taken here, or is it a more basic issue? We don't know yet and as sloppy as the media has gotten, they may never tell us. To get real answers, I would look for a specialist engineering magazine's assessment in several months to a year.

Etaoin Shrdlu said...

I would add tat even low-rise attached multi-unit condominiums, like apartment buildings, should not be assumed to be maximally safe. A few years ago, in such a building, in Florida, in an end unit, a older man smoked in bed, fell asleep, started a fire, was asphyxiated, died and almost set the entire building on fire. Apparently the fire was near to spreading along the attic spaces into the other units. Good construction helped, but we all were roused in the middle of the night and herded out into the street while the fire department attempted, finally successfully, to keep the fire from spreading. Here in the Houston area now, I frequently see in the news heart-rending stories of entire apartment buildings devastated by multi-unit fires, and sometimes people die. That may be a more likely event than building collapse.

Roy said...

"We don't know yet and as sloppy as the media has gotten..."

^^^What Jonathan H said!^^^

Right now, that building is nothing but a pile of rubble. Until they can clear that pile away and find out *exactly* why that building collapsed - and we probably will not find out for a year or more - everything else is **pure speculation**.

The one thing I have noticed about the press reports about this disaster is that everyone in the media seems to be looking for a scapegoat. There might not be one, folks. Sometimes shit just happens.

Just as an example: I read a quote from one of the officers of the condo association. (Yeah, I know. Another press report, right?) Anyway, that person stated that after the inspection of 2018, they got some estimates for repair. It was going to cost TENS of THOUSANDS of dollars - per condo! This was put to a vote and was voted down by the residents.

So - whose fault was that?

The Freeholder said...

Expect to see an outbreak of lawsuits such as not been seen in living memory.

heresolong said...

There's a name for this but I can't remember it.

I am 56 years old and this is the first condo collapse I can ever remember being on the news. So it happens once every 56 years and now there is a panic about every condo building in the world and articles about how screwed you are if you own a condo. (at least in USA)

Gam Zeh Ya'avor (This too shall pass).

Ray - SoCal said...

Beans mentioned the rebar issue. It seems a lower grade of rebar was used than in the original plans.

Issues I read about:

1. Penthouse added not in original plans
2. AC work - my guess is old ones replaced. Or new ones added?
3. Leaking pool above parking area
4. Parking garage flooded all the time, and pumps were probably undersized
5. Limestone under building, combined with water seepage…
6. Lack of maintenance done
7. Settling

Biggest issue is lack of maintenance, and building only gets recertification every 40 years.

Being on the ocean is a very highly corrosive environment.

Aesop said...

Buy in haste, repent at leisure.

Lather, rinse, repeat.

Be a real shame to see millions of transplants leave Florida, go back from whence they came, and return it to the swampy low-rise tropical backwater from days of yore, wouldn't it?

Or, they could just build to a better standard.

Last I looked, much of the Colosseum is still standing, a paltry 2000 years later, and without a lick of steel rebar, and most of the bronze pins long since pried loose by locals, yet still it endures.

So there's code, and there's code.

Tal Hartsfeld said...

Infrastructure decay has been ongoing for decades on end, but the way everything has been overbuilt and layered on top of and side-by-side each other, it has also been near impossible to maintain, repair, or even patch up all these bridges, decaying underground pipes and cables, or standing structures comprising businesses and residents.
Once something is built it is then "left on its own" to carry on as they "move on to the next project", and they rarely even have time to "check up on it" as they're too overwhelmed by so many other structures and projects to focus on.