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?