The ‘brutal reality’ of owning a condo in Hawaii
Honolulu Civil Beat
By Anita Hofschneider
16 May 2016

(This is the 'brutal reality' of owning a condo everywhere.—CondoMadness)

When Melinda Salcedo bought her two-bedroom, two-bathroom condo unit at Pearl Ridge Gardens and Tower near Pearl Harbor on the south shore of Oahu a year and a half ago, it was a dream come true.

Finding a place to purchase hadn’t been easy. The cheapest houses for sale cost half a million dollars, far beyond her budget as a single mom and nursing assistant at Queens Hospital.

Even when she found an affordable condo, she had to use some of her retirement savings to cover the $24,000 down payment. But it was worth it. With a monthly mortgage of about $1,250 and maintenance fees set at $539 per month, she could finally raise her two kids in a place of her own.

Last November, just over a year after she purchased the unit, Salcedo was shocked to receive a letter from her homeowners’ association: Pay $43,000 upfront, or agree to a 48 percent increase in monthly maintenance fees to help cover $12 million in plumbing repairs.

Melinda Salcedo is trying to sell her two-bedroom, two-bathroom condo unit at Pearl Ridge Gardens & Tower because her maintenance fees have increased.
Anita Hofschneider/Civil Beat

“I said, ‘Oh my God, we don’t have elevators!’” she recalls thinking. “We are not in Kahala, Ala Moana, or in Waikiki.”

Her story is hardly unique.

The cost of housing in Hawaii is at an all-time high. With median home prices hovering around $725,000, purchasing a condo may be the only option for people who want to own a residence.

But while condo buyers may be able to afford a fixed mortgage, they may not realize that maintenance fees can spike unexpectedly and make their homes suddenly unaffordable.

“If you’re upset with your condo you either lump it and move out, or you hire an attorney, because there’s no one else looking out for you. That’s the brutal reality.”
— Terrance Revere, attorney

As Honolulu condos age, many boards of directors faced with the need for expensive repairs are asking unit owners to pay large assessments or higher monthly fees.

State law says condo associations aren’t supposed to exceed their annual operating budget by more than 20 percent in a year. But there’s an exception if the condo board notifies unit owners of an emergency increase or gets permission from more than half of them.

Condo associations are also supposed to conduct studies of potential repairs and keep a certain amount of money in reserves to cover large maintenance projects.

Salcedo has no idea whether or not her board properly followed state regulations. But even if there were violations, the state Department of Commerce and Consumer Affairs doesn’t have any power to enforce those provisions of the law.

Instead, the Regulated Industries Complaints Office focuses its condo-related regulatory efforts on ensuring boards abide by legal requirements to provide homeowners with certain financial documents, and the Real Estate Branch emphasizes public outreach and education.

“Our emphasis is on education and that’s what the law gives us the authority to do,” said Benedyne Stone, a condo specialist at DCCA. “The way the law stands now we don’t have authority to do much else. We don’t have enforcement authority. We don’t have authority to advocate or mediate.”

Because condos are self-regulated, it’s up to owners to file a lawsuit or pay for state-subsidized voluntary mediation services if they feel that a board has broken the law.

But lawsuits are expensive and mediation doesn’t always work. The state implemented a law last year for a new evaluative mediation process specifically for condo disputes involving former judges and attorneys. So far, the state has been billed for six cases: four cases that were resolved, and two that resulted in no agreement.

Condo owners at Pearl Ridge Gardens and Towers are paying $12 million for plumbing repairs.    Cory Lum/Civil Beat

The lack of teeth in the state’s condo law doesn’t make sense to Lila Mower, a spokeswoman for an informal group of local residents who are concerned about the lack of oversight for condo associations.

“It’s like saying there’s a speed limit of 55 and there’s no one policing that,” said Mower, whose group includes more than 150 residents who own units in more than four dozen condos. “If someone’s going at 90 miles an hour, what do you do?”

The group lobbied unsuccessfully at the Legislature this year to strengthen regulations by requiring residential property managers to get licensed and establishing a condo ombudsman who would investigate disputes between condo owners and boards. Similar positions exist in some other states, including Florida and Virginia.

But legislators declined to even pass a resolution studying whether an ombudsman is necessary, opting instead to request a study of existing mediation processes.

Rep. Matt LoPresti thinks the lack of stronger regulations is astounding given the influence condo boards have over residents’ lives. There are about 160,000 registered residential condo units in the state.

“These boards, you add them all up, and they have enormous power across the state,” said LoPresti. “They can take over your home, they can force you to spend tens of thousands of dollars, with little or no say or notice.”

“When you look at it that way it’s really amazing that there’s no accountability,” he said.

Aging Buildings, Rising Fees
What’s happening to Salcedo sounds familiar to Lon Pierce, a resident of Kahala Towers. Its board recently gave Pierce the option of paying $39,000 up front or agreeing to pay more than $200 more per month to cover a loan for building repairs.

Pierce is unhappy with the increase and hopes to eventually sell his place, but said he has to wait for another four years until he pays off a specially equipped vehicle he recently bought for his disabled daughter.

Richard Emery, a longtime lobbyist who works at the Dallas-based global property management firm Associa, says the large assessments and maintenance fee increases that many condo associations levy are inevitable.

Like more than half of Hawaii residences of all kinds, Pearl Ridge Gardens and Tower and Kahala Towers were built more than three decades ago.

Emery estimates that 10 to 15 percent of Hawaii condos have imposed large assessments or raised maintenance fees by more than 25 percent to cover major repairs over the last few years.

Kahala Towers is another condo where owners were faced with a large assessment for repairs.     Cory Lum/Civil Beat

“It’s a fairly common problem in Hawaii right now with these older buildings that were built in the ’70s,” he said, noting in the last three years he’s seen increases in repairs for wastewater, water and electrical systems. “I don’t know of anyone who planned for this. They all thought the useful life was much longer than it was. They didn’t realize this was coming.”

Boards can be reluctant to increase maintenance fees because of pressure from unit owners, and may put off doing repair work, Emergy said.

“It’s pay me now or pay me later. Nobody wants to pay more now.”

Some boards are also reluctant to spend money on reserve studies of the need for future capital improvements. But the failure to do so can come back to haunt them when big repairs costs materialize, said Jane Sugimura of the Hawaii Council of Community Associations.

“I had no idea that this fee would be going up like this. If I had known of that, I would have never moved here.”
—Nellie Miller, condo owner

Keven Whalen, who leads the Hawaii chapter of the Community Associations Institute, said some buildings, like 1350 Ala Moana, have needed to replace their cast iron waste lines 40 years earlier than they would have needed to do so on the mainland because of Honolulu’s salty air.

Some of the most expensive repairs that condo boards are grappling with include fixing concrete spalling, updating elevator systems and renovating plumbing, drinking water and wastewater systems.

Unfortunately for some condo owners, the need for repairs in aging buildings is coinciding with high construction costs. Honolulu currently has the hottest construction market in the nation, with competition for labor and construction material fueled by new condos being built in Kakaako and the city’s multi-billion-dollar rail line.

The situation underscores the need for boards to do thorough reserve studies and ensure that owners are paying the right amount for the appropriate repair work.

But while many condo owners argue more regulation would help, Emery, Sugimura and the Community Associations Institute believe it’s not necessary. Instead, they say it would be better to increase education and outreach efforts targeting condo board members and owners.

“I have great empathy for the owners but I’m not sure what the solution is,” Emery said. “There’s nothing you can legislate to fix this problem.”

The debate is muddled by a general lack of data about the scope of the problem.

Complaints, But No Data
Stone said her office often receives several calls a day from people who are upset about increases in maintenance fees or other actions their condo associations have taken.

“People often call here and expect us to be an advocate or take a complaint, for example, but that’s not the case,” she said. “People are not happy to hear that.”

The Department of Commerce and Consumer Affairs doesn’t keep data on how often people complain about large assessments or fee increases.

That can make it tough for policymakers to figure out whether there’s a need for reform. Sen. Suzanne Chun Oakland co-authored a bill with Sen. Brickwood Galuteria to establish an condominium ombudsman office. She said she heard conflicting opinions about whether there’s a need for an ombudsman to address condo residents’ complaints.

“Because of the self-governance model, there’s not really anywhere to report, so that’s a catch-22,” she said.

At 1350 Ala Moana, residents had to pay millions to cover plumbing upgrades.
Cory Lum/Civil Beat

Attorney Terrance Revere thinks there’s no need to wait for more data before the Legislature takes action. He said condos would be more likely to avoid surprise assessments if boards were required to rely on unbiased third parties to conduct reserve studies, instead of the boards themselves or property management companies.

“What happened to (Salcedo) is exactly what Hawaii’s reserves law was designed to prevent. The whole point of the reserves law is that everybody should pay as they go and that there shouldn’t be these types of surprises,” he said. “You shouldn’t have these unexpected assessments that just kill people.”

Revere also believes an ombudsman who can advocate on behalf of owners would be a much better use of public money than the existing education-focused work of the DCCA.

“They ought to have an ombudsman dealing with these things; instead they’re stuck with basically me and a handful of attorneys who will actually go after condo boards,” he said.

“If you’re upset with your condo you either lump it and move out, or you hire an attorney, because there’s no one else looking out for you,” he said. “That’s the brutal reality.”

Regulation Versus Education
The Legislature considered many bills related to condos this year, but none made it very far. Most didn’t even receive a hearing.

House Majority Leader Scott Saiki was behind the measure that sought to establish an ombudsman, explaining that he introduced the bill at the request of his constituents.

“There are more and more high-rises being built with resident associations and we increasingly hear about disputes that occur within associations and within condominiums,” he said.

The bill died because of concerns about the cost of establishing a new office, Saiki said.

He said a resolution proposing a study of an ombudsman office morphed into a study of mediation because lawmakers wanted to make sure existing processes were fully vetted before considering a new venue for complaints.

Rep. Scott Saiki introduced a bill to establish a condo ombudsman.
Cory Lum/Civil Beat   5 May 2016

Saiki thinks the Legislature may have to be more aggressive in helping to resolve condo disputes because mediation is not always effective.

“This issue is not going to go away and at some point we’ll have to make adjustments,” he said.

Emery thinks the push toward more regulation would result in unintended consequences, such as discouraging people from volunteering as board members.

Additional requirements for reserve studies would be expensive for boards, and licenses for residential property managers are unnecessary given existing company-sponsored training, he said.

There’s no need for an ombudsman given existing mediation services, Emergy said. Besides, an ombudsman would not have the authority to interfere with the contractual relationship between owners and associations, he added.

Rather than passing new laws, there should be greater emphasis on educating board members about the need to conduct reserve studies and helping owners understand why fees are increasing, he said.

That’s why Emery appears on “ThinkTech Hawaii,” a local digital show where he talks about these issues on a segment called “Condo Insider”.

Nellie Miller sits at her piano in her one-bedroom unit at Pearl Ridge Gardens & Tower. She is frustrated by rising maintenance fees that make it difficult for her to afford food and medicine.    Anita Hofschneider/Civil Beat

In addition, the Community Associations Institute is starting a certification course for condo board members at a cost of just $5 per class, Emery said.

The group is also in the process of establishing a hotline that condo owners can call if they have problems with their board.

Sugimura, who appears on “ThinkTech Hawaii” with Emery, agrees that education is the answer rather than regulation.

“The whole concept of a condominium is self-governance, which means no government regulation,” she said. She worries condo owners have been quick to lay blame without understanding how the system works.

“It’s not like there are good guys and bad guys,” she said. “The people who volunteer to serve on boards, none of them get paid and none of them are experts. For those with problems, there are resources. That’s what my organization is hoping to address.”

Rising maintenance fees, Sugimura said, may mean some owners need to move out.

“A lot of buildings have older people who are on Social Security and a fixed income,” Sugimura said. “What they have to realize is costs do not stay the same. The way it’s set up, you pay maintenance fees based on your unit. We can’t give you some kind of a discount because you’re on fixed income. When it gets to the point when it’s too expensive you have to sell your unit. It’s unfortunate but that’s what it is.”

Know Before You Buy
That attitude is frustrating to Nellie Miller, 74, who lives on the 16th floor of Pearl Ridge Gardens and Tower.

She bought her condo nearly 20 years ago, and paid it off in 2001. When she purchased the one-bedroom unit, her maintenance fees were under $100 per month. Now they are more than $600.

In total, her monthly fees and utility costs are nearing $700 per month, almost half of her monthly $1,400 Social Security income. Already, it’s been harder to afford food and medicine.

“If they keep on raising the fees, they’re going to raise me out of here,” she said. “I had no idea that this fee would be going up like this. If I had known of that, I would have never moved here.”

Nellie Miller holds up her latest bill for more than $600 in monthly maintenance fees.     Anita Hofschneider/Civil Beat

The state Department of Commerce and Consumer Affairs offers informational brochures for condo board members and owners, but nothing to specifically help people who are interested in purchasing condos understand the potential pitfalls.

In contrast, Maryland’s state attorney general published a guide for consumers with information about the benefits and drawbacks of condo living.

“You should ask about any actual or proposed special assessments,” the guide advises potential buyers. “In addition, you should request a copy of the board meeting minutes for the past three months as these could help you determine the financial health of the condominium association.”

Salcedo has been trying to sell her condo for the last three months. She’s had to work four hours of overtime each week since the fees were increased to pay them. She wants to move back to Kalihi to be near family.

Miller’s family members are much farther away in New Jersey. She has thought about leaving Hawaii to be closer to them, but the amount of work it would take to pack up her possessions overwhelms her.

Plus, having paid off her condo unit 15 years ago, she considers Pearl Ridge Gardens and Tower to be her home, and she knows that with rents as high as they are, she couldn’t afford to become a renter again.

Revere thinks the problem with saying, “if you can’t afford it, don’t live there,” to people who can’t afford large assessments and higher maintenance fees is that it doesn’t take into account how limited Hawaii’s housing options are.

“It’s like, ‘Where would you like me to live on this island?'” Revere said. “Because condos are pretty much it, as far as affordable housing.”

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