On June 9, 2023, Gov. Ron DeSantis signed into law Senate Bill 154 (SB 154), which seeks to address select issues from the Florida Condominium Act, SB 4D. All of these measures are intended to mitigate and prevent potentially devastating incidents, including building collapses.

Condominium safety laws center around inspection requirements, mandatory reserves and more transparency for unit owners and prospective unit owners on information regarding the condition of the buildings.

Many community associations, unit owners, board members and their management companies find themselves continuing to seek solutions to pay for major restoration projects to address SB 154 and at the same time assess other necessary repairs. Oftentimes, these projects are becoming more complex and costly, and can become massive in scope. Further exacerbating financial stress for community associations are skyrocketing insurance premiums as well as a general increase in interest rates.

The best maintained properties are finding it difficult to avoid challenges connected to escalating costs or finding extra funds for the unexpected, which is resulting in potential special assessments and/or increases in the operating budgets.

The Florida Development Services Group at Colliers estimates that 1.5 million condos operated by 28,000 associations throughout Florida will be affected by SB 154. In addition, with potential environmental shifts and natural catastrophes like hurricanes and storms, community associations have much to face. There are accessible options to facilitate an association’s major repair or restoration project, such as tapping reserves, implementing upfront special assessments and bank financing.

The best maintained properties are finding it difficult to avoid challenges connected to escalating costs or finding extra funds for the unexpected, which is resulting in potential special assessments and/or increases in the operating budgets.

Consider tapping reserves

If the association has sufficient reserves based on their reserve studies, and allowable use of same, this may be the preferred option for financing major restoration projects. However, many times reserves are not sufficient to cover the entire cost of the project and for these situations, a partial special assessment or bank financing will be needed to supplement the reserves on hand.

Evaluate upfront special assessments

Typically, short-term special assessments, while available to the association, may experience pushback by the unit owners. Especially with major restoration projects, upfront special assessments can be very large and unmanageable for many unit owners. Case in point, a condo association in Miami Beach is facing a $30 million special assessment that averages $160,000 per unit owner. With millions of condo residents, the implications are vast.

Should an upfront special assessment pass, unit owners may have to tap their savings, or seek the capital through home equity loans or lines of credit on an individual basis. The process can be cumbersome, if not impossible, to do across the entire owner base.

Look to bank financing to help with major repairs

A bank loan may provide the best option available for financing major restoration projects. There are several key advantages to both the community association and individual unit owners:

  • A reduced financial impact to unit owners. Upfront payment for a bank loan is not required by the unit owner and the financial impact can be reduced in the present time and spread over the bank loan term.

  • Potentially enhanced property values through improvements. If the association improves the overall condition and appearance of the property, the potential for a decrease in property or unit values may be reduced, if not eliminated.

  • Expedited repair issues resolution. As the bank funds are fully available at closing, required repairs or deferred maintenance issues can be addressed faster.

The association’s application for a loan can be requested by a board member, the management company or the on-site manager. There are two basic types of loans available from the bank to the association: a line of credit converting to an amortizing self-liquidating loan, or a term loan, where funds are provided at the beginning of the facility.

When working with bank financing, it is important to understand the underwriting process factors. Many banks consider maintenance and special assessment delinquencies (one of the most important factors for a bank), loan to value ratio, rental ratio, impact of proposed debt service to the total monthly maintenance payments, and the size of the association to assess risk.

Community associations should review rates and the collateral needed as rates vary from bank to bank and are dependent on the overall financial picture of the association, which is assessed by the bank in the underwriting process. They should also ask their banker for longer-term financing whenever they desire a loan payback period greater than five years when considering term loans.

A financial institution specializing in community association lending will understand the pain points of every client and will be able to offer solutions that meet those specific needs.

With the changing landscape around them, associations may want to consider speaking with a banker to determine the best financing option and help with navigating existing regulations as they schedule inspections and plan larger renovations.