Twin Cities area condo owners worry after Florida tower's collapse

If it could happen in Florida, could it happen here?

Since the devastating midnight collapse of a Florida seaside condominium, which killed at least 86 people and left 43 more missing, condo dwellers in the Twin Cities area are wondering if their own homes are safe.

As investigators work to determine what caused the collapse of the Champlain Towers South condos in Surfside, Fla., the focus has been on whether deferred maintenance contributed to the building's failure. The spotlight is prompting Twin Cities area condo owners to question if enough is being done to maintain their homes.

"They're saying, 'We need to make sure we're OK,'" said Kirk Gassen, CEO of Gassen Co., which provides professional management services to Twin Cities area condo and townhome owners.

Minnesota is among several states with laws that require the homeowners associations (HOAs) that govern condominium, townhouses and other common-interest communities to prepare a plan for the eventual replacement of common elements in those buildings and make sure the association has enough money to pay for that maintenance.

While Minnesota's laws are considered more stringent than many, they don't require those plans to be done by professionals, nor do they require structural evaluations in the vast majority of the condo and townhome buildings in the region. There's also no state agency that ensures compliance.

Over the years, amendments to the Minnesota Common Interest Ownership Act (MCIOA) have strengthened those laws, including a requirement that HOAs create a reserve fund that's separate from accounts used for routine operating expenses.

Twin Cities area real estate attorneys say the emerging details about the HOA conflicts at Surfside illustrate the challenges that many local HOAs now face. Those HOAs are often run by inexperienced volunteer boards that struggle with how to pay for costly repairs and maintenance while keeping monthly fees as low as possible. For HOAs that aren't setting aside enough money, a large special assessment is often the only option, but getting all the owners to appreciate the need to implement one is often difficult.

"It is a difficult scenario for an association to navigate because some people could lose their homes if they can't afford the necessary assessment," said Matt Drewes, a partner at DeWitt, a Twin Cities law firm. "It's a not new issue because here, even a very well-intentioned board could find itself unaware of significant structural issues."

The maintenance-free lifestyle isn't without cost. As buildings age and the cost of labor and materials increases, associations are faced with the need to increase fees. Convincing existing owners to support such increases is sometimes difficult, especially for those with fixed incomes and people who might be planning to sell soon. High association fees can often be viewed with disdain by prospective buyers.

Phaedra Howard, a partner at the Hellmuth & Johnson law firm in Edina, said amendments to the MCIOA laws have made it easier for associations to amend their documents and change the approval requirements for an increase in assessments in part because so many associations were underfunded.

"Associations were running into money troubles," she said.

HOAs often hire professional companies to conduct reserve studies that analyze the condition of various building components, the expected lifespan of those elements and the cost to repair or maintain them, Howard and Drewes said. But a full-fledged reserve study, which is only a visual analysis of the building that's coupled with projections of the useful lifespan of those observed components, is not required.

Only about 30% to 40% of the HOAs in the country have conducted a professional reserve study, which can cost from $2,500 for a smaller building up to $15,000 to $20,000 for larger buildings, said Kevin Bobb, CEO and reserve specialist with Chicago-based Building Reserves Inc.

After the Surfside collapse, Bobb said the company has been fielding increased calls from condo owners worried their board isn't budgeting enough for capital repairs and replacements.

"There's a lot of fear in the midrise and high-rise associations," he said. "They want a structural analysis to make sure everything is structurally sound."

Many owners, he said, would rather defer maintenance to future owners than pay higher monthly fees or a special assessment.

"A lot of associations wrongfully view reserve studies as a waste of money when in reality a reserve study is one of the most valuable assets for maintaining the value and condition of the association," said Bobb.

Nik Clark, a partner with Milwaukee-based Superior Reserve Engineering & Consulting, which staffs licensed structural engineers, agrees.

"I'm getting daily contacts from association clients from both the Midwest and Florida spurred by concerns after seeing the news reports from Surfside," he said.

In the Twin Cities, regular safety inspections aren't required for condo and townhouse buildings; the onus is on the owner or homeowners association to maintain the buildings and be aware of potential problems. But in many cases, communities are getting involved.

From Coon Rapids to Eagan, several cities have approved "Housing Improvement Areas" (HIAs) that are a last resort to help finance condominium or townhome complex improvements when private lenders aren't able to help. Typically, those cities issue loans through bonds to the homeowners association and then individual unit owners repay the loan through their property taxes.

In Minneapolis, owners at the Falls/Pinnacle recently applied for an HIA loan to help pay for water intrusion problems at the high-rise towers, which were built in the early 1980s overlooking the Mississippi River. But the owners ultimately paid for the repairs, which took years to diagnose, with other financing.

Dan Mather, a longtime resident and former board HOA president, said yearslong conflicts over how to repair and pay for the problems could have been avoided if there had been a "reserve study cop" able to enforce state laws. He said he also thinks the laws don't do enough to prevent what he says are inherent conflicts of interest between professional HOA management companies and the vendors hired to maintain and repair properties.

The assessment on his nearly 2,000-square-foot condo was about $90,000. If owners aren't able to pay it in full, it must be paid in installments.

At the Ridgeview condominiums in Burnsville, where deferred maintenance has been accumulating over the years, the HOA is trying to secure its own HIA loan to address a long list of deferred maintenance, including cracked driveways and parking lots and a swimming pool and community room that have long been closed because they are in disrepair. The 402-unit complex, which had been built in the early 1970s, needed an estimated $12 million to $16 million renovation that's expected to cost each homeowner about $30,000 to $40,000 for condos that are worth only three or four times that much.

The HOA has already provided the city with two letters or rejection from lenders who aren't willing to finance those improvements, while the HOA must get approval by at least 51% of the owners.

Elizabeth Kautz, Burnsville's longtime mayor, said that even back in 2004 when the council approved the HIA program, she saw it as a low-risk but necessary way to help homeowners in the city who have no where else to turn.

"We did an evaluation of the housing stock in our community and saw there was a need," she said. "These associations are all volunteers and you have to have someone to guide you through it; I wanted to make sure we had a mechanism to help."

Star Tribune staff writer Kelly Smith contributed to this report.