Condo Media - July 2020 - 17

Like most of the world, the condominium industry has been preoccupied by the myriad operational,
legal, and financial challenges the pandemic has created. But however endless it may have seemed in
May, when this issue of Condo Media was being produced, the pandemic won't last forever - at least,
we don't think it will. By the time you are reading this, many states will have eased their lockdowns,
many businesses will have reopened, and many residents will be venturing outside the homes in which
they have been sheltering. So, it is not only hopeful but reasonable and probably necessary to ask:
What will the post-pandemic world look like for condominium associations?

T

""There
There is no question that we will all
be living life differently," Jill WetmorePiken, CMCA, AMS, general manager for
Barkan Management Company, AMO,
ssays.
ays. Exactly what that will mean, she
aadmits,
dmits, isn't entirely clear. But it is possible to identify some of the issues condominium boards and managers will have
to consider and some of the problems
they will confront as the world returns
gradually to whatever the "new normal"
turns out to be.
The challenges will be both financial
and operational. This article and the
related sidebar on page 20 will discuss
the financial challenges; the article on
page 22 looks more broadly at the operational and governance challenges
for boards as they move into the pandemic transition period.
FINANCIAL IMPACTS FOR ALL
Just as the pandemic experience has
differed for individuals - some have been
inconvenienced while others have suffered grievously - the post-pandemic
experience of condominium communities will differ, depending primarily on
the strength of their finances, the quality
of their management, and, in no small
part, the demographics of their residents.
The more residents who suffer salary
reductions and job losses, the greater
the impact on the association's finances.
Mixed-use communities could see a
double-whammy, Eric Fudeman, CPA
with the Massachusetts accounting firm
Bloom Cohen Hayes LLC, observes, if
both unit owners and commercial tenants struggle to make their payments.
Few of his association clients were
reporting serious delinquency problems
in late April, Christopher Barrett, CPA
at Barrett & Scibelli, LLC, notes. "But
managers were expecting things to get
worse over the next 60 to 120 days - that's
when things should begin to hit home."

Wesley Blair, senior vice president at
Brookline Bank, was getting similar feedback from association managers. "None
reported any problem collecting April
fees," Blair says, but all were aware that
the situation could change. "Managers
and trustees need to pay close attention
to what is happening with their owners
so they can identify any potential problems early," Blair says. "And I think most
are doing that."
Associations with solid finances will be
better insulated from pandemic-induced
revenue strains than less stable communities, Barrett observes. "If communities
were strapped going into this crisis,
imagine where they are now."
Few communities, even those in good
financial shape, will be immune from the
pandemic's financial fallout, however.
It is likely that many community associations, if not most of them, will see a rise
in delinquent payments, with a resulting
decline in their revenue stream.
BALANCING THE BUDGET
There are only two ways for an association to close the gap between its income
and its expenses: Reduce costs (which
we discuss in the sidebar on page 20) or
increase revenues - our focus here.
Most condominium communities
don't have a lot of options for generating
additional income. They include:
Increasing common area fees
Levying a special assessment/
supplemental fee
Obtaining a bank loan
Borrowing from reserves
If some owners are already struggling
to pay their fees, the first two options
(increasing fees or levying a special

assessment) aren't likely to be very
helpful. Borrowing from reserves, on the
other hand, can be a viable solution to a
revenue shortfall - assuming the association has reserves from which to borrow.
TAP THE RESERVES
Industry executives typically advise
against tapping the reserves, among
other reasons, because it can be difficult, even with the best of intentions,
to replace those funds so they will be
available for the major capital repairs
and replacements for which they are
intended. But extraordinary challenges
- and the pandemic certainly qualifies -
may require extraordinary solutions, and
associations have to cover their operating
expenses. "Borrowing from the reserves
can have negative consequences for an
association," Barrett agrees. "But the
consequences of [failing to cover essential expenses] or declaring bankruptcy
will be even worse."
Associations that decide to borrow
from their reserves should do just that -
borrow the money and not simply transfer it to the operating account, in order
to avoid the tax complications that could
result from using reserve funds for other
purposes. "Make it a real loan," Fudeman
advises, "with a market interest rate" at
or near the rate banks would charge, and
a repayment schedule to which the association adheres.
"Draft a note the trustees sign and
write it into the minutes," Barrett adds.
The loan should be large enough and
the loan term long enough - but no larger
and no longer than necessary - to bridge
the financing gap associations are facing. You can defer repayments for a few
months, Barrett suggests, but you want to
replenish the reserves as quickly as possible. "Components wear out and have
to be replaced. Reserves are essential to
maintaining the property and its value."
July 2020 CONDOMEDIA

17



Condo Media - July 2020

Table of Contents for the Digital Edition of Condo Media - July 2020

Contents
Condo Media - July 2020 - Cover1
Condo Media - July 2020 - Cover2
Condo Media - July 2020 - Contents
Condo Media - July 2020 - 2
Condo Media - July 2020 - 3
Condo Media - July 2020 - 4
Condo Media - July 2020 - 5
Condo Media - July 2020 - 6
Condo Media - July 2020 - 7
Condo Media - July 2020 - 8
Condo Media - July 2020 - 9
Condo Media - July 2020 - 10
Condo Media - July 2020 - 11
Condo Media - July 2020 - 12
Condo Media - July 2020 - 13
Condo Media - July 2020 - 14
Condo Media - July 2020 - 15
Condo Media - July 2020 - 16
Condo Media - July 2020 - 17
Condo Media - July 2020 - 18
Condo Media - July 2020 - 19
Condo Media - July 2020 - 20
Condo Media - July 2020 - 21
Condo Media - July 2020 - 22
Condo Media - July 2020 - 23
Condo Media - July 2020 - 24
Condo Media - July 2020 - 25
Condo Media - July 2020 - 26
Condo Media - July 2020 - 27
Condo Media - July 2020 - 28
Condo Media - July 2020 - 29
Condo Media - July 2020 - 30
Condo Media - July 2020 - 31
Condo Media - July 2020 - 32
Condo Media - July 2020 - 33
Condo Media - July 2020 - 34
Condo Media - July 2020 - 35
Condo Media - July 2020 - 36
Condo Media - July 2020 - 37
Condo Media - July 2020 - 38
Condo Media - July 2020 - 39
Condo Media - July 2020 - 40
Condo Media - July 2020 - 41
Condo Media - July 2020 - 42
Condo Media - July 2020 - 43
Condo Media - July 2020 - 44
Condo Media - July 2020 - 45
Condo Media - July 2020 - 46
Condo Media - July 2020 - 47
Condo Media - July 2020 - 48
Condo Media - July 2020 - Cover3
Condo Media - July 2020 - Cover4
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