Thoughts from the Renovation of The John Gorrie

[icarus]

Simms - you are pretty much right on.  i have written HOA and condo documents for more developments than I can remember throughout the state.  Typically, the allocation of fees in the case of condos were done on a square foot basis and by lot/unit in the HOA.

Generally, the Developer does not relinquish control of HOA until at least 60% of the units are sold and sometimes more .. depends on the developer .. depends on the development.

The Developer is always liable for the pro-rata share of expenses related to the unsold units.

[simms3]

^^^Yes, and to further visualize this, the COA will cover common area expenses.  These include common area electric, water, gas, and steam, the Elevator contract, Life/Fire Safety Systems inspections and repairs (i.e. sprinklers), security for the building, Day Porter, rubbish removal contract, city fees and taxes, a superintendent and quite possibly a reservation of one of the condominium units for residency of superintendent (in which case the individual PRS costs of common area expenses, unit taxes/insurance get passed on to COA), etc etc.

This COA is by nature 100% paid for by Developer through assessments levied against each individual unit byt the registered COA before any units are sold.  So these costs are "operating costs" on the COA's books, but are "Hold Costs" on the Developer's books.  These Operating Costs remain the same or typically grow with inflation as years go by, for the COA.  However, the Hold Costs for the Developer burn down as Developer sells individual units and other parties pay their share.

This is why the credibility and reputation of the Developer is of utmost importance, because as a homeowner the last thing you want is for the Project Sponsor (aka the Developer, which essentially sponsors the COA) to go belly up during the sale process.  You also obviously don't want a developer with limited experience or capital, because even the best developers screw up construction of something or other (for instance a trash shute that is misplaced so that it effects very negatively with noise an entire "stack" of floorplans), and you want the developer to be willing and able to correct it.  Or an inadequate HVAC system that can't handle full occupancy given the layout of the building and how insulation and location counteract the BTUs of the system.  That should be fixed or replaced at full cost by Sponsor (Developer), not COA.

So Developer --> Initial Land/Hard/Soft Construction Costs

COA --> Post Construction "operating costs" --> back to some ratio of Developer/Lessees (renters) as Hold Costs + Buyers as condo fees, as units sell

City/County/[insert insurance coverage here] --> Taxes/Insurance as Hold Costs --> back to some ratio of Developer/Lessees (renters) as Hold Costs + Buyers as homeowners' costs, as units sell

Developer --> Punchlist costs related to individual units as they sell

Developer --> Final Post-Construction Costs (lingering issues, some punchlist stuff), relinquish total control of Board, sell out of all units

Project done.  Now common areas owned by COA and building governed by CCRs as amended by new owner-controlled board, and individual units all separately owned.

It's all a very logical process.

[ChriswUfGator]

I love to see the exposed brick, really a beautiful project overall.

Does anyone know how does the low ownership rate affect the condo fees? Is it passed on to the 24 current owners or do the Weavers have to pay the shares of the vacant units?

The Weavers (or the LLC/LP set up by the Weavers) still own the remaining unsold units, so yes - they must pay HOA fees and other hold costs on those units until they are sold to outside buyers.  This includes taxes on unsold units (which will be prorated and paid by the buyers after they buy).  The developer (aka Weaver LLC or LP) also is responsible for a certain amount of repairs and problems that come up for buyers after they close on a unit directly from developer (or Sponsor I should say).  Sponsor probably has control of the HOA board at this point since less than 50% of units have been sold, but for all intents and purposes the Weavers are still fully at risk here.  They likely have a sizable "warranty" reserve to cover repairs and capital costs associated with faulty construction up until a certain point in time.

I've heard a phrase in real estate called "waiting money". The Weavers certainly fit that bill and can afford to take their time to make sure the development goes the way they want it to. They have no need to cave to blips in the market or rush to sell to pay bills.

"Patient money"   The Weavers are a microcosm of the kind of developer generally missing from Jacksonville.  It would seem to me that depending on the fund/investors that Hallmark Partners also has the opportunity to play with patient money, and hence we have seen some of the best projects come from them.

The developer is almost never liable for HOA/COA fees while they still own units in the development.

Chris, I know you are a lawyer and what not, but I'm surprised at your statement.  Now I've only personally worked on 3 condominium developments - one in Atlanta with 95 units amidst a large mixed-use complex with multiple buildings consisting of retail and office (that was an interesting board and I remember when we relinquished control).  One in Manhattan that was 94 residential units and 2 retail units.  One in Brooklyn that was 242 residential units, one retail units, and one garage unit (we still own the latter two).  I remember when we gave up control on that one last October, as well.

Here's what my personal experience tells me.

In any jurisdiction, to build any single building with multiple "air rights" to be sold as condos, aka a condo building, a Master Declaration of Covenants, Conditions, and Restrictions must be filed and registered with the Office of Deeds (or similar agency).  This creates a legal entity separate from the developer's registered LLC, which could be a partnership defined by its own Limited Partner Agreement.  This separate legal entity is the COA, as it is governed by the CCRs declared by the Master Declaration filed with the city.  It incurs its own costs, and it is also in charge of common area upkeep and various expenses, from Day One of completion (often legally from the day the Certificate of Occupancy/Certificate of Final Completion is issued).

The CCRs govern how these fees the COA incurs are charged, usually in some pro rata way by SF or by bedroom, by initial estimate of list price, etc etc.  This means that whoever buys a unit from the developer, whether residential, or retail, etc, knows their initial costs while the COA is under developer control.  This also means that the developer, which owns unsold units still, must legally pay these same fees to the legal entity it created (the COA) the same way any buyer would.

IF it were not this way, IF the COA weren't already registered and governed, there would be no way for buyers to understand their costs of the units, and a developer wouldn't make a sale.  Furthermore, IF the developer didn't pay its legal share of COA fees, then the first buyers would be unfairly penalized for ALL COA fees until more buyers came, and everyone would be unfairly penalized until the building was sold out.[/u]

This is why condo buyers like to understand HOW COA fees are charged - is it by SF, is it by # BRs, etc etc.

A developer will sit at the board even after relinquishing control until a certain statute of limitations passes on its legal liability that arises due to faulty construction or various issues.  Separately from the hold cost associated with paying fees to its own COA on units it hasn't sold yet, and separately from punchlist costs as units are sold, the developer will keep warranty reserves for these unforeseen construction/legal issues.  At the end of the day, a developer chooses when to relinquish control of the COA based on a number of factors, but anything and everything to do with the whole process is legally documented and registered.

I guess think of it this way - a developer must still pay taxes and insurance on units it has not sold yet, but its tax/insurance liability passes to the next owner, the first buyer, at close.  The COA fees are no different.  These are all Development/Hold costs, as opposed to operating costs.  They get treated differently on the books, but are costs to the development entity (LP, LLC) nonetheless.

There is really no such thing as fair, it's the developer's private development. The developer is, at least how I do it, responsible for a pro rata share of the actual common expenses, not liable for regular dues that generally exceed common expenses with the intent to create a common surplus and cover management fees. Maybe everybody else is just exceptionally generous to future condo owners when writing decs? I'm not if my client's the developer, he's exempt from paying anything but his pro rata share of taxes and actual expenses incurred, and exempt from association governance entirely. I don't know why you'd do it any differently, there's no guarantee that the association leadership will be friendly, why would you put yourself in a situation where the association has the right to assess the developer for anything other than actual costs that the developer would pay anyway? That's just asking for trouble IMHO. I guess different strokes, but it's pretty uncommon around here to have the developer a) not control the association so long as he has any significant interest left in the development, and b) carry liability to the association for anything other than a pro rata share of the actual common expenses. It's a private contract you can certainly write it however you want to write it, just seems like it might go south on you doing it that way. Certainly will be more expensive for no particularly good reason.

[BoldBoyOfTheSouth]

I contemplated buying a unit there but the placed has a very hushed tone, as if I speak too loudly or laugh too heartily in the hallway that I would be sent to the Principal's office.  The place seemed less like a condo in a youthful and eclectic neighborhood and more of a rest home.

The quality is there, though, it appears the development is marketed for older people who don't really want those damn kids playing in the hallways.

This is why I believe it's bad marketing causing the lack of sales in this building.

[MusicMan]

63% sold at asking price. Is has taken a while, though.