As we’ve reported in previous articles, special assessments are not the only tool condo associations and HOAs have to finance common area improvements and major repairs when needed; there are also loans available in the marketplace to help communities pay for big-ticket projects.
Larry Kirschner is a partner at Arch Capital Solutions, a national provider of condo and HOA loans based in Tampa, Florida. Kirschner has supplied The Cooperator with the following case study of an actual loan done for a condominium association in Chicago:
A Case Study
“A 1920s era suburban Chicago condo building was facing a bit of a minor crisis,” explained Kirschner. “The board of the 35-unit association had recently taken out a loan for some much-needed exterior repairs. Unfortunately, the prior board had been a bit short-sighted with the loan request, because now the association was in need of a major roof repair as well as a major boiler replacement. The bank that issued the loan had required a cash collateral - meaning they were requiring the association to essentially match an increased loan amount with a like amount of collateral. Understandably, the board felt this requirement defeated the purpose of requesting a larger loan.”
The association had been paying just under $2,000 per month in loan repayment, which came out to around $55 per unit for the 35 owners, explained Kirschner. The balance on the loan at this time was $100,000, but the association needed an additional $250,000 in order to complete the roof and boiler related work - and there appeared to be little support among residents for imposing a $8,300 assessment to get the much-needed work done. The board began exploring other options, but quickly learned that no lender would consider a loan to the association while the original loan was outstanding. Kirschner helped them structure an alternative financing solution.
A Five-Step Process
Needless to say, applying for a large loan on behalf of a multifamily building community can be a lengthy and sometimes complicated process - there are a lot of i's to dot and t's to cross in to keep things on-track and moving forward. That's why it's so helpful for a board to have sound professional advice as members decide the best course forward for their community. In the case of our Chicago example, the loan process moved through five distinct steps or phases, which are fairly standard from region to region: