transition webinar 072414
DESCRIPTION
Transition is one of the most critical times in a community's life. Learn how to make sure that your potential claims are realistic and presented in the most objective manner. Also, we will talk about the development and use of cost estimates to evaluate a potential claim.TRANSCRIPT
Transition : Problems and Solutions Mitchell H. Frumkin, PE, RS, CGP
President, Kipcon Inc.
800-828-4118
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Who am I ?
Mitchell H. Frumkin PE, RS, CGP
Past President CAI National
CAI National Research Foundation
NJ Chapter CAI
Chair Joint CAI/NAHB Task Force during…
Development of the Best Practices Report on “Transition”
Instructor, CAI M-370 advanced level course, “Managing Developing Communities”
Chair CAI National Reserve Professionals Committee during…
Development of “National Reserve Study Standards of the Community Associations Institute”
Development of “Reserve Specialist (R.S.) Designation
Author: Reserve Funds: How and Why Community Associations Invest Assets (CAI)
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What I will be talking about
What is Transition
Key Concepts
Why does it exist
Typical issues
What are the dangers
How to prepare
Cutting edge strategies
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What is it ?
Transition is the process which starts when it is decided to construct a community association and continues to the point in time when the Developer has no more seats on the board and all of the homes are sold.
There are 4 phases of Transition Document Development
The legal creation of the community association in which the master deed, bylaws, budget and design drawings are prepared
Construction.
When the building of the community occurs
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What is it ?
Turnover
the point in time when the new Homeowners take control of the community. It typically occurs when 75% of the homes have sold.
Post Turnover
The time when the Homeowners have taken control of the community
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To Summarize the Transition Process
Begins when the decision is made to build a community association
Ends after the sale of all homes have been sold and the new homeowners are in charge of the association
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Why does it occur ?
The Transition process evolved with the development of the first community associations. The purpose is to provide a mechanism for the Sponsor to turn over the community to the new Homeowners as they move into the new community.
The difference is that you inspect after you buy !!
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Some Key Concepts General Common Elements
For use of all owners .
Replaced and maintained by the Association.
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Some Key Concepts Limited Common Elements
For the exclusive use of individual owners .
Replaced and possibly maintained by the Association.
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Some Key Concepts
Common and limited common elements are important to the Developer because they :
Delineate the areas of responsibility for the Association and establish the risk areas for the Developer
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Some Key Concepts
Common and limited common elements are important to the Association because they :
Delineate the areas of responsibility for the association
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Some Key Concepts
Currently there are approximately 328,500 community associations in the US and growing fast
Make up approximately 24 % of all residential homes
Make up approximately 80% of all new homes
For more info see the “Community Association Factbook” at caionline.org
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Some Key Concepts
Condominium
Approximately 50-55% of all associations
Approximately 75% of all units
Primarily multi family attached
Purchaser owns Air space within the unit
Percentage interest in common elements
Common elements include the buildings, site and amenities
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Some Key Concepts
Planned Community (Fee simple, HOA, PUD, etc.)
Approximately 40-45% of all associations
Approximately 20% of all units
Primarily single family detached
Purchaser owns Building (interior only)
Lot which the building sits on
Percentage interest in common elements
Common elements include site outside of the lots and amenities
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Some Key Concepts
Cooperative
Approximately 5- 7 % of all associations
Approximately 5% of all units
Primarily high rise
Purchaser owns A shared interest in the corporation
Exclusive right to rent or occupy a specific portion of the cooperative, usually called an apartment
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Some Key Concepts
Hybrid
Combination of various types of associations
Mixed which includes various uses within the associations such as residential and commercial
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Some Key Concepts
Reserve Study
A budget planning tool which establishes a funding plan to offset future major common area replacements
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Some Key Concepts
Types of Reserve Studies
At Development of Governing Documents Full
During Turnover Full
After Turnover Update with site visit
Update without site visit
Reserve Study Webinar August 20 !
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Some Key Concepts
Common Elements
Maintenance
and
Reserves
Budgets
Governing
Documents
Understanding the
Interrelationships
Between
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Roles of the Developers Engineer
Design the community (engineering plans and specifications )
Peer Reviews of : Governing documents
Design documents
Promotional literature
Preparation of Budgetary items Reserve Study
Maintenance Schedule
Energy Cost Analysis
Quality Control Inspections During Construction
Operating Manuals
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Roles of the Associations Engineer
Prepare a Transition Study
Goal : To assure general conformance with the plans and specifications if a new community. TO assure general conformance to the disclosure documents if a conversion
Prepare a Reserve Study
Goal : To confirm the adequacy of the initial budget
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Prepare a Transition Study
The purpose of the Transition Study
Identify areas Not in conformance with the design documents
Architectural and Engineering Plans
Specifications
Governing documents
Not in conformance with good workmanship
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What are the Standards ?
Building codes IBC, IRC, etc.
Performance Standards Regulations Governing New Home Warranties and
Builders Registration
Manufacturers literature
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Typical Scope of Work
Review of design documents
Visual observations of as built construction common elements
sampling of the limited common elements
Report preparation
Meeting w client
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Code Analysis
Typically does not include a code review based on the assumption that the design is code compliant
If the as built condition does not match the design drawings a code review is performed to determine if the change violates the code
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Additional Services
Invasive testing
Cost estimate
Remedial designs
Meetings and walkthroughs
Litigation/ADR support
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Additional Services
Update Reserve Study
Preparation of design and specifications for Upgrades
Replacements
Additions
Repairs
Contract Administration
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Purpose of Reserve Study
Establish a Funding Plan which adequately offsets future major repairs and replacements
Determine whether adequate funding has been provided
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What Are The Risks ?
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What are the risks?
Deficient construction
Inadequate budgeting
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Why are the risks so high
Homeowners expectations
Lack of education Developer
Homeowners
Poor Construction
Poor document development
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Examples of Risk
Deficient Construction
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Inadequate Detailing of Critical Areas
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As Built Construction Does Not Match Design Drawings
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Unclear Detailing of Critical Areas
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Poor Workmanship
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As Built Construction Does Not Match Design Drawings
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Improperly Installed Flashing
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Invasive Testing
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Use of Hard to Install Materials
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Lack of Coordination Between Architectural and Engineering Drawings
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Budgeting problems
Inadequate Reserves
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Common Types of Budget Deficiencies
Lack of coordination between between the design and the budget
Quantities do not match drawings
Maintenance is not adequately funded
Unit costs are developer costs
POS Reserve Study is prepared prior to the completion of the design drawings
As built construction does not match design drawings
POS Reserve Study not prepared by qualified person
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Common Types of Budget Deficiencies
The use of high maintenance materials which deteriorate quickly and are not reflective of the useful lives in the Reserve Study
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Common Causes of Budget Deficiencies
POS Reserve Study prepared prior to completion of design drawings
As built construction does not match design drawings
POS Reserve Study not prepared by a qualified firm
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Perfect Result of Studies
No construction deficiencies
No budgetary deficiencies
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Most common problem
Unrealistic expectations
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Setting expectations
There is no such thing as perfect construction
The Developer did not build it wrong on purpose
If the process is guided in a non confrontational way it will most likely stay non confrontational
Remember….it is not uncommon for minor deficiencies to exist
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But…. If problems do exist, they should be reported objectively
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Typical solutions
Correction of problems
Money to have work completed by association
Contribution to reserve fund
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Transition Study Should Include
List of all deficiencies and the applicable standard with specific references.
Design drawing and detail
Code and section
Manufacturers detail
Performance standard and section
Location of deficiency
A format which will easily allow an item by item response
Agree and will correct
Do not agree and reason
Could not find
Equivalency
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Evaluate all claims for Strength
Strong Deviation from code
Deviation from design if not equivalent
Safety
Weak Deviation if equivalent
Minor drainage even if it exceeds standard (what is the damage ?)
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Cost Estimates
Do not prepare a cost estimate until after response to the report is received
Avoid setting unrealistic expectations
After prepared make a business decision based on the cost to litigate vs. the cost to repair
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If you must litigate be prepared
Cost estimates
Expert reports
Invasive testing
Photographs
Presentations
Etc etc
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Transition Team
Sponsor
Manager
Attorney
Accountant
Engineer
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The Dangers $10,000,000 construction claim
A real life example
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The Dangers
Community association files suit against Developer
Developer retains legal counsel and expert
Expert report agrees with claim but does not agree with cost
Developer third parties into the case 20 subcontractors who all report the claim to their insurance companies who each retain attorney on behalf of the subcontractor
A real life example
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The Dangers The costs so far to pursue a $10,000,000 claim
Association legal expense $1,500,000
Association engineering expense $1,500,000
Total Association expense $3,000,000
A real life example
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The Dangers
Developer costs
Attorney, $1,000,000
Expert $500,000
Third party costs
50 days of depositions x 25 attorneys x $400/ hour x 8 hours / day = $4,000,000
A real life example
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Cutting edge strategies
Mediation
Third party reviews of reports
Education
Communications
RFP for Transition Studies
Evaluate all claims for their strength
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Cutting edge strategies
RFP for Transition Study All claims must indicate
Locations
Standard
Deviation from drawings
Workmanship
Code
Equivalency
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Cutting edge strategies
Think about what is going on with a business view and DO NOT make it personal !
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A Note on Conversions
Construction is not new
Design drawings are generally not available
Disclosure documents are the basis of the reports
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Some References
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Some References
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Some References
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Some References
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Thank You and any questions ?
Please e mail any questions that have not been answered and for copies of any of the references.
If you would like this presented to your community of company directly, please let us know
Reserve Study Webinar 8/20
Mitch Frumkin
Proposals
Kipcon.com
800-828-4118
copyright Kipcon Inc. 2014