Planning For The Unplanned

If recent events have taught us anything, it is that having a real plan in place (or not) will have a profound effect on how we recover when adversity strikes.

General George S. Patton once said, “A good plan violently executed now, is better than a perfect plan executed next week.”

For many condo/homeowner associations, now is a good time to review how prepared they are for building component failures. However, associations are typically not aware of how ill-prepared they are until disaster strikes. While they are required to set aside funds to deal with replacements and repairs of line items designated by their Reserve Study (a list of capital improvements and estimates of costs), as buildings age, associations typically do not plan for failures of major structural or utility elements, such as sewer lines, lanai railings, electrical distribution systems and elevators.

“Most of the condo development in Hawaii started in the late ’50s but boomed in the late ’60s and early ’70s. What that means is that the cast-iron plumbing and electrical infrastructure has likely reached or passed its life expectancy,” says Casey Paet, vice president of Cadmus Properties. “Back then, the condo law was new, very vague, and did not force HOAs to save money, especially not for a complete retrofit of these types of issues.”

It is up to the association’s board of directors to be proactive and anticipate problems associated with aging components. For instance, it takes roughly two years — start to finish — to replace an elevator.

“So, if a new elevator is slated for 2021, and the board hasn’t yet hired a consultant or gone out for any bid proposals, replacement isn’t going to happen in 2021,” Paet explains.

In fact, elevators, windows and plumbing/pipes are typically the highest-risk components in older buildings — and typically, repair/ replacement costs when these fail are not accurately estimated as part of the long-term financial plan, if included at all. Perhaps the highest-risk component, especially in high-rise condos, is plumbing water leaks or pipe failures.

“Cast-iron drain pipes typically last 45-50 years, and many of Hawaii’s communities are now of age where their plumbing is becoming a real concern,” says Eric Lecky, an executive vice president with SageWater, a leading pipe replacement and restoration contractor. It works with condo boards and has all of the trades needed to complete every step of pipe replacement in-house.

“We’re kind of like a general contractor, in that we provide all the trades needed, but we specialize in pipe replacement,” Lecky says.

Commonly, around the island, catastrophic plumbing failures have necessitated emergency repairs, which can equate to a price tag well into the millions. If there is insufficient money in association “reserves,” there may be no other choice but to take out a loan. Emergency loans result in costly assessments, increases in maintenance fees, and can mean financial hardships on owners. This nightmare can be averted, or at least mitigated by proactive, sound financial planning. Starting from scratch to fund a multimillion-dollar project may take years, which is why now is a good time to get started — infinitely better than being caught off-guard when a major component fails.

“Planning for any large capital improvement project, like pipe replacement, takes time, focus and expertise,” adds Lecky. “From the time a community decides to replace their pipes, it can easily take 30-40 weeks before they have a contractor on-site turning wrenches. From finalizing a scope of work, comparing bids from different contractors, securing permits and finalizing contracts, a lot has to happen before the work can actually begin. If a building has a lot of active leaks, this wait can seem like an eternity, so it’s important to plan ahead and act early.”

The solution is for associations to anticipate and plan for a major component failure. The sooner contingency funds can be identified, collected and earmarked, the better prepared an association will be when the inevitable occurs.