The Essentials of Condo Reserve Studies

Aug 12, 2022

By Ken Bertolucci, CMCA, AMS

When our community managers ask condominium boards if they want to authorize a reserve study for their association, we sometimes get puzzled looks. While they may have heard of the term, some are unsure of the value of such a report. However, the tragedy at the condo association in Surfside, Florida, changed the trajectory of the discussion. A reserve study is now essential.

In short, the Surfside property (legal name Champlain Towers) partially collapsed in June 2021. A subsequent investigation found that the Board and homeowners were aware of the structural defects in the property as early as 2018 but disagreed on how to address them, leading to several years of debate. The projected cost, a staggering $15 million, was ultimately approved but the work was not started at the time of the structural failure. Tragically, 98 people died in the collapse and many were injured.

How does this relate to a reserve study? In short, a reserve study engages a specialist to review all the major components of the property including roofs, structural elements, balconies, parking surfaces, fences, etc. The report lists the condition of all the components and projects the remaining useful life. It also provides an estimated cost to address the repair or replacement of that component, and most importantly, projects the amount needed to add to the association’s reserve to be sufficiently funded.

The benefits are threefold:

  1. The recommendations are made by an impartial third party, avoiding any accusations of bias or preferential treatment. For example, I have heard homeowners complain that a specific project was only approved by the Board because it benefited the Board President, but use of a reserve study makes that a moot point.
  2. One of the most challenging budgetary tasks is projecting the future cash requirements for the association. A reserve study provides specific guidelines to plan future reserve transfers, giving the board and management an essential tool.
  3. There are no surprises regarding serious structural issues. Such items should be discovered during the property review, and if detected early enough, can provide time to further investigate them and craft a spending plan. This may avoid placing an undue short-term burden on homeowners, many of whom may be on fixed incomes.

To be clear, most condo associations will not have the same level of structural deficiencies experienced by Champlain Towers. While an extreme case, the extent of the tragedy provides a worst-case scenario of what can occur when essential structural mitigation or needed repairs are delayed or ignored.

For condo board members and homeowners, the next time this topic comes up at a meeting, remember its importance. Investing in a reserve study may not be as fun as updating the lobby, but the health of your investment (and your safety) may depend on it.

Ken Bertolucci is President of NS Management, a condominium association management company located in the north suburbs of Chicago. He often writes for industry-specific and news publications.

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