Community associations feeling the pinch of a slow economy

Published Saturday, June 6, 2009

Rob Moore came to a chilling realization this winter: For the first time since he began managing condominium regimes on Hilton Head Island in 1992, none of his were planning major capital projects.

Because of the seasonal nature of the island’s economy, winter has long been when the associations that govern many Lowcountry communities replaced roofs, repainted buildings and the like.

In this recession, the customary meetings with designers and contractors weren’t on Moore’s schedule. Associations here and around the country are putting off projects because cash-strapped home owners are increasingly falling behind in their fees, Moore and others in the business of running communities said.

“It was probably the quietest off-season I can remember,” said Moore, who manages more than 1,000 villas in Palmetto Dunes, Shelter Cove and Port Royal Plantation for Property Administrators, Inc. “There just wasn’t any of that going on.”

That’s a bad sign for the local economy, but it’s one of the more benign impacts the bursting of the housing bubble is having on area associations.

Moore works primarily with affluent owners of second homes whose communities have seen a handful of foreclosures but have been able to cut nonessential spending to meet their financial obligations. In some of the region’s entry-level developments for first-time home buyers, Moore’s colleagues have told him, the toll has been much greater.

Collecting assessments and fees from residents who can’t or won’t pay is a challenge, Moore said.

Some communities have tried to crack down on owners who owe their associations by forbidding them from calling in gate passes for guests or threatening to lock out their tenants, he said.

Some associations will work with owners who are struggling, but managers and board members ultimately have a financial responsibility to run their organizations like businesses, said Frank Rathbun, a spokesman for the Community Associations Institute, which represents about 300,000 associations that include about 60 million people.

“To some degree, they have to do everything they can,” Rathbun said. “It’s a difficult spot.”

When an owner simply walks away from a second home, Moore said, associations must then decide if it will be cost-effective to pursue the debt — it often is not if the owner lives out of state.

As such cases mount, associations are scrimping in some creative ways to keep expenses in line with revenues.

In a survey of about 1,000 association managers around the country conducted by the institute late last year, about half said the mortgage foreclosure crisis was having a severe or serious impact on their communities.

Respondents reported a variety of coping strategies, including postponing capital projects, increasing assessments, deferring maintenance of common elements, borrowing from reserves, laying off staff and turning to residents to perform some tasks.

Although the recession has forced many associations to struggle, most are managing successfully, Rathbun said.

As many as half of residents in a few communities elsewhere in the country are delinquent on their association fees, but rates are more often running between 5 and 15 percent, Rathbun said.

Ted Bartlett, general manager of Dataw Island, said his community and others in northern Beaufort County aren’t seeing exceptional delinquency rates.

“We haven’t had much trouble with it,” he said.

Most of the Lowcountry’s associations probably don’t haveserious problems with delinquency rates, said Peter Kristian, general manager of Hilton Head Plantation and a former president of the institute. He attributed that to the area’s relative overall affluence.

“I’ve seen an increase, and I’m sure my colleagues are seeing an increase,” said Kristian, who has exchanged e-mails on the subject with other general managers throughout the Lowcountry. “Thus far, it’s been manageable.”

In addition to delinquencies, however, Kristian’s association has also suffered declines in other revenue sources:

• Reserve accounts haven’t returned as much interest.

• Officials haven’t generated as much in fees for reviewing construction and landscaping plans.

• Fewer commercial firms have paid fees to do business within the plantation’s gates.

To compensate, Kristian has asked his staff to make several adjustments that won’t affect the safety and appearance of thecommunity of 4,200 homes.

His association has curtailed overtime pay and salary raises, halted one of two monthly architectural review board meetings, e-mailed packets that were once printed for committee members and limited mileage expenses by allowing employees to use an association-owned vehicle for plantation-related business.

So far, the measures have worked. Revenues are down, but expenses are down even more. The association is more than $1,200 ahead of its budget of about $6.5 million so far this calendar year.

Both Kristian and Moore warned, however, that another round of foreclosures could put their budgets in a more precarious position.

Moore said he knows some colleagues who are leaving the industry because unhappy residents blame them when delinquent or foreclosed homeowners are straining their associations’ finances.

“It’s not a very happy job right now,” he said.

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