Sol Rescues Condo Owners
Around 2009, one of the companies I consult for bought 18 condo apartment units along with 4 commercial condo units directly from a developer who converted an office building into residential condos with commercial condo units on the ground floor. The developer left the project in several states of incompletion.
Some of the units we bought were also in different states of completion. A couple were almost completed, many were just concrete shells and a few in half-finished condition.
We were holding the units for future capital gains, but because we were too busy, they were left unfinished and untenanted for about a year. During that year, the board of directors for the condo corporation was run by a couple of aggressive type of people who controlled the entire board.
“The engineering firm estimated that over $6M in construction and repairs were required.”
They spent lots of the condo corporation’s funds on legal fees in order to try to recoup money from the developer. They hired an engineering firm which had a reputation for “beefing” up costs of remediation and construction. The engineering firm estimated that over $6M in construction and repairs were required.
They also falsely accused the developer of not removing old insulation containing urea formaldehyde. Because all this was now known by the condo corporation and the property management firm, they were required by law to make that info available in the Status Certificate.
“They also falsely accused the developer of not removing old insulation containing urea formaldehyde.”
A Status Certificate provides info on the present financial status of the building. It has audited financial statements, info on the specific apartment being purchased, such as maintenance fee for the unit, amounts owing if any, any special assessments, condition of the building, significant info such as the $6M in deficiencies, lawsuits, etc.
This is prepared by the management company and is mostly used by new purchasers and their lawyers. Usually, a buyer would make an offer on a condo apartment with a condition that their lawyer needs to approve the status certificate.
At this point, the status certificate was never approved by a purchaser’s lawyer. And no bank now would provide a mortgage on any unit in the building.
“No bank now would provide a mortgage on any unit in the building.”
On behalf of all owners in the building, the Board decided to sue the company I do consulting for on the grounds that it wasn’t an arms length transaction and they hoped they could “take” the units we owned.
I instructed our lawyer to drag it out so the condo corp would be spending more on legal fees in the hopes of getting the board to back off. It didn’t work because the board seemed ok with spending lots on legal fees so I then instructed the lawyer to counter sue the condo corporation and the board members personally. That worked.
The board was now eager to drop everything, but that’s when I found out that they practically bankrupted the condo corp. They were desperate for funds and they couldn’t borrow because they would need to change their bylaws and get all owners approval. And who would lend them money?
“I found out that they practically bankrupted the condo corp.”
Because we wanted to protect our interest in the building, I offered to pay 30 months of maintenance fees in advance for all our units. This was close to $400K and that saved the condo corporation from bankruptcy.
At this point, I had more time available so I decided it was time to finish construction on all our units and lease them out. I personally leased out all 18 residential units and 4 commercial units.
While speaking with the property manager one day, I found out that the board was still spending over $100k each year on lawyers and strategizing. I then found out that the board was telling owners that they won the lawsuit and got money from my company. That was the last straw. I wanted them out of the board.
“That was the last straw. I wanted them out of the board.”
I spoke with a couple of people who lived in the building and explained my story. They agreed to run for a position on the board in the upcoming annual general meeting where 3 out of the 5 board members were up for re-election. I also met with another investor who owned 24 units in the building and was also sued.
Since we had a previous relationship as lawsuit defendants, he agreed to provide me with all his proxy votes for the upcoming election. Not many owners showed up for the meeting because, I was told, they were tired of hearing bad news…and I kept my appearance and plan to run for the board a secret. My group and proxy easily had over 50% of the votes so I and my 2 friends were voted in.
After a few board meetings, it was obvious to the 3 of us that the other 2 ran the show. We stalled, voted against their motions, asked them to provide more info and made more work for them in order to frustrate them. We also put forward our own motions which the 3 of us, as majority, passed. After a couple of months of not getting what they were used to, they both suddenly resigned on the same day.
Now that the board was unanimous, I immediately fired the lawyers and the engineering consultant. I hired one of Toronto’s top condo lawyers. The legal fees for the first year with the new lawyer was less than $500 compared to $80K for the previous 8 months with the previous law firm. I fired the property management firm on the spot because they were still providing info to the resigned board members.
“The legal fees for the first year with the new lawyer was less than $500 compared to $80K for the previous 8 months with the previous law firm.”
I personally interviewed property management firms and went with one that would bring several managers with construction experience in the first 2 months to do a thorough inspection of the entire property and provide a remediation recommendation. Before the new management company was in place, I personally had to manage the building for 2 weeks.
I hired a construction company that specializes in cementitious products (that’s when I learned the word “cementitious”) and they remedied the deficiencies around the building and in the garage. In the end, we managed to do the entire $6M work for approx. $1M. Also, no urea formaldehyde was found.
In the annual general meeting about a year and a half after I had control of the board, I announced that the Status Certificate was now “clean”. I don’t think that the owners attending the meeting absorbed that information. Then I explained what I had said and they broke into sudden applause. That was the best feeling I have had in a long time.
“They broke into sudden applause. That was the best feeling I have had in a long time.”
The next challenge was getting buyers and real estate agents interested in the building and to get prices up to market level. One of the board member was a real estate agent.
I listed one unit for sale at $175K and then listed another identical unit for $190K. Of course, the $175K unit sold. Then I listed another for $210K. That meant that the unit for $190K got sold. I couldn’t list a unit at the market rate due to the stigma suffered by the building, so I had to play this game.
In conclusion, I physically fixed the property, brought it to good financial order and brought prices up to market level, I eventually sold off all the assets that my client owned in that building, and we moved on. Most of the owners didn’t even have a clue as to what almost happened to the biggest investment of their lives.
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