A.D. from Hartford County, Connecticut writes:
Dear Mister Condo,
What are some financing alternatives available to associations when financing large capital improvement projects?
Mister Condo replies:
A.D., large capital improvement projects are often double-edged swords for community associations. If the project was particularly well thought out and planned for, it could be as simple as drawing down the Reserve Fund or Savings Fund to pay for the project. More often than not, that is not the case. Far more common is the need for money greater than the readily available supply. Therefore, Boards are forced to consider alternatives. The simplest answer is to issue a special assessment. For instance, if $1,000,000.00 was needed for a new parking lot and there are 100 units of similar shape and size, the assessment might be $10,000 per unit. That can be awful hard to sell to unit owners who weren’t expecting such a large outlay of funds. Depending on the community’s financial situation, the Board may seek to work with a lender who will finance the project with a Community Association loan. This allows the community to get the needed capital for their project while taking some time to pay back the money. In turn, this cost is passed on to homeowners who will pay higher monthly common fees to cover the increased debt. This is quite common these days. In fact, there is a list of bankers that specialize in this field at the CAI-CT website. Point your browser to http://www.caict.org/?page=Directory#Banking/Financial Services to find a list of local resources for your consideration. Good luck with the project!