Every time I am approached by condo buyers and owners alike, the most asked question is on the future of condominiums.
Practically speaking, condos will exist as a real-estate ownership option for as long as there are buyers willing to buy them — notwithstanding the inherent ownership related problems mentioned in my previous MarketWatch article: Should you Buy or Lease your Retirement Condo?
Older Condos Plagued by High Maintenance Costs
By Dan S. Barnabic
To be more precise, a condo unit will remain a viable real-estate ownership alternative for as long as its monthly maintenance fees and realty taxes remain below the monthly rental of a comparable unit in another condo complex or apartment building. Once the condo’s maintenance fees and realty taxes exceed the cost of comparative rentals, there will be no demand to buy it. Such condos will be reduced to rental inventory as buying into heavy maintenance units would make no sense.
Life span of condo building components
Condo buildings are made up of elements that consist of thousands of individual components. Over time, due to wear and tear, those components need repairs and replacements. Knowing how old the complex is and when certain components were last repaired or replaced, will give you an idea when they’ll likely need maintenance and replacements again.
Bear in mind that maintenance and repairs to the inside of the individual unit, are direct responsibility of the unit owner. Monthly maintenance fees don’t cover for anything inside the condo unit. Appliances, heating, air-conditioning, and electrical fixtures inside the unit have to be maintained and eventually replaced entirely at the cost of the unit owner.
The chart below is showing operational expectancies of major mechanical components within a condo complex over the years. From the sea of available data, and consultation with building experts, I deduced this chart provides a fair reflection of maintenance and replacement over time, applicable to an average high-rise condo building.
The first major component that will need maintenance and replacement is the roof of the complex. It will usually last up to about 10 years, after which it will require maintenance and replacement by the time it reaches 15 to 18 years. The next in line will be the cooling plant which may be operational for about 18 years, with required maintenance for another two to three years and replacement after 20 years. The heating plant may last up to 20 years followed by required maintenance for another five years, after which it will have to be replaced altogether. The elevators may last up to 20 years, with more frequent maintenance for the following 10 years, and likely replacement after that. The quality and durability of the plumbing/piping has improved over the years, so you can expect it to remain operational for about 50 years. From thereon, it will require maintenance and eventual replacement as well. Standard size windows may also last about 50 years, requiring occasional maintenance such as replacement of screens and sealant. Complexes built of all glass windows need to be addressed in more detail.
All glass windows
Because of their appeal, facades of new condo buildings have been transforming into glass, often extending from floor to ceiling of each condo unit. It gives condos a more attractive look and is a great selling feature — but building experts have known for quite some time that today’s glass-walled structures are less energy efficient than the stone and concrete buildings that were put up 40 or 50 years ago.
Indeed, as energy costs climb, glass towers may become the “pariah” buildings of the future. University of Waterloo Professor John Straub (who wrote a noteworthy paper called: Can highly glazed building facades be green ), was quoted by CBC Toronto as saying that “With these buildings — both skin and the mechanical systems are going to have to be redone in a 25-year time frame. The concrete structure will be there for a long time but in 20, 25 years time, we are going to see a lot of scaffolding on the outside of the buildings to replace the glazing, sealants and the glass itself”.
Another scientist, Ted Kesik at the John H. Daniels Faculty of Architecture at the University of Toronto, warns that as energy costs climb, the costs of heating and cooling glass towers will increase monthly fees. His paper, The Glass Condo Conundrum , warns of the potential liabilities of glass towers. These experts suggest that the maintenance costs of glass skinned towers will skyrocket in 25 years time as the buildings age. With no insulation values, apart from a half inch of glass between two panels, windows will begin to fog up and the costs of replacing entire walls of glass will be prohibitive on high-rise structures that can only be accessed from swing states.
Some experts go so far as to predict that replacing the all glass outer layers of buildings may become necessary as early as 15 to 20 years from the day that the condo is built, and cost as much as $80,000 per unit. In short, what seems very attractive and appealing to condo buyers today may come to haunt them in the not-so-distant future, by way of prohibitive maintenance and replacement costs.
Need for cyclical repairs and replacements
For the condo building to remain functional, it requires cyclical maintenance and replacement of its major components over time. By the time a condo building reaches 40 to 50 years of age it will have gone through several partial or complete retrofits, likely in stages. Properly governed and managed condo complexes maintain amortization funds the necessary accumulation of moneys over time for replacements of the common elements without undue financial hardships.
Looking into a more distant future, more frequent and repetitive replacements of the vital common elements will give rise to higher maintenance fees in older complexes. In some cases, they will rise to the point of becoming unaffordable to a majority of the unit owners. In extreme circumstances, facing severe financial hardships, some condo buildings may end up being wound down either voluntarily, by the unit owners, or through insolvency proceedings commenced by creditors.
The problem of not being able to maintain adequate amortization replacement funds may arise during times of economic slowdowns. Unit owners may experience employment losses rendering them incapable of contributing to necessary fiscal obligations of their condo complex. This problem may escalate dramatically in poorly governed and/or mismanaged complexes. History shows that buying a condo unit with a small or no down payment presents a huge risk to the financially weak unit owners who may lose their units during economic hardships. If the complex is composed of many such unit owners, the whole complex may become underfunded and unable to carry on with the repairs and replacements of its vital elements.
Every condo unit owner should be fully apprised of their condo complexes’ financial well being. Quality of management and its governance is of paramount importance. The take-it-for-granted assumption that, when you buy into a condo complex others will take (good) care of its governance and property management, is dead wrong. Every condo unit owner is strongly advised to actively participate in the day-to-day running of their condo complex by closely monitoring and contributing their time when necessary, to all the facets of its operation.
As condos have a finite life span, at least as economic factors relative to their maintenance costs are concerned, the idea is to buy into newer complexes, where their near future expenses and therefore maintenance fees are prognosticated more accurately. The same logic applies when selling a unit. Don’t wait until maintenance fees become too high. If you do, chances are you aren’t going to get your unit sold.
The physical life-span
When it comes to physical longevity, the same formula applies to condos as to other high rises, including apartment buildings. The properly funded and prudently managed buildings may have a life-span of over a hundred years, or even more. The poorly run, neglected and mismanaged buildings usually end up going down sooner.
Their physical life span depends on quality of governance, prudence of management policies, and the ability of owners to regularly look after their expenses.