Financing Capital Improvement Projects for Condominiums | SageWater

Financing Capital Improvement Projects for Condominiums

Financing Capital Improvement Projects for Apartments

Financing Capital Improvement Projects for Condominiums During COVID-19


The arrival of COVID-19 has changed many aspects of how we live, work, shop and even go to school. With extended quarantining, lengthy stay at home orders, and more people working and educating remotely, demands on critical infrastructure have grown. As a result of the increased use of everything from the internet to plumbing and HVAC systems, the need for capital improvement upgrades (or replacements) is growing across communities. As homeowners pay closer attention to their immediate surroundings, the pressure to address these concerns is being passed on to property managers and Condo boards.

At SageWater, we focus on plumbing infrastructure and are seeing many communities suffer from chronic leaks as their communities age and their pipes start to fail. But due to COVID-19, many condo boards are reluctant to tackle large capital improvement projects due to financial concerns or logistical considerations with having workers onsite.

Unfortunately, aging infrastructure doesn’t stop aging due to a global pandemic. So, while it may seem like a daunting endeavor, now is actually a great time to undertake certain capital improvement projects like pipe replacement. With interest rates at an all-time low, capital is cheap, and loans are readily available for communities in good financial standing.

Deciding how to pay for a major renovation like pipe replacement typically leads down one of three paths:

  1. Assess your residents for the cost of the renovation and collect the funds to cover the project all at once,
  2. Draw down your reserves (frequently this requires delaying other future projects to help come up with the money now), or
  3. Finance the project and add a small incremental cost to HOA fees to pay down the loan over a number of years.

In this age of uncertainty, tapping reserves is not advisable. Likewise, with so many folks being unemployed or under financial stress from COVID, asking them to pay a larger amount through a lump sum assessment can be challenging. But amortizing a capital improvement project over 10 or even 20 years can be a great way to get the maintenance completed now, while spreading the cost over a number of years to make it more manageable for your community.

“In my whole career, I have never seen rates this low for community association loans,” said Jared Tunnell, Senior Vice President for National Cooperative Bank. “It’s a rare bright spot in the industry right now and a great opportunity for communities given the general uncertainty brought about by COVID-19.”

At SageWater, we are seeing more and more of our clients go for this option to finance their pipe replacement and other capital improvement needs. Frequently, they are aggregating two or three critical renovation projects and taking out a larger loan to cover them all, since rates are at historic lows.

“Borrowing for your capital plan has a couple advantages: number one, it spreads out the costs to match the long-term benefit of the repairs; two, it utilizes the borrowing capacity of the community instead of individual residents; and three, it allows stability in setting annual budgets for capital projects. It allows you to plan well into the future so if you need to raise dues, you can do it over multiple years … borrowing money today and slowly raising fees over time to pay it back. It gives you flexibility,” said Tunnell.

If your community is faced with critical infrastructure needs, talk to a bank that understands community association lending to find out what your options are, and how much you might be able to borrow. Frequently, when the amount of the loan is divided by 10 years or more and is split across all unit owners, the monthly cost is far more manageable than anyone anticipated.

Jared Tunnell

Thanks to Jared Tunnell for contributing to this article. Jared Tunnell is Senior Vice President with National Cooperative Bank, (NCB). Mr. Tunnell has successfully delivered financial services and software systems to community associations for twenty years. He currently serves as the leader of NCB’s banking and lending services for condominiums and homeowners associations throughout the United States. Over his career he has originated in excess of $500 million in loans and $1.5 billion in deposits for communities.

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