When plumbing systems start to fail, boards at AOAOs are faced with some difficult decisions. As pipe replacement is not typically considered (or budgeted for appropriately) as part of a reserve study, Hawaii’s condominiums are often confronted with tough financial considerations when faced with the prospect of a repipe.
As leaks begin to mount, residents are inconvenienced, repair costs climb, insurance claims increase and AOAOs are often forced to ask for large special assessments from their homeowners to cover the cost.
Another option is to go through the process of financing the repipe, which can be a difficult task.
As a result, boards often postpone the decision, saying they will continue to get the leaks fixed, and will address the problem at a future date. However, simply waiting might be the worst alternative, as mounting costs, insurance risks and even legal considerations could make delaying the project exponentially more expensive than finding a solution in the near-term.
Financial Considerations
Much of the decision to repipe a condominium in Hawaii is cost based, and it’s simply a matter of fact that it’s cheaper to repipe now than it will be in the future.
Construction costs are currently rising at a 7% annual rate across the islands according to “Rider Levett Bucknall, USA Report: Quarterly Construction Cost Report, Second Quarter 2015.”
That means waiting just five years will increase the total job cost by more than 40%. Add the continued costs of leak and damage repair over the next five years, and your total costs could run double what it will cost if you fix the problem immediately.
In addition, loan costs are at historic lows. According to one local bank, rates are typically running 3.85-5.0% on a construction renovation loan like you would need for a repipe.
Given market uncertainties, its unlikely these rates will drop any further, so waiting to finance the project in a few years, rather than today, could cost your AOAO more in interest expense as well.
But these are the obvious, tangible costs. There are also numerous intangible costs associated with continuing to have leaking pipes. Insurance rates are sure to rise as the volume of claims increases.
Owner Considerations
We all know that building reputation in Hawaii is paramount to driving desirability and increasing resale values. When plagued by plumbing leaks, building reputation is damaged, directly affecting resale values. This can frustrate homeowners who often feel like the board may not be acting in their best interests. As owner and board relationships become tense, things can quickly escalate from bad to worse.
For board members, AOAO bylaws always imply fiduciary responsibility to maintain the building. As previously mentioned, waiting too long to address chronic plumbing problems can result in loss of insurance coverage.
Unfortunately, in today’s litigious environment, many disgruntled homeowners are waiting for this to happen so they can sue the board over their leak and the resulting damages. When pipe problems escalate to the political and legal realm, total costs can skyrocket as fees for lawyers on both sides accumulate on top of plumbing and insurance costs.
Be Proactive
There is good news in all of this. While it may not seem easy, the best course of action is to address the issue right now, today. Due to low lending costs, experienced, turnkey contractors ready to help, and numerous financing options, pipe replacement can be completed quickly and without a political headache.
In an informal survey of recent AOAO board members who have completed a repipe project in the last three years, 100% said they were happy they went through the process and now live in a worry free building.
“While there were numerous concerns from the board, our insurance company, and the lender over completing our repipe project, in the end, it was simply the right thing to do for our building,” says Ron Komine, General Manager for 1350 Ala Moana. “Regardless of the cost and inconvenience, the peace of mind that comes with knowing we will have a worry free plumbing system for decades to come is simply priceless.”