Robert Nordlund: 0:00

When you are a board member, you can't just pursue short-term thinking. You've got to be thinking like our predecessors did, our ancestors did. What is my job here? What am I trying to accomplish? What is the big picture? Because we're expecting the association to last long after you've been in the association for five or 10 or 15 or 20 years, and leadership should rotate, and so what are you doing to maintain the association and hand it off to the next group of homeowners who will be board members, and they can carry it on and have a great homeowner experience there, so you have to be very careful to act as a fiduciary, because you're the one that's responsible.

Announcer: 0:48

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that care about board members: 0:51

Association Insights and Marketplace, Association Reserves, Community Financials, Kevin Davis Insurance Services, and the Inspectors of Election. You'll find links to their website and social media in the show notes.

Robert Nordlund: 1:04

Welcome back to HOA Insights: Common Sense for Common Areas. I'm Robert Nordlund, and I'm here today for episode number 166 with something a little different for you today. Just some thoughts from my heart about how the work we do preparing reserve studies is important to the entire community association industry, it's kind of foundational now. As I'm recording this, it's the last week in June, and here in 2026 that means it's the fifth anniversary of the tragic collapse of Champlain Tower South, and that was not just a tragedy for our community association industry, it was a largest structural failure and modern residential tragedy in US history, claiming 98 lives. So, this week it's always in the back of my mind. For our new listeners, I want to let you know that we're a weekly program with new episodes each week, dropping on our website, which is HOA insights.org on all the major podcast platforms and on our YouTube channel, we regularly have a host and a co-host. I'm one of those hosts and co-hosts. And in last week's episode, number 165 I was fortunate to have an interview with Russell Munns of Community Financials. They happen to be one of our podcast sponsors, and Russell there shared some of his insights on how to avoid fraud at your association. That's the type of content we provide in pursuing our mission to help all 2 million volunteer HOA board members nationwide. Yes, that's right, 2 million have the right information at the right time to make the right decisions for the future of their association. Now, if you like this week's program or any of our other programs, take a moment to like the episode and share the news with your friends. Subscribing and getting more likes increases our ratings in the search engines and makes this free resource easier to find by other board members searching for help, not like there's any board members out there who needs to search for help. So, there's a lot of improving yet to do in our community association industry, and many more board members to reach. So, please join us in our mission. Well, we enjoy hearing from you, responding to the issues you're facing at your association. So, if you have a hot topic, a crazy story or a question you'd like us to address in a future episode. By all means, contact us at 805-203-3130 or email us at the podcast link or podcast website at podcast at HOA insights.org But today's episode is all on me. As I said, this is the fifth anniversary of the collapse of Champaign Tower South, and there are some important lessons to learn. But let me start with a story. It was five weeks ago, or five years ago this week, that I was awakened on an early Thursday morning, by a call from my Florida partner, who very abruptly told me, Robert, we lost a client, and I said, Will, what are you talking about? He said, go catch the news and call me after you've seen what happened. So that was how I learned about the tragic collapse of Champlain Tower South. As you know, it was an overnight tragedy. News was earlier on the East Coast than it was out here, where I'm at, on the West Coast, and that started a real roller coaster of events in our company and our entire community association industry later on that year, December of 2021 I had the opportunity, responsibility, opportunity to go to a trade show in Miami, and as that trade show was closing, instead of going straight to the airport, I had my rear driver take me over. Over to the Champlain Tower site, and I asked if he could wait for a few minutes, and so I went over to the site. It was all chain linked, couldn't get inside. There was a guard there. I told him who I was, and I was able to talk him into opening the gate for me, and I just stood there at the gate, taking in the site, and it was just a very sobering experience. At that point in time, the site had been bulldozed. There was nothing there. I've got a picture that I believe our media team will be able to show you of what it was like for me that day, hopefully they can put it up in our YouTube version of the podcast, so you can see, and it was just sobering. The I felt like the site reeked of tragedy, and as of December I'd spent six months working the problem, dealing with the consequences, and what made it hurt was it was a client of ours, the Champion Towers South had reached out to us late in 2019 for their first reserve study, and we delivered that early in 2020 delivering it in March of 2020 and if you know what happened in March of 2020 that's when Covid 19 hit, and those well-intentioned board members had a very hard time getting contractor estimates, getting the loan that they're going to need, because it was going to be millions of dollars of repairs, and they eventually, unfortunately, ran out of time. What was it a year and a half later by the time it got to June of 2021 and you all know what happened overnight on june 24 2021 So, what do we know? What have we learned? And how can we prevent this thing from happening again? The National Institute of Standards and Technology (NIST) recently released, actually earlier this week, their technical report on the cause of the collapse, and it was nothing surprising. It's three things: it was a marginal design, it was marginal construction, and it was minimal maintenance over 40 years, and that was a combination that means that the expected happened when you have something that doesn't have the normal safety factors that you would expect, and you don't care for it. The building fell down. I've been fortunate to travel to Italy. I saw the Roman Coliseum. I've seen other things that are wonderfully big and old that haven't been maintained diligently, and they get old, they fall down, they crumble. That's just life on this planet. And so that's why I say the expected happened, not the unexpected. And that's the sad part. This is indeed a tragedy, a preventable, avoidable tragedy. Every building, yours, the one I'm in right now, as I'm recording this, is subject to decay, and every building that is not keeping up with ongoing deterioration is going to face those same failures that Champlain Tower South faced. For you, it may be a roof project, a painting project, an asphalt project, or it may be a balcony project, or a structural project. I've done many site inspections since then in older buildings, going down into the parking garage of older buildings, and the ones that I've been have been shored up. It's wonderful to see that the new construction. They tell me the stories of how much money they've spent taking care of their parking garage, because they know the building sits on top of it. That's tremendous. Those are the lessons that we need to be learning from this, but you have to appreciate that Mother Nature and Father Time are unstoppable forces, and you need to put up a good defense if you're going to have any kind of success, if you defer maintenance, and if you defer projects with the idea that you're saving money, those expenses don't go away, they just build up like water behind a dam, growing and growing and growing. That means they're going to be more expensive and more significant when you finally get to them, so you're not saving any money when you're trying to not pay for caring for your building due to ongoing deterioration. The deterioration just grows, the costs just get bigger, and you just get yourself digging into a bigger and bigger hole. And what I want to say right off the start is deferring expenses is not just foolish, but as we learned from Champlain Tower South, it can be dangerous. Okay, so what do we do about this? I've got some notes here that I'm going to follow that I want to walk you through. Go with the podcast. The podcast itself, I'm here recording this because Kevin Davis of Kevin Davis Insurance Services, another one of our co-hosts, called me, must have been July or August of 2021 and said just very simply, Robert, we gotta do something about this, and again it was a normal day, nothing special, Kevin was calling me, saying we ought to do something about this, and I was like, have I missed something? He says, Robert, there's a bigger problem, we got to address this, and he was one who challenged me that what can we do, and one of the ideas was this podcast that we need to do a better job of getting the information out there, that is, it is important for board members to have a long-term vision for their work at the association. We, as humans, are wonderfully made, and one of those wonderful things is we have a very sharp short-term focus. That's the kind of things that kept our ancestors out of trouble, we could run from trouble, because we saw trouble. It's also one of the things that refined our ancestors, because it takes time, it takes work to plant food, it takes time and work to plan a hunt, to gather what you need to create shelter to maintain that shelter. The consequences are very simple. Long time ago, if you didn't have shelter or food, you just plain died. And so this is not a new story. So it is important to understand that we have to address our human tendency for short-term thinking, and we have to fight that. There's enough problems in the world again. As I'm speaking here in late June, we're trying to close a close out a war, and not sure how that's going to happen. Hopefully, you'll know by the time you're listening to this episode what has become of that, but that's an important issue to deal with as you are thinking about your role as a board member at an association, because this is a podcast for board members. As a board member, you are a fiduciary, you have a world of the different experience and responsibility from homeowners. When you're just a homeowner, you're free to not care. You are free to care and complain about it, because what would you want, other than to have the place look nice, have property values maintained, and keep the dues low? Isn't that what just about every homeowner wants, and good access to the common areas you want to access, the pool you want to look nice, same with the spa, same with whatever common areas you have, the tennis courts, the lobby, the elevators, you want them to be in good repair. Now, as a board member, and we've done programs on this, whether prior podcasts or prior webinars, it's amazing when you look around, there's this incredible idea of the board members, once they get into the seat of a board member, you're a fiduciary, you can have any attorney tell you that, that all of a sudden you're in the hot seat, you're the corporate member, you are responsible for the assets of all these other people, the roof, the paint, the asphalt, the elevator, the lobby, the pool, all these other things. It's your job, and the homeowners are depending on you. So, there's a significant responsibility, liability in addition to responsibility, or they're intertwined. But I don't want to go down that path, because I'm a reserve study guy, and I'm not your attorney. I just want to make it clear that when you are a board member, you can't just pursue short-term thinking. You've got to be thinking like our predecessors did, our ancestors did. What is my job here? What am I trying to accomplish what is the big picture, because we're expecting the association to last long after you've been in the association for five or 10 or 15 or 20 years, and leadership should rotate, and so what are you doing to maintain the association and hand it off to the next group of homeowners who will be board members, and they can carry it on and have a great homeowner experience there, so you have to be very careful to act as a fiduciary, because you're the one that's responsible, and that means, as people remind me, because I'm the CEO of Associate. From reserves that when you're the leader of a company you lose the right to make excuses, it's fundamentally your job. So we have to be very careful about that, and you have to appreciate that now it's your role as a board member again. The homeowner is going to be free to complain, let them complain. Arguably, that's their role, that's their job. Your job as a board member, armed with an understanding of what the expenses are, all the daily, weekly, monthly expenses, the operating budget things, and then confronted with the cost of ongoing deterioration, which is unstoppable. Now, if you're your pool service comes twice a week, and you want to save money, arguably you can back down to having the pool serviced just once a week. You know, maybe the chemistry isn't quite right, maybe the leaves get in the pool. You can live with that. You can cut that bill in half, but you can't cut the bill in half of the roof deteriorating or the paint deteriorating. It's still going to deteriorate, and you're still going to have to reroof and repaint. With proper maintenance, spending money on proper maintenance, you can extend the life and make your overall cost of home ownership go down a little bit, you have a chance to do that a little bit, but it's not like cutting things in half. You don't have the power to cut the cost of ongoing deterioration. I hope that's not surprising to you, but you need to know that, that in the hard work you do running your association as a board member, and you've heard Kevin say it, you've heard Julie say it, the other co-hosts here, that running an association is hard work. We want to support you in that, want to make sure you have all the tools and tips. So, at this point in time, take a break, because this is a sponsored podcast to hear from one of our generous sponsors. After which, I'll be back with more common sense for common areas and talking about Champlain Tower South.

Paige Daniels: 17:11

Are you part of a homeowners association or condominium board? Making the right financial decisions for your community's future is crucial. At Association Reserves, we're proud to serve communities nationwide, specializing in reserve studies tailored to your community's unique needs. Our expert team helps you accurately assess your property's assets, forecast future expenses, and develop a solid funding plan. Whether you're a small HOA or a large condominium association, we've got you covered. Visit reservestudy.com to learn more and get a proposal for your association,

Robert Nordlund: 17:43

and we're back. Well, thank you. I now want to kind of turn the page and say, okay, what do we do about this? What do we do about knowing that Mother Nature and Father Time are the enemy here? They're the one that's making everything so costly, and I'm the board member, and I'm responsible for this mess or this predicament that I'm in, what do we do? Well, I want to arm you with a few tips, and one of those is understanding that owning and maintaining real estate fundamentally is expensive. As we look across our client base, we look at what they're doing and what we're recommending, and we typically recommend reserve funding in the range of 15 to 45% of their total assessments, so if your budget is a million dollars, we would expect that your reserve funding is about 250,000 of that a quarter, or another way, if your monthly assessments are $400 a month. We would expect that your reserve funding should be in the range of $100 a month. Again, reserve funding is typically somewhere in the range of 15 to 45% of total budget, commonly 25% You just have to understand that that is just the cost of home ownership, and everyone who has a standalone home out on a rural road somewhere, they are paying exactly the same costs, except without the economies of scale that community association homes have. And again, remember, you're the board member, you're not getting paid, you're volunteers, and so you and other volunteers are taking care of the decisions for running this honestly multi million dollar not for profit real estate corporation, and you're able to paint 100 homes with economies of scale, you're able to get insurance on 100 homes with economies of scale, or for your association, 18 homes or 332 homes, or whatever it is, but you're operating with economies of scale, and you have just appreciate that the cost is what it is. Now, for some of you, that may be a surprise to hear what we see that commonly reserve funding needs. To be 15 to 45% of an association's total budget, and that explains some of Fannie Mae's thinking when Fannie Mae and Freddie Mac made their changes in March of 2026 to raise their minimum standards for reserve funding for condominiums from 10% of total budget to 15% of total budget, because as a data point, Champlain Tower South was funding reserves just a hair above that minimum, 10% of total budget. It wasn't sufficient for them. It's likely not going to be sufficient for you. So, the question is, What is your objective, and there's many of you who have reached out to us or other reserves a provider, saying, How can we get around this new increase that Fannie Mae and Freddie Mac are saying we need to fund reserves 15% that's crazy, it's going to make our assessments go up 5% Well, my response to you is no. It'll just mean that the inevitable special assessment will be a little bit smaller, or you'll be able to last a little bit longer until that inevitable special assessment. Owning and maintaining real estate is expensive, and you have to make sure you're looking at what your objective is. Again, as a fiduciary, I don't want to go too far on this, because I'm not the attorney, but your job is to make sure the common areas are sustainable. You just don't have the excuse to say, "Well, we can't afford it. Well, you have to afford it, it's yours, and all the other homeowners in the association are relying on you as the board member to set the budget for sustainability, and if they can't afford it, that's how they learn that they can't afford to live in your association. You need to get homeowners in buying homes there that are enjoying what you've created, a sustainable community association, and I need to get back on track here. Talked about 15 to 45% Fannie and Freddie. Your primary job in so many cases may be to raise assessments. Julie has said so many times you need to communicate and communicate and communicate over and over again, many different ways, and make sure everyone knows that you're not the bad guy. Mother Nature and Father Time are the bad guys here. They're the ones making things so expensive, and these are just the bills. So be transparent, have open board meetings, make sure that your homeowners know that this is exactly what the costs are. Have a budget committee, so you're able to spread the news throughout the association that, yeah, these are legitimately what the numbers are at our association. Couple other things

that you need to know: 22:51

after the Champlain Tower South collapse, we updated in our industry, the Reserve Study industry, National Reserve Study Standards. We got those new standards updated and out in 2023 They expand the definition of what can be funded through reserves, because we want to empower our boards of directors to do everything they can to maintain the association, providing the cash to keep the property sustainable, and it's kind of crazy, crazy that in my position running a reserves a company. When I think of sustainability, I don't think recycle, I think of roof projects, elevator modernization, painting projects. That's how I keep the project sustainable, seal coating the asphalt so that it lasts for a long time. That's what I think of as sustainable and best practice in the reserve study industry. We look at it, and again, you may think that preventive maintenance is expensive. You don't want to do it. I can tell you, it saves you money in the long run. It makes your property, everything at the property, last longer, which means you save money on reserve projects. We've shown that in some of our educational webinars@reservesay.com The numbers just work out that way, and you have to appreciate that taking good care of the property not only saves you money, but when the property looks nice, curb appeal is real. And as I speak now, I don't recall if it's a 12.6% or 12.7% increase in property values, but property values tend to be higher by let's say over 10% when the place is well maintained, and so the $100 or so that you might be paying towards reserves on an ongoing basis, that's going to result in 1000s of dollars in higher home values. So reserve funding is one of the best decisions you can make. Also, updating your reserve study, you want to have fresh information, so the sweet spot. Um, well, every year, because of Mother Nature and Father Time, every year you know the cost of all your reserve projects is changing, and it's going up. The condition of your reserve projects is changing, usually going down. The cash that you have in reserves is changing, depending on how much you fund reserves and how much you're spending from reserves, so every year that's a mix of things going on, the cash in reserves, the cost that you're up against, the condition when those things are going to happen, and so it's best practice to have frequent updates to reserve plan, so we can stay on track and not get behind. Now, the question is, what's the sweet spot on staying on track? Different states say this, different states say that. I got a map here on my wall, about 25 states, about half the states have some laws that say something about reserve study preparation, or reserve funding, or reserve disclosures, but the bottom line is that what we see from the industry is the sweet spot is an update with site visit every third year that minimizes your reserve expenses of hiring an expert to give you wise counsel, yet it keeps you from your reserve information getting too old and too out of balance, and in addition to that, there's a recommendation that you update your reserve study every year with a no site visit update that's inexpensive. It tunes your budget, and for a budget line item that is one of your largest budgets, one of your largest expenses, I should say, in the range of 25% That's worth looking at every year. So, best practice is to keep your reserve study fresh. It gives you proper guidance and communicating that to your homeowners on a regular basis, that it is just the cost, it's the cost of living here. Look at, if you divide the $200,000 roof by 20 years, averages out to 10 grand a year. It's just the cost of living here in this association. And when people say, but I won't be here in 12 years when the roof is projected to fail, the key words are, make sure they understand that reserve funding is like a usage fee, it's paying the ongoing deterioration today, this month, and next month you'll pay it next month, and when everyone does that over time, the future takes care of itself. You've adjusted the budget, and you're not having unfair special assessments, projects don't get deferred, and wonderfully, real estate values are maximized. It's a great thing when the board runs the association as they're supposed to run it. The homeowners are informed, and they appreciate that the board is taking them successfully to the future. The well, and let me get to this. Let me close with some more resources, and I've got a few resources for you here. They are all at least two of the three of them are free. One is Breaking Point. You can find that it's a free download from the CAI Research Foundation. It was a report prepared in April of 2020 during early months of COVID, so it was hard to get that out, but it was a fantastic document. It had four conclusions on how to take care of aging buildings. Remember, this was a report that came out in April 2020 a little more than a year before Champlain Tower South fell, they had four conclusions in that report. What do you do? Number one, prepare a reserve study regularly, update your reserve study regularly. Number two, fund reserves as recommended. Three, spend reserves as recommended. You've got to do those maintenance projects, you've got to do those reserve projects. Sitting on them while they're getting old is just going to make them worse. Remember, it's like water behind a dam. Number four is perform infrastructure inspection reports. You're not going to get that from a reserve state provider. You need a structural specialist, you need an architect or a structural engineer to look at your property and tell you if that crack is insignificant or significant. Champlain Tower South finally got their first structural inspection report in 2018 the Morabito report that set them on the path to hire our firm, combination of our reserve study and the Morabito report, which was later updated, gave them the information they needed to be able to try to get the loan. That my understanding is they were finally approved for. They just ran out of time. Number one is, or number two is CA eyes best practices, community association maintenance, I. Will provide links to these, and the third is capital projects, a case study, another CAI document. This was written by a friend of the program, Roger Minch, a board member from North Dakota, articulating very clearly that it is, if I can summarize, as much getting political capital as it is financial capital to perform a project at your association, so I want to leave you with that. I do want to thank you for joining me today, allowing me to share from my experience through the Champlain Tower South tragedy. Those of you on YouTube can see how much more white hair I have now gray hair I have no now than I did five years ago. That was a hard time, but we learn some lessons from that tragedy, and we all need to apply those lessons, really take them to heart, but those lessons and the pain from losing a client resonates with why we at Association Reserves do what we do for our clients. I want to reinforce that the budget decisions that you make based on emotions, homeowner pressure, or wishful thinking aren't just foolish; they can indeed be very dangerous. Mother Nature and Father Time don't mess around, they are indeed formidable opponents. Well, we want to certainly hope that you learn some HOA insights from today's episode that helps you understand the significance of your budget decisions and brings common sense to your common areas. We want to fuel those good decisions at your associations. We look forward to having you join us for another great episode next week.

Announcer: 31:48

You've been listening to HOA Insights: Common Sense for Common Areas. You can listen to the show on our podcast website, HOA insights.org or subscribe on any of the most popular podcast platforms. You can also watch the show on our YouTube channel. Check the show notes for helpful links. If you like the show and want to support the work we do, you can do so in a number of ways the most important thing you can do is engage in the conversation. Leave a question in the comment section on our YouTube video. You can also email your questions or voice memos to podcast at HOA insights.org or leave us a voicemail at 805-203-3130 If you gain any insights from the show, please do us a huge favor by sharing the show with other board members, you know. You can also support us by supporting the brands that sponsor this program. Please remember that the views and opinions expressed by the podcast do not constitute legal advice. You'll want to consult your own legal counsel before making any important decisions. Finally, this podcast was expertly mixed and mastered by Stoke Light video and marketing with Stoke Light on your team, you'll reach more customers with marketing expertise that inspires action. See the show notes to connect with Stoke Light.