Property Management Issues
The Supply-Chain Condo Conundrum
From the Winter 2022 issue of the CCI South Alberta CCI Review
Well, yet another term brought to us by the Pandemic: Supply-Chain.
Like 2020’s “Pivot”, a term we grew to dislike, the 2021 to present “Supply-Chain” term is one we could have well done without.
Alas, the disruptions in both manufacturing and distribution, which is a world-wide phenomenon, is both very real and very unwelcome.
In your daily life, it may mean that grocery stores have fewer items on the shelf, a new car may be harder to find and prices, well they just keep going up.
For the first time in many years, there is renewed concern over inflation. Prices keep going up, driving up the inflation rate and with few tools in their tool boxes to combat inflation, Central Banks are now signaling an impending round of interest hikes, making consumers pay yet more.
So, how does this affect Condominiums and what does it mean for your corporation?
Well, the biggest impact is on your Reserve Fund. This fund is updated every five years in Alberta and it is essentially an attempt to look 30 years into the future to forecast the financial resources that will be required at various times to ensure that the physical property of your corporation can be restored or replaced if needed. In most corporations, your contributions to the Reserve Fund typically represent 20-30% of your monthly condo fees. For many years, interest rates have been stable and low and inflation has also been low as well. However, that all changed with the onset of the Pandemic.
For those of us in the Engineering world, this is what we are seeing:
- Contractors are having difficulty getting the materials that they need to conduct their work.
- Extraordinarily long lead times on the delivery of materials are leading to projects taking significantly longer than originally planned, leading to anxiety on the part of unit owners as they live in a construction site for many months.
- The costs of projects are rising at a fairly alarming rate. Why? With so much uncertainty surrounding material costs, contractors are having to manage their risk by increasing their bid prices to cover the cost of the unknowns.
- Reserve funds are taking significant hits as the costs to replace that were in place when your study was conducted 4 years ago may be largely irrelevant now.
- The costs of adequately funding the reserves are driving up condo fees or leading to Special Levy’s.
This situation, like so many of the problems brought about by the Pandemic, is having to be managed on the fly and that leads to increased uncertainty and increased costs. As there is only one person who bears the brunt of these increased costs, the Unit Owners, we are in the middle of tough times and the end is nowhere in sight, yet.
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