Blog Posts

Perspectives on Mitigating Occupational Exposure to COVID-19: A Q&A with Shari Solomon, Esq.

WPM recently interviewed Shari Solomon, Esq., president and founder of CleanHealth Environmental, LLC. Ms. Solomon shared her expertise with WPM about how workplaces and residences can mitigate the risk of exposure to COVID-19 for their residents and tenants. WPM: What can you tell us about the importance of industrial hygiene generally, before COVID-19? Solomon: As an environmental consultant who specializes in industrial hygiene, I focus on occupational exposures to health hazards which pertain to safety concerns in working environments. For example, my colleagues and I may assess indoor air quality exposures, administer OSHA trainings, and/or provide infection prevention support to the healthcare field. My area of expertise is infection prevention. When I first started working as an industrial hygienist for the healthcare industry nearly 15 years ago, the primary focus was on the level of radiation that technicians might be exposed to, or the chemical hazards that pathologists may come into contact with during medical processes, for example. There is now a recognition of the safety hazards that may arise for environmental service technicians (the terminology we use for the housekeeping staff) in the healthcare field. For example, the average environmental services technician comes into contact with harsh disinfectants on a daily basis. We therefore assess procedures that help lessen their exposure. More recently, we have become more focused on biological sources of exposures, which is where our expertise can really help reduce the spread of the COVID-19. WPM: How has COVID-19 changed things for multifamily real estate, commercial real estate, and those organizations who provide services to individuals living and working in these types of properties? Solomon: COVID-19 has significantly affected many areas of our lives, which naturally will impact the “new normal” for where we live and work. For commercial real estate, the stay-in-place mandates coupled with the public’s natural reluctance to venture out means commerce has been curtailed. As a result, one of the biggest things that commercial property managers can do to encourage re-occupancy is to create and communicate a re-occupancy program. We can substantially mitigate the risk of infection by minimizing the opportunity for transfer. To do this, property managers should: Develop a policy that stipulates CDC guidelines, such as maintaining social distancing, wearing a mask, etc. Communicate the policy with occupants and tenants Continue to provide periodic validation that the policy is being followed and enforced. For multifamily real estate, the focus is not on re-occupancy, but on maintaining occupancy. The three steps listed above will also provide reassurance to multifamily residents, encouraging them to maintain occupancy. As for the guidelines that each policy should include (point number one, above), we recommend addressing the following: Adhere to recent CDC guidelines: As our understanding of COVID-19 evolves, it is important to follow the latest guidelines from the CDC. Each facility should appoint at least one person to regularly review these guidelines and update the policy accordingly. Mandate social distancing. Require that employees stand six feet apart and post signage to remind anyone who enters the building about this rule. Create visual cues to help people remember what six feet looks like. For example, one company drew circles around employees’ desks. Managers should also consider installing plexiglass or higher partitions. Require Personal Protective Equipment (PPE): PPE such as masks should be required in any indoor environment. Cleaning and disinfection: Create a cleaning schedule that includes frequent cleanings of the entire building, and in particular the high-traffic areas and high-touch surfaces. Hand hygiene: Encourage frequent hand washing by posting signage throughout the building and creating more wash stations. Create signage that discourages shaking hands and touching. Address indoor quality: Improve air quality by improving air circulation. Ensure your HVAC system is functioning well by continuing regular maintenance, which includes inspecting and changing air filters regularly. Also continue to look for ways to increase access to fresh air. Communication: It cannot be overstated that these safety procedures need to be communicated as the norm at frequent intervals. People get comfortable and will naturally slide into less strict adherence to the policy. It is up to property leadership to continue to communicate, monitor and enforce compliance. WPM: What do you believe are the most important challenges around “re-opening”? Solomon: I think maintaining vigilance about the health risk COVID-19 poses will be an ongoing challenge. It could be tempting to become relaxed about communicating and enforcing a building’s policies. We must not let this happen, but continually reference CDC guidelines to be sure we are offering the best in safety and compliance to our residents and tenants. WPM: Are there any new opportunities or positive changes you anticipate coming out of the pandemic? Solomon: I am glad to see industries more focused on infection prevention. This could be a positive shift toward a healthier lifestyle for all of us. I also think the new flexibility that allows us to work from home could have positive repercussions for both people’s work/life balance and productivity. WPM: What advice would you provide to multifamily and commercial real estate owners and related service providers as they begin to re-open? Solomon: People have a lot of anxiety right now because they feel like they have no power to fight against the spread of this virus. But I want to empower them to know that they can protect themselves if they take right measures to minimize the opportunity for transfer of infection. For example, I had a government client who was trying to figure out how to protect their employees when 90 percent of them arrived to work via public transportation. The manager felt powerless to contain the exposure. But I advised that there are six links in the “chain of infection.” If you break any one of those links, such as washing your hands to remove the pathogen or not touching your face, you can significantly reduce your risk. Or you can take ownership of sanitizing your personal desk space and requiring social distancing when talking to colleagues. You do have the power to reduce your risk! CleanHealth Environmental, LLC offers comprehensive training and consultation services for industrial hygiene fields and infection prevention. These services can both satisfy regulatory compliance in the field and provide valuable risk management solutions. For more information about CleanHealth visit www.cleanhealthenv.com.

WPM Q&A Blog –Adam Skolnik CPM, ARM, CAE of MMHA

Perspectives on the Region’s Housing Market: A Q&A with Adam Skolnik, Executive Director of the Maryland Multi-Housing Association (MMHA) WPM sat down recently with Adam Skolnik, Executive Director of the Maryland Multi-Housing Association (MMHA), as he reflected on the state of the regions housing market and the 2020 Legislative Session. We have included portions of that interview below... WPM : What trends are you seeing in the Greater Baltimore housing market and how has COVID-19 impacted the rental housing industry? Skolnik : I think the market had been solid prior to COVID-19, both on the transactional side and the operational side. Some soft pockets remained, downtown, where so much new product had come online that a few older communities were having vacancy issues. While it is too early to ascertain the full extent to which COVID-19 has interrupted the industry, we surveyed our members and found that delinquency rates have increased since March. April’s average delinquency rate was initially 21%, but at the end of the month it was 17.85%. May’s average delinquency rate for survey respondents was 21.9% as of mid-May. Fortunately, May’s average delinquency was about the same as April’s at time of survey. We also found that by the end of the month, delinquency went down, suggesting people are paying throughout the month. We noticed delinquency is much higher at C class and naturally occurring affordable properties. Things are so fluid right now I am afraid to estimate what the impact in June will be. WPM : What operational changes do you expect management companies will implement in the aftermath of COVID-19? Skolnik : Now more than ever, technology is imperative. We expect to see more and more companies adding technology to their operations. Online payment and maintenance portals, virtual tours, and virtual social gatherings for residents are just a few advances our industry has recently adopted, or is pushing to adopt, in the face of COVID-19. WPM : What do you see as opportunities for the industry? Skolnik : President Trump, through HUD, is advancing the idea that investors could get a capital gains tax break by investing in impacted low-income opportunity zones, and that could affect much of Baltimore City. Places like Hagerstown, which are comparatively urban, low income areas, and some parts of the Eastern Shore may show some opportunity, but these may not have the demand or the demographics to support investment. There’s been talk about supporting affordable housing and increasing the Affordable Housing portfolio, though it hasn’t yielded a lot of legislative actions. WPM : Are there challenges facing the market other than COVID-19? Skolnik : Some legislators, at the state level and in some local jurisdictions, seem to think that residents of rental housing need protection from the owners, which could lead them to legislating how we run our business – things like changing escrow laws. In development, we clearly face a shortage of housing throughout the state and the country (particularly affordable housing). A combination of zoning laws and a lack of available land make it harder to build the housing we need nationwide. Howard and Anne Arundel counties have implemented environmental regulations that limit a developer’s ability to remove trees. Howard County also has introduced an increased school facility surcharge intended to address overcrowding schools, which places the onus for a solution on developers. And the book Evicted , which was released several years ago, still has a negative impact on some people’s perception of the industry, because it focused on low-quality, mom-and-pop landlords and their tenants. But most rental housing outside of individual homes in Baltimore City is in larger apartment communities and managed by larger, higher quality providers. WPM : Which issues from Maryland’s 2020 Legislative Session do you see as having the most impact on the multi-housing industry – at the local level and the state level? Skolnik : The State had passed House Bill 231, which prohibits residential housing providers from discriminating against a person based on their source of income. In concept, we support the legislature’s intent to deconcentrate poverty and promote fair housing, but HB 231 would require landlords to accept housing choice voucher applicants, and thus require them to enter into a Housing Assistance Payment (HAP) contract with HUD – and some provisions of the HAP contract are particularly onerous, substantially increasing the administrative burden and financial risks for the housing provider. This is a big issue and it’s been a long-running fight nationwide, for 20 to 30 years. Under HB 231, landlords would have to wait for local housing authorities to process the lease paperwork, and this could mean holding a unit open an extra six weeks or more, keeping it out of circulation and not generating income. Further, the Public Housing Administration (PHA) may unilaterally alter the contract terms, including pricing. They may even alter or terminate the amount of the housing assistance payments at any time, resulting in termination of the lease and leaving the housing provider no recourse. Rent increases would require prior approval. Also, if a renting family were to separate, or if they added a child and the PHA determined the unit no longer provided adequate space, the contract would terminate. And if the PHA failed to make its housing assistance payment, the owner would not be allowed to terminate a tenancy. These are just a few of the problems with HB 231. The MMHA published a position paper in February detailing our exceptions with the Bill and suggesting addenda. We’ve been doing a number of things to prepare for this – not just sharing information, but bringing in local housing authorities after they’ve passed the ordinance and holding sessions with landlords to explain how the process works, who to talk to, etc. Another item considered in the 2020 session was HB 1628, a sales tax measure that would have hit property management services. Our studies showed that individual rents would need to increase by over $120 per unit, per month, just to cover the new services tax. That Bill would have exacerbated the affordable housing issue, but fortunately it was ultimately defeated. WPM : What role does MMHA play in Baltimore’s multi-housing industry? Skolnik : Fundamentally, we do three things – Advocate, Educate, and Communicate. The Advocacy part is obvious. From an education standpoint, we provide internal and external training, like our maintenance training academy, which we provide at no cost to the student. With respect to communication, the Association produces networking events, websites, a blog, and more (mostly for our members), but we absolutely are the voice of industry and public. WPM : What do you want the general public to know? Skolnik : The public needs to understand that owners and managers of rental housing are typically really good corporate citizens, and their portrayal in the media and by advocacy communities is simply wrong. The vast majority of owners and managers care about the communities they manage and work in, and they give back every day. This is an industry that is regulated at every level of government. The issues we deal with are deep and significant – they touch so many areas of life, from helping communities manage during COVID-19 to elevator regulations and towing cars. The fact is that our members are housing hundreds of thousands of residents in good, stable housing. And it’s been that way for a long time.

Multifamily Baltimore: Growing supply and transaction volume and what is drawing Investors to this Marketplace.

We recently spoke with Mike Muldowney, a member of CBRE’s investment sales team who covers the Mid-Atlantic, about multifamily real estate. Here are portions of that interview... WPM : Describe the multifamily market. What’s drawing investors to the market? Muldowney : Multifamily real estate is an asset class that is “needs-based,” since everyone needs a place to live. Consequently, multifamily real estate remains highly occupied and generates strong revenue – similar to self-storage, another asset class, but not serving as critical a need as housing. Unlike other investment types, like industrial and retail offices, which offer multiyear leases, multifamily real estate gives the investor 12-month rolling leases that can be increased as the economy improves or with inflation. This provides an opportunity to move rents and the resulting revenue by two or three percent annually. What’s more, stable multifamily properties maintain 90-95% occupancy rates. Years ago, ownership of multifamily properties was family-based, and family-run businesses would run the facilities, collect rents, maintain the community, etc. In the mid-90s multifamily real estate evolved into more of an institutional investment type, through publicly traded REITs, and pension funds investing in this asset class, making it a more transparent and understandable asset type. Today, multifamily real estate has become much more popular, as it is fairly predictable and favored by the capital markets, from equity to debt offered by banks, life companies or agencies like Fannie Mae and Freddie Mac. WPM : What do you think will be the biggest opportunities for multifamily real estate? Muldowney : One clear opportunity is workforce housing: rental housing that is priced to meet the need of the majority of our workforce. The formula for measuring the affordability of rental housing is typically that a worker can afford one-third of their take home pay on housing. So, someone with a weekly paycheck of $825 to $960 can afford a monthly rental expense of $1200 to $1400. At this rent level, it is also reasonable to expect those rents to increase 2% to 4% per year. After the great recession, homeownership dropped from just over 69% to less than 63%. That’s a move of over 6% on 350 million people, creating a surge in the rental market. And then there’s the entry of the Millennials into the housing market. So far, they seem less excited about homeownership, as they delay marriage and shop for their best possible job. Meanwhile, Baby Boomers are becoming empty-nesters, and many don’t want to maintain a home. WPM : What issues or challenges have multifamily owners/investors faced over the past few years? Muldowney : Increasing overture of jurisdictions about restricting rents on housing – not letting the market dictate price – and some over-regulation in major jurisdictions like California, New York and Washington, DC. For the past several years, we’ve seen more investment capital coming into the multifamily real estate space. It used to be an investor would solve for a leveraged return approaching 20% for a 10-year investment; that number has come down to the low teens due to fierce competition between interested investors. WPM : How would you describe the current transaction volume? Muldowney : Prior to COVID-19 and the resulting economic contraction, I would have said it’s on fire as it was in 2019; that nothing has slowed down, and that there is plenty of equity and debt to purchase these properties, making it the most preferred asset type. But with COVID-19, the credit markets, and specifically the multifamily mortgage markets, have become volatile from day to day. Travel bans have made it harder for potential investors to tour opportunities. Stay-at-home orders and restrictions on non-essential businesses have created more challenges for closing deals, including logistics related to inspections, reports, and recordation. All parties are having to work together to leverage technology and find alternate solutions. Additionally, with the potential of renters losing their jobs due to closings, cancellations, and executive orders being imposed across the country, owners are concerned about renters being able to pay their rent. The upper end of the spectrum is expected to weather the situation better, as residents in these communities are likely to be in better financial standing. Workforce housing has been in high demand leading up to this period and is anticipated to see a rise in occupancy levels again once jobs come back. WPM : What’s the current mix between existing stock and new construction? Is the multifamily real estate market in this region over- or under-supplied? Muldowney : Coming out of the recession, there was a lack of liquidity. New construction across the U.S. fell to nearly 100,000 units per year, where normal rates might be 350,000 or more units per year. Now, we may be at 500,000 or more units coming out of the ground each year for the past few years.] Across the country we’ve been in construction mode. That’s not to say that the units are having trouble getting absorbed, because they are. There is a problem the rising cost of construction, from supplies like concrete, steel, drywall, and lumber, to labor costs that have risen faster than the supply costs. When you have 3% unemployment, it’s hard to find skilled construction workers. We are in need of an orderly immigration policy that brings skilled workers to our country legally. Rising construction costs and the somewhat flat wage growth of renters are more frequently causing a break in the model that solves for a reasonable return on costs for developers/investors in new construction. As such, the pipeline of new construction should narrow in the future. As the new construction opportunities narrow, investors turn to the older rental housing stock where there is an opportunity to buy below replacement cost, fix up the units in exchange for an increase in monthly rent. This approach works well in jurisdictions where developable land is scarce and where there is a both a demand for quality housing and wages that support the rent levels for the upgraded housing. Right now, there seems to be more interest in purchasing existing stock, where investors know there can be rent growth year over year. And DC and its suburbs are a major, well recognized gateway market for multifamily real estate. Baltimore, only 45 minutes to the north, sometimes gets overlooked, though we’re seeing opportunity there. As for the region being over- or under-supplied, there seems to be a good balance in the long term. WPM : How does the Mid-Atlantic compare to other parts of the country? Muldowney : I would say the concentration of investor interest is the Southeast through Texas and through the Southwest. The Mid-Atlantic market falls somewhere on the spectrum of between CA and NY – which are harder places to do business, so investors are coming to the Mid-Atlantic looking for opportunities. Secondary and tertiary markets took it on the chin in the mid-2000s, but now they are in vogue, because there is renewed employment growth (e.g., Sales Force in Indianapolis) which begets a need for housing. Rents are not terribly high, so you have opportunity to increase rents as the economies in these secondary and tertiary locations grow. These would be places like Iowa, Indianapolis, Kansas City, Saint Louis, and Ohio - even Detroit is back. WPM : What advice would you provide to a multifamily owner/investor purchasing an existing property? Muldowney : We like to point to employment drivers, sustainability through thick and thin. Baltimore has lots of jobs in medicine and education, and those tend to stick around in recessionary times. Location relative to mass transit is critical, as gridlock continues. And of course, the “bones” of the property – how well constructed was the community, will the floor plans work with today’s demands? For example, the old three bedrooms with one bath have limited potential for rent growth in today’s rental housing market. WPM : What advice would you provide to a multifamily owner/investor considering a new construction project? Muldowney : On the new development front, I’d explore whether the entire model fits the market – from a rent standpoint, a demand standpoint, etc. As a developer, I like the drivers created by the Bayview Medical campus more than being on the water; there’s simply more activity in those areas. In Highlandtown, rents average $1600 to $1700, much easier to fill than $2200 and up on the Harbor. And look at where wages are heading for net new jobs. A tenant with a $55-60k per year income is more likely to go into Highlandtown than Harbor East or downtown. Mike Muldowney is Executive Vice President with CBRE, specializing in multifamily property sales and concentrating on the Maryland suburbs of Washington, DC and the District of Columbia. His market knowledge expands throughout the greater Washington-Baltimore region. Learn more about Mike and his team at www.cbre.us .

ICYMI: Insights on Multifamily Housing in Delaware

An interview with Anirban Basu, Chairman & CEO of Sage Policy Group Renowned Economist Anirban Basu recently shared his insights about multifamily housing with the Delaware Apartment Association. We had a chance to follow up with him to get his perspective and to share some of the highlights from his comments. WPM: What trends are you seeing in the multifamily housing market? Basu: The focus seems to have shifted away from new construction and toward rehabilitation of Class B and Class C properties. The upper end of the market has been neatly saturated with new construction, and housing affordability issues abound. Out-of-town money is flooding into Wilmington, DE, pushing down cap rates. Investors are convinced that apartments that presently yield $650/month can be improved and attract much higher rents. Perhaps, but there are a lot of financially constrained people out there. WPM: How does the multifamily housing market in this region (Delaware specific and/or Mid-Atlantic) compare to the national market (e.g., makeup, size, or other applicable measures or relevant metrics)? Basu: Some of the strongest markets these days are adjacent markets -- markets adjacent to much larger metropolitan areas. Wilmington fits that profile neatly, as does Providence, Sacramento, and others. Primary markets have become wildly expensive, creating substantial demand in adjacent markets. Because there are so many primary markets in the Northeast and Mid-Atlantic, secondary markets here tend to be very strong. Even Baltimore has hung in despite its massive public safety issues. WPM: What about job growth (and type of job growth) in Wilmington and/or Mid-Atlantic? Basu: Job growth in the Mid-Atlantic is meh. The fastest job (and population) growth will continue to be in the South and West, including throughout Florida, Atlanta, Dallas, San Antonio, Nashville, Austin, Phoenix, Denver, etc. WPM: How do you see the current economic forecast affecting the industry? Basu: Risk of recession is elevated. Coronavirus has exposed a number of economic fragilities, including the excessively leveraged corporate sector (e.g., energy). Vacancies are about to rise. WPM: What do you think has the most potential to advance, alter, or disrupt the industry? Basu: Demographics. The most common age in America this year is 28. The second is 29, third is 27. Many future homeowners in the making. The demographics of the multifamily market won't be nearly as strong over the next ten years as they have been over the past ten. That said, there is a group of Millennials that will actively avoid homeownership, choosing to rent. Still, five years ago, the most common age was 23. That was a perfect setup for the multifamily boom we have experienced. Anirban Basu is Chairman and CEO of Sage Policy Group. He is a study in contradictions. He has been called an economist with a personality, or alternatively, one with a sense of humor. He has twice been recognized as one of Maryland’s 50 most influential people. He has also been named one of the Baltimore region’s 20 most powerful business leaders. He serves as Chairman of the Maryland Economic Development Commission, teaches global strategy at Johns Hopkins University, and serves the Chief Economist function for a number of organizations around the country.

MRE Investment Climate in 2020: An Interview with Mark Caplan

MRE Investment Climate in 2020 A Q&A with Mark Caplan, Chairman of WPM Real Estate Management and President/CEO of Time Group Real Estate Investment We recently sat down with WPM Chairman Mark Caplan in his role as managing partner of the firm’s largest client to get his perspective on the climate for multifamily real estate in 2020 WPM: How would you describe the multifamily real estate investment market for 2020? Caplan: From an investor perspective, the multifamily real estate market is generally going well, is very local in nature and increasingly competitive. Existing communities are performing well and investment opportunities with the right economic return are harder to find. I think multifamily real estate investment is being pursued aggressively in the region, driving down capitalization rates and expected returns. Plus, the market may be a little over supplied. There’s been a lot of new building and that simply takes a while to be absorbed. WPM: How would you say the Mid-Atlantic and MidSouth regions compare to the national market? Caplan: I would say these markets are performing similarly or even a bit better than the national market because of growth. We’re a coastal country with the East and West coasts shouldering much of the activity and economic growth in our country. WPM: What current trends are you seeing in multi-family real estate? Caplan: I believe we’re seeing less movement to home ownership in this next generation. Increasingly, we’re seeing millennials continuing to rent versus buy. I think this will lead to greater diversity in terms of property types, including more suburban and single-family home rentals. As millennials who would typically have been housed in urban apartments begin to have families and move out to the counties, we see their desire to rent continuing. Additionally, some of the amenities that up until now have typically been in urban settings may need to be thought about for suburban communities – things like package delivery, fitness centers, and business centers. Furthermore, I think transportation is key. How we’re thinking about transportation, including services like Lyft, Uber and Zip Cars, impacts where people want to be located and how people choose their communities. WPM: What do you think will be the biggest opportunities this year for real estate investment? Caplan: I think one of the biggest opportunities for real estate investment is on the office and retail side. It’s not my focus, but I believe someone with the right vision – who understands and can anticipate the way industry is changing and how that will affect how people will work or shop in the future – has a big opportunity. Investors may have different views based on their perspective about changes in technology, industry, home delivery models, etc. It’s a chance to be really right about what’s needed or to be really wrong. Who knows? WPM: What challenges do you think the market faces? Caplan: I would have to say affordability and supply. There’s a lot coming online right now, and the question is how you pay for it. It’s why I think it is so important for companies like WPM Real Estate Management to focus on being both customer centric and efficient in managing expenses. Residents who are happy will stay longer. WPM places significant emphasis on providing residents with a good home and superior service at a fair price. It’s why the firm continues to maintain high occupancy levels and continues to receive some of the top ratings for customer satisfaction in the industry. Ensuring operational efficiencies is another critical factor for properties and owners, especially when faced with challenges of an over-supplied market. It’s important that your management company understands the owner’s perspective and is making good decisions that ensure both quality and cost-control when turning apartments, handling repairs and maintenance, and servicing equipment for operability. WPM: What’s next for your team in 2020? Caplan: We continue to look for greater geographic diversity and expansion into mid-tier cities within the region, where we can bring our investment expertise and our management experience, size and scale to bear. We have recently invested in the York, Pa., Richmond, Va., and Wilmington, De., and continue to look for opportunities within these and other similar regional markets. I think what makes us different than other investor groups entering these markets is our commitment to becoming a part of the communities we serve. We’ve been very intentional and selective about where we want to grow. Our interests are in long-term relationships where our work is integral to the greater community – much like what we’ve done in the Baltimore market. We bring significant development expertise as well as a deep reservoir of equity to make projects happen. And, we bring with us a talented property management company that has a proven-track record of success. I’m excited about the strength of this combination and look forward to seeing what lies ahead in 2020. Mark Caplan is Chairman of WPM Real Estate Management and serves as President and CEO of The Time Group, an investment real estate firm. He is a founding member of the Real Estate Advisory Board at the Columbia Business School and has been a guest lecturer on real estate topics at the Columbia Business School, Wharton Business School, the University of Maryland School of Law and the Carey School of Business. He has served on the Board of Trustees at Saint Ignatius Loyola Academy, the Bryn Mawr School, Walters Art Museum, Gilman School, Center Stage, Baltimore Educational Scholarship Trust, Bay Bank, FSB as well as the Charles Street Development Corporation.

WPM – Q&A Blog Interview with Craig Zaller Attorney, Craig Zaller – Nagle & Zaller, P.C.

Your Association’s Legal Questions, Answered! An interview with Craig Zaller, Managing Partner and Principal at Nagle & Zaller, P.C. We recently sat down with Attorney Craig Zaller from Nagle & Zaller, P.C. to get his thoughts on trends in the community association industry and important legal issues facing homeowners and the communities that they live within. WPM: Given the breadth and depth of experience in the community association industry, what trends do you see that you feel communities should be aware of? Zaller: First, I see a lot of aging infrastructure within communities, and a lack of funding for a Board of Directors to make the necessary repairs. This is a huge concern for many communities, and, in Maryland, there has been at least one Condominium that was terminated due to these issues. I worked on that case. As communities age, there is more and more need for physical improvements, especially for communities with common amenities, such as condominiums. If communities have not sufficiently funded their reserves, and do not have assessments that cover all their expenses and funding to their reserves, the Boards will not have the funds necessary to maintain the common amenities. The community then starts to deteriorate and falls into disrepair. To avoid these issues, I strongly urge communities to obtain reserve studies which address the components within each community, their life expectancy, and the estimated costs of replacement at the end of each component’s estimated life. A Board must take this into account in its budget and in setting its assessments. And, if a Board does not have the funds necessary to put money away in reserves and/or pay its bills, it needs to discuss increasing assessments, obtaining a loan and/or special assessing its owners so that the community has the funds needed to preserve, protect and enhance the property values within the community. Secondly, we are seeing significant issues with delinquent owners which can exacerbate the issues noted above and cause serious financial problems in these communities. There are more people today who are buying into communities that they struggle to afford. As such, many owners put less priority on paying their assessments. And, often, these owners do not have the funds necessary to maintain their properties themselves. If owners do not have enough money to paint their home, fix their siding, or install a new roof, for example, when necessary, then the property values of homes within that community may likely decrease. As such, Boards must enforce their “maintenance covenants” and ensure that all owners are properly maintaining their homes. The Board should budget for enforcement issues such as this, anticipating that many owners will not comply with their obligations. This brings up another important point: one of the most important jobs of the community association are the collection of assessments. Funds to operate the community only come from one source – the owners and their assessment payments. Assessments are the lifeblood of the community, and without these funds, a community cannot survive. Boards and their community association managers must aggressively pursue all owners who are delinquent. That can often include foreclosing on non-paying owners if the standard filing of liens and lawsuits does not resolve a case. Third, I see a lot more litigation today than I saw over twenty-five years ago when I started working in the community association industry . Homeowners seem to have become much more litigious. For example, owners are fighting boards and communities over things like covenant enforcement matters. Issues that should be very clear-cut, such as installing a property feature without permission, are rising to the level of litigation. Owners are now employing bodies of the law and coming up with creative arguments engineered by attorneys to try to get their clients/owners around the rules they agreed and consented to when they moved into the community. Some owners are using and/or manipulating the Fair Housing Act, as an example, to try to skirt the provisions in the Declaration and Bylaws of a community to obtain approval for a structure that would normally not be approved. This is not to say that there are not people who deserve to be protected in the manner that the Fair Housing Act was intended. Owners are obtaining notes from doctors to support requests for a “reasonable accommodation,” but the owner may not have a disability and they may be abusing the process. Oftentimes we can challenge these issues, but, the Fair Housing Act is a very complex area of the law and challenging an owner regarding issues such as this can be costly and risky, even if the owner is wrong. Boards are forced to make decisions that they would not otherwise have to make to avoid risky and costly litigation over these issues. This is an area where Attorney advice early is advisable. The point is that when you buy into a community, you are buying into the governance of that community and you should abide by the rules. Finally, most properties for sale today are in planned communities. It’s harder and harder for potential buyers to find properties that are not bound to covenants like you see in a community association. This makes for more owners that may wish to live as they please but are forced in a sense to comply with covenants that they do not personally care about. This sets the groundwork for internal struggle within a community and often creates disputes with owners who fundamentally do not agree with the concept of community association governance. WPM: Are there commonly overlooked issues or areas of legal risk that you see with community associations? Zaller: Failure to have an attorney review contracts with vendors is a grave legal risk. An Association may have large contracts with vendors, but the provisions in the contract do not necessarily protect the Association. They are drafted to protect the vendor. Opting not to have your attorney review the contract to save money in the end can be far more costly. Because of agreed upon contractual provisions, a community’s recourse, and the right to recover the legal fees expended fighting the vendor, even if you are right, can change the whole strategy in a case and may limit recovery should something go wrong. Using attorneys and having them review and revise contracts to protect an association should be deemed a necessary line item in each community’s budget. Too many communities do not budget the proper funds to use attorneys when needed, and, therefore, avoid using them, taking on great and unnecessary risks. I also see communities that do not fully understand their governing documents and the statutory and case law that override the same. Communities often think that the answer to any legal question can always be found in the community’s Declaration or Bylaws. But the provisions in the Declaration and Bylaws are often not correct, as there may be statutory law at the federal, state, or local level that overrides what is set forth in those documents. There is also case law to consider. Communities need to be aware of this and should have their documents reviewed by their attorney who can best advise them of the current state of law. WPM: How often should a community association revisit its legal documents? Zaller: While I don’t believe there is a set timeframe, I do think that your attorney should periodically review your governing documents to provide feedback on how to improve or respond to changes in the law and issues the community is facing. I often suggest a community review their governing documents with counsel as soon as they come out of developer control, as the governing documents for a community are often written from a developer’s angle and to protect the developer. However, everything changes once an owner- controlled board is in place and their goals are often very different than a developer’s. In addition, make sure that your attorney is publishing regular updates in the law through special client letters or on their websites and stay informed. The law can change quickly. WPM: What do you believe are the most important legal issues or protections a community association should implement, plan for, or prepare to address? Zaller: The most important thing a community can do is to protect itself financially and be financially sound. In addition, they need to ensure that their community’s governing documents provide the board with the power to do what is necessary to properly run the community. Finally, they need to be aware of and comply with insurance provisions in their governing documents and statutes on point including, most importantly, obtaining the proper fidelity insurance so that if their funds are stolen, as has happened many times in this industry, they will have coverage. WPM: What advice would you provide to a new incoming Community Association Board president? Zaller: First, it is important that they read all their governing documents. They should join the Community Associations Institute (CAI). They should seek the advice of their professionals when necessary. This includes talking to their managers, attorneys, accountants, and other board members, as well, to get the full picture of how their community operates. Finally, they need to always remember that their job is to preserve, protect and enhance the property values within the community. And, that includes enforcing the covenants, collecting assessments, looking out for the best interests of the community, and making the best reasonable decisions that they can for the community. Craig Zaller is the Managing Partner and Principal at Nagle & Zaller, P.C., a Columbia -based law firm that serves over 700 hundred communities in the Baltimore/ Washington area. The firm boasts more than 150 years of combined legal experience, provided in a personalized setting so you have access to the legal resources your community needs. Learn more about Craig and his team at www.naglezaller.com .