A new loan program just launched by the Hawai‘i Green Infrastructure Authority aims to help condominium associations with critical repairs and maintenance needs.
The Condominium Association Loan Program provides direct loans to Associations of Apartment Owners, or AOAOs.
Through the new program, loans can be used for deferred maintenance and repairs including installing, repairing or replacing fire sprinklers or other safety measures; repairing or replacing pipes or the roof, and other "qualifying risk-reducing improvements approved by HGIA," an announcement from HGIA on Monday noted.
"Hawaiʻi’s condominium insurance market has become increasingly unstable, with many associations finding it increasingly difficult to obtain hurricane insurance policies with full coverage," an announcement from HGIA notes. "Aging building systems and deferred maintenance increase risks and leave buildings underinsured, resulting in a significant financing gap for both the condominium project and its individual unit owners."
In an effort to stabilize an unstable insurance market, Gov. Josh Green last year signed Act 296 into law. The legislation, in part, reactivated the Hawai‘i Hurricane Relief Fund to "provide insurance coverage in scenarios where the private market fails to do so," an announcement from the Governor's Office at that time noted.
Monday's announcement says it also allowed HGIA "to develop direct financing and credit enhancement programs for qualified condominium associations."
"These programs are part of the state's efforts to stabilize the property insurance market by reducing the risk of future claims, through proactive maintenance and upgrades," HGIA said.
To qualify for the new loan program, a condo association must receive at least one "adverse action letter" from a financial institution denying a requested loan, and the association must also agree to get full replacement property and hurricane insurance after repairs are complete, HGIA says.
"I think it's going to be good for some boards because there's a lot of condos — it's not just here in Hawai‘i, it's across the country — that have a lot of deferred maintenance," Raelene Tenno, education chair for Hawai‘i Council of Community Associations, told Aloha State Daily.
Founded in 1975, the Hawai‘i Council of Community Associations works with homeowner associations that include condominium buildings, townhomes and single-family homes.
In a follow-up email, Tenno told ASD that condo boards have been faced with "unexpected huge increases to their master insurance policies and it left boards making hard decisions as this all relates to their operating budget and ultimately to the monthly maintenance fees."
And when it comes to deferred maintenance projects, material costs have skyrocketed, she says. Planned repairs are now out of budget due to these higher costs, which may force condos to seek bank financing or require a special assessment.
Some homeowners may prefer to refinance their mortgage to pay for the special assessment, Tenno explained, but in order to do so, mortgage lenders look at the financial health of the condo, and part of that is the master insurance policy. Lenders require condos to have a 100% replacement value on their policy, she said, and if the owner is in a condo where the board chose to reduce the replacement coverage. lenders won't lend on that condo.
"The new loan program through the HGIA can help these condominiums resolve problems that, in some cases, were created by prior boards, leaving the current board to confront the consequences and get it done," Tenno wrote.
Act 296 also established a complementary condominium loan credit enhancement, available for community development financial institutions, which enables the CDFIs to provide loans to condo associations at "competitive rates and terms" for maintenance and repairs, the announcement states.
"It lowers the risk for CDFIs that lend to condominium associations by using state funds to create a loan-loss reserve that covers first losses if a borrower defaults," the announcement noted.
Both programs are funded by a $20 million reimbursable general obligation fund. Applications are being accepted on a first-come, first-served basis.
Learn more here.
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Stephanie Salmons can be reached at stephanie@alohastatedaily.com.
