ARTICLE CONTRIBUTED BY: ROXANA DORIGO, EXECUTIVE VICE PRESIDENT OF FINANCE, KW PROPERTY MANAGEMENT & CONSULTING

Florida community associations and property managers are grappling with the combined challenges of budgeting for rising insurance costs, funding reserves, elevated interest rates and addressing projects that have been deferred to comply with new state laws. Good news, board members and managers do not need to combat these obstacles alone.

At our KWPMC managed communities, we have invited insurance agents for town hall meetings to ensure board members and owners are armed with as much timely information and guidance as possible before budgets are finalized. Agents predict insurance costs will rise between 25% and 30% next year – and possibly higher, if another major storm like Hurricane Ian occurs. However, insurance is hyper-specific to each building. Coastal buildings are likely to see bigger premium increases than inland buildings, for instance. If a building is plagued with many leaks, it will have many claims that drive up the premium.

One insurance agent noted a looming issue with Citizens Property Insurance Corporation, which is our state’s insurer of last resort. If a major storm occurs anywhere in the state, Citizens is expected to issue emergency assessments to every policyholder regardless of its proximity to the storm. This agent did point out a positive recent measure passed by Florida Legislature that could help the state with its insurance competition challenges. Historically, many insurers have shied away from Florida due to its litigious nature. Legislators addressed this with changes that make it much harder to sue insurance companies. Over time, this could give associations more options – and hopefully lower rates.

Other key budgeting considerations include:

• Increased need for professional fees. In addition to third-party insurance professionals, associations should allocate reserve funds for the hiring of engineers and attorneys to handle the various new state law requirements related to structural integrity. In January 2022, Fannie Mae changed its questionnaire for condominium borrowers, with more of a focus on structural integrity. We are advising our associations to get legal opinions from an attorney to make sure those new questions are properly answered, as sales or refinancings could be affected if responses are not adequate.
• Structural Integrity Reserve Studies. Associations must understand how this new legislative requirement impacts them and their upcoming budget. The crux of the law is that associations of buildings three stories or taller are required to conduct structural integrity reserve studies every 10 years. Older buildings will undoubtedly face the biggest increases in reserve contribution minimums, but even associations of new buildings that do everything right can expect increases as well. Reserve study specialists will be in high demand throughout the state.
• Accounting for the current interest rate environment. The reserve studies, along with licensed engineers retained for on-site inspections of buildings, are surely going to identify repairs and restoration projects that need to be completed in the next year. Certain projects earmarked for several years from now may have to be accelerated. Obtaining loans for such projects is substantially more expensive now. Bankers that have strong relationships with property managers are doing their best to lower rates when possible, but the days of securing loans at 3% or 4% are behind us. Budget for interest rates in the 5.8-7% range.
• Be vigilant about collections. While conditions will not get nearly as bad as that of the 2008 financial crisis, some condominium owners may reach a breaking point when it comes to affordability and fall behind on dues. Associations and managers should thoroughly analyze the current delinquency rate and identify any patterns before delinquencies mount.

Timely information will be as valuable as any currency when finalizing association budgets for the upcoming fiscal year. Consult with the experts at your disposal to ensure your association is well-informed and in the best position to navigate a complex budgeting cycle.

Roxana Dorigo is Executive Director of Association Finance at KW PROPERTY MANAGEMENT & CONSULTING.