$7,500 HOA bill shocks condo owner
Renovation OK’d by single company
Ryan Malham, a 31-year-old high school government and economics teacher, bought a modest condo in south Tempe in January.
The condo was supposed to be a long-term investment: a place for him to live now with a locked-in mortgage he could afford and a place to rent out down the road when he buys a house. Nine months later, he’s selling it. In late September, his homeowners association emailed Malham to let him know that all of the condo owners in the complex were on the hook for $7,500 each for a planned $3.3 million renovation.
“Man, I had to read it a few times,” Malham said. “I was shocked. Scared, like we’re in the middle of a pandemic and it’s going to lead to some really, really difficult decisions for a lot of people, myself included.”
Malham’s HOA board is controlled by a single company that owns about three-quarters of the units in the complex and rents them as apartments, which was how the company was able to approve the special assessment and force all the other owners to pay up.
Knightvest Capital, the owner of the apartments, and Knightvest Mangement, the management company, did not respond to requests for comment.
Out-of-state buyer pushes renovation
Texas-based Knightvest Capital purchased the apartment portion of the complex this summer and immediately rebranded it from Signature Place to San Marino Apartments, Malham said.
The complex is near Kyrene Road and Grove Parkway in southwest Tempe.
The new apartment owner appears to be within its rights to levy a special assessment under the HOA’s governing documents.
The new owner, acting as San Marino Apartments LLC, is the sole member of the HOA board, which allowed the company to approve a renovation plan and special assessment by “written consent” instead of holding a meeting, the
company says in documents provided to The Arizona Republic.
Malham said the first time he and the other condo owners heard about the special assessment was in an email sent in late September. The email came after an annual HOA meeting, which discussed “planned renovations,” according to the agenda. The agenda made no mention of a special assessment.
“I’ve owned condos before and I understand that assessments are needed and I’m willing to pay a reasonable amount to boost the amenities and boost the value of the community. I’m all for that,” Malham said.
The amount of money they plan to spend on the renovations is far beyond reasonable, he said, especially in a working-class neighborhood. Most of the condos were purchased for under $200,000, according to property records.
According to the budget presented by the management company, about half of the special assessments will go toward exterior renovations, like painting and roofing. The other half will be used for amenity renovations, like pool, clubhouse and gym upgrades.
“They’re boosting up the amenities to raise rent in their apartments, to some degree at our expense as owners,” Malham said.
Metro Phoenix has posted some of the largest rent increases in the country over the past year. Average rents for one-bedroom apartments in metro Phoenix in September ranged from a high of $1,270 a month in Goodyear to $910 in Glendale, according to Apartment List. The average rent in the city of
Tempe was $1,100.
Metro Phoenix apartment data expert Thomas Brophy said there is always some amount of “home flipping” that occurs when a real estate market is strong. While metro Phoenix saw this mostly with single-family homes during the last housing boom in the early 2000s, more apartment owners are investing in renovations now.
Brophy said about 25% of metro Phoenix apartments have been fully renovated and another 15% have undergone “lipstick” renovations, which are mostly cosmetic.
He said the increasing rent prices in metro Phoenix are a byproduct of an undersupply of housing in the region. According to a city of Phoenix analysis, Phoenix alone is short 163,00 units.
This has created increased demand in the market, driving up home prices, Brophy said. There are hardly any homes for sale under $300,000, which leaves many people with no choice but to rent, he said.
The rental market is undersupplied, too, however, which has pushed rent prices up, he said.
“You’re not getting any relief anywhere. It’s literally a perfect storm, which the pandemic really laid bare,” Brophy said.
Malham thought that he escaped the skyrocketing rental market by purchasing a condo and locking in with a mortgage payment he could afford on his teacher’s salary — but now that same market is forcing him out.
Knightvest offered him a payment plan for the $7,500 special assessment, with $1,500 due at the end of October and $500 due each month for a year.
“That’s almost doubling my mortgage. My mortgage is just a shade over $600, which is why I bought there,” Malham said. “I responsibly bought something that I could afford.”
He decided that his best option was to sell the condo, move in with his girlfriend and pay the $7,500 out of the proceeds. When he told Knightvest he planned to sell, an employee told Malham that the company was working to buy out a few other owners as well and offered to buy the condo.
“Truthfully, the idea of selling my home to the very company that is forcing me out of it disgusts me. You have to understand how awful those optics are. I feel that this was your company’s intention all along ... to force out the working-class families,” Malham responded to the management company in an email.
Little protection from HOAs
“Broken complexes” — that are partially condos and partially apartments — are uncommon but not totally unusual in metro Phoenix, according to John Kobierowski, senior managing partner of ABI Multifamily.
There are a number of reasons a complex may have both condos and apartments, but one of the most common reasons is that a developer sets out to sell units as condos but is unable to sell them all and instead operates the remainder as apartments, Kobierowski said.
This allows the developer to remain the “declarant” of the complex and typically has full control of the HOA board under the community’s governing documents.
Kobierowski was not familiar with the San Marino Apartments situation but said sometimes apartment owners want to buy out the remaining units in broken complexes because the HOA is underfunded or the complex has significant deferred maintenance.
Phoenix lawyer Jon Dessaules, who represents homeowners in lawsuits against HOAs, said he’s seen more issues recently with broken complexes.
He said that while the apartment owner may have control of the board, the board can’t demand all owners pay special assessments that only will benefit the apartment owner’s units.
There is virtually no government oversight of HOAs and few restrictions on what an HOA board can require of homeowners.
Dessaules said the state Legislature should put a cap on how much a board can charge in special assessments so people aren’t caught off guard with insurmountable payments.
“This kind of stuff is what gives condominiums a bad name,” Dessaules said.
Republic reporter Catherine Reagor contributed to this article.
Coverage of housing insecurity on azcentral.com and in The Arizona Republic is supported by a grant from the Arizona Community Foundation. Reach the reporter at jessica.boehm@gannett. com or 480-694-1823. Follow her on Twitter @jboehm_NEWS.