Increased competition among lenders has led to more competitive pricing
and more flexible loan terms. Condo Association loans that would have been written at
2.5% to 3% over the prime rate in the early 1990s are now priced closer
to 1% to 1.5% over prime (and in some cases lower). Loan
amortizations have also changed. Three to five years was considered a
reasonable repayment schedule in the early 1990s. It is not uncommon
now to see seven to ten year repayment schedules. As a result of lower
interest rates and increased amortizations, condo associations
are finding that their borrowing power has increased. In fact, today
the average loan size is probably in the $300,000 to $500,000 range,
where as ten years ago it was $100,000 to $150,000.
The long-run stability of the condoassociation is still of utmost importance
to the bank, since repayment of the loan will depend upon maintaining a
viable organization. Bankers are still concerned with the historic
operating results of the condo association: Are the condo fees being
set at a reasonable level from one year to the next? Is the condo association
systematically building a reserve account? Is the physical plant being
maintained and in overall good condition? How do the monthly HOA assessments
(including debt service on the proposed loan) measure up with other
similar associations in the marketplace?
High owner-occupancy, professional management, and minimal impact to
condo fees due to the loan were high hurdles for many condo associations. While all
of these benchmarks are still taken into consideration, requirements are much
more fluid as lenders have increased their knowledge. Bankers now focus
on the size of the loan in relation to the overall value of the
complex, the loan per square foot of livable area and the loan per
unit. These factors are tempered with how long the condo association has been
in existence, the owner-occupancy rates, the association's management
situation, the level of reserves maintained by the association and the
impact of the loan repayment on condominium charges.
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