Crowdfunding Condominium Renovations

shutterstock_crowdfunding-1280x960(Summary; crowdfunding condominium renovations with emerging platforms can lead to substantial savings when proper engineering assurance is also performed.  Contact us for more information)

The 20/10 Rule

After the first 20 years, a condominium building may see a major system repair every 10 years for the life of the building.  After year 20, a building may start to see increased maintenance costs on major systems.   They start as small problems such as a roof leak, a broken water valve,  some wood rot under a window sill, a blown compressor, etc.  As the frequency and severity of the problems increase, the cost of repair and insurance claims exceeds the price of replacing the system.

The Funding Paradox

Once a system enters a mode of cascading failures, a major system renovation needs to happen immediately.  The cascading failures also happen in the financial side: an insurance claim triggers higher premiums, a water damage disclosure devalues real property, frequent shutdowns cause resident complaints, and the cost of constant repairs is progressively more significant.

The backlash from enforcing special assessments on residents can be severe.  People are willing to pay their fair share, but it is not fair to ask a current resident to subsidize past residents who enjoyed a trouble-free system.  Nor is it fair to ask them to subsidize future residents who will enjoy a trouble-free systems after renovation.  At this point, banks have you backed into a corner.  Bank loans must be collateralized by liens on the community cashflow, bank fees can cost between 0.5-1.5% of the cost of repair, and interest rates can average 5% (effectively doubling the price of the work over 15 years)

The cost of having the problem has a compound negative impact on the ability to fix the problem.

Crowdfunding

Humans have a remarkable ability to adapt to constraints on their environment. When money is constrained by economic factors, people are figuring out new ways to get the job done.  Today, new crowdfunding platforms are appearing for every known cause from funding start-up companies, to paying medical bills, education expenses, community coops, even public services.

Coengineers, PLLC is encouraged by what we have seen in the crowdfunding movement.  These are not banks, they are a platforms that allow a community to borrow money from themselves. Instead of a special assessment, the board “borrows” the assessed value from the residents and pays it back from the dues collected over time.

3 Benefits of Crowdfunding Condominium Renovations

1. Current residents no longer subsidize future or past residents – they can carry an interest bearing loan from the HOA.  A resident can move and still collect on the debt.

2. Loan terms are (to a large part) decided by the community, interest rate, initiation rate, assets secured, etc.

3. Money stays home instead of paying bank shareholders in a far off city – all fees, work, repairs, and repayments stay in the community.

A word of caution about crowdfunding for construction

One thing that banks and insurance companies perform very well is due diligence. Old institutions have long-term memory that enables them to know what types of investments work and what type do not.  These institutions are very familiar with construction loans and associated financial hazards.  Banks and insurance entities are vigilant in requiring a certain amount of preparation and professional documentation in place before underwriting a project. This data is matched to past data and risks are pooled and diversified.  Before a community attempts a crowd fund, they should make certain that they can effectively duplicate the technical and financial due diligence that a bank or insurance company would perform.

Further, the project MUST be insurable during and after completion in order for mortgages to remain viable.  It is essential that your insurance company accepts the conditions under which a renovation is performed.  They are already very comfortable accepting the opinions of your bank, but will they accept the vetting of the HOA Board?  Future mortgage lenders must be certain that the property was renovated to banking standards or they will not lend to future homeowners.  These are serious implication that the HOA board must be aware of.

Crowdfunding Assurance Engineering

Coengineers, PLLC specializes in representing the community’s best interest by performing the condition assessment, the reserves study, the feasibility study, the statement of work, contractor vetting, and ultimately, the maintenance plan for HOA properties attempting to crowd fund their projects.  Coengineers, PLLC has developed a set of processes that may accomplish these goals specifically in support of crowdfunding platforms.

Pillars of Engineering Assurance

The condition assessment tells the HOA exactly what the problem is and the scope of the required repair. The reserve study looks at all property systems and determines their estimating service life and scope of repair over a 30-year period.

The feasibility study will compare various options that an HOA may be considering for scope, cost, and payback.  The statement of work tells the contractor exactly what needs to be performed in contractual form.

Contractor vetting is required to make certain that the contractors’s capability and solution are consistent with the objectives of the community. It is also important to verify milestones of the project and adjudicate the release of funds to the trades for work completed.  Finally, the community needs to know the precise maintenance schedule which will ensure that the new system experiences the maximum service life.

Quality is everything

One other thing to keep in mind is that anyone can buy these notes underwritten by the HOA as long as the asset is of sufficiently high quality.  Coengineers helps to assures the quality of the asset thereby broadening the investor base. Outside investors such as area merchants, future residents, insurance companies, and even contractors may carry these notes at an interest rate that beats many long term investments.  When communities are self-supporting and the money stays home, everyone wins.

Solid value

Crowdfunding condominium renovations may be an excellent choice for some communities to bring their property up from a D grade to an A grade while saving significantly over a bank loan and without imposing a special assessment on the residents.  However, it is recommended that an engineering firm is contracted to provide project assurance that will reflect positively to future lenders, insurers, future residents, real estate values, and community resilience. Feel free to contact us at coengineers.com for more information on crowdfunding platforms and the Coengineers Crowdfunding Assurance Package of services.

What Every Engineer Needs to Know About Bitcoin

engineering-image-17A bitcoin (lowercase b), as a currency, has several flaws that will continue to limit its ability to replace money as we know it.  There are millions of words published on the subject, so I’ll leave it to the reader to assess arguments on both sides.  However, Bitcoin (upper case B) as a “protocol” for the transfer of value is an extremely important innovation that engineers must not ignore.  

The opportunities for the profession are sweeping and vast, but only if we take action and build this ecosystem ourselves – it is so powerful, that others will gladly do it for us.   I will try to explain this opportunity in this short 1125 word article, but please feel free to contact me with in-depth questions.

The Block Chain Protocol

The Bitcoin protocol is a brilliant innovation that cannot be un-invented cfl Jerseys wholesale – it is here to stay and it will appear in many forms long after it sheds the “bitcoin” moniker.   Formally called the Block Chain protocol,  Bitcoin was designed to solve an age old problem of double spending a currency, specifically, a virtual currency.   A currency created on a computer can be easily copied by a computer and thus negates the real productivity that a currency is supposed to represent.   The same is still true for money – paper currency is becoming increasingly complex so that it cannot be easily copied, etc.

Today, there are vast institutions from banks, corporations, a legal system, prison system, and unfathomable volumes of legislation (all imposing respective brokerage fees) acting on the behalf of sanctifying the dollar.  However, volatility in these very institutions is what threatens the value of the dollar and all currencies upon which the World depends for very basic needs.  How well is this working, really?

So, What’s the big deal?

The stakes are high.  To invent a new secure and resilient means to rapidly transmit value can in one fell swoop eliminate the friction of the massive institutions on our economy, while also decreasing the volatility and economic friction imposed on society.   This is the reason behind the media hype, congressional hearings, declarations of nations, billionaire press conferences, etc.  They are all scared to death of the disruptive potential of this little beast.  Unfortunately, bitcoin has fallen victim to many of the same deficiencies that it proposes to correct.  But these will likely be corrected in the next iterations.   

The Train Leaves The Station

The backbone of the Bitcoin protocol is called the Block Chain.  There are now hundreds if not thousands of Block Chains in existence independent of Bitcoin.  Consider the Block Chain like going down to the train station.  At some predetermined time, a train arrives and the doors open.  Everyone piles into the train Kamalei Correa Jerseys and after a predetermined amount of time, the doors close.  The corollary is that the doors cannot be opened for a predetermined amount of time and no changes, copies, or corruption can take place within that time stamp, no matter what.  Only when the train reaches the next location, the doors will open. Once the doors close for a second time, they never open again and a new block is formed.  Also, there is no way to retract this process, except by repeating it forward in flutie cfl Jersey a reverse transaction.     

The protocol has a few more features that I’ll leave to the reader to research including a public ledger where all transactions are open for everyone to see; and the train gets infinitely long with each new opening.  The transactions are opened and sealed cryptograpically and incentives are in place that compensates exchanges (the station masters) and well as those who solve a cryptographic puzzle that creates and maintains the integrity of the public ledger (miners).  

Smart Contracts

Everyone knows that money and contracts are intimately related.  In fact, money is a contract.  A contract is defined as a meeting of the minds.  As such, where the Block Chain protocol can efficiently transmit “currency”, so too can it transmit contracts.  In fact, it is so effective for articulating contracts that it’s potential to do so far eclipses its ability to replace the existing fiat currencies.  But again, money and contracts are so closely related that even this becomes a grey area – both can exist within the Block Chain.  This is hugely significant.     

So what’s in it for the Engineering ricky williams cfl Jersey profession? 

There is a special type of contract that engineering societies such as the NSPE should have a laser focus.  These are called Oracle Contracts.  For example, a client would retain a contractor to build a structure or machinery.  They would deposit funds into an escrow account managed by “smart contract” in a block chain.  This means that the computer will flip the switches instead of an accountant, banker, or attorney.  At certain points in contract and “oracle” – a third party vetting mechanism – will verify that the conditions or performance of the agreement have been met, then they would flip a switch that releases the funds to the contractor or back to the client (or through a predetermined decision tree), depending on objective observation.  

It’s All About Efficiency

This is efficient for the contractor because they don’t have to worry about getting paid as long as they meet the conditions of the contract. The client does not need to worry about getting ripped off because they are assured that the conditions of their agreement will be met.  The system is efficient because high integrity is rewarded and there Mike Ditka Youth Jerseys is little incentive to cheat which minimizes lawyers,  accountants, social dysfunction, and all manners of corruption in a public ledger that provides extraordinary analytics available for societal learning in the public domain. 

For the vast majority of projects, products, or policies in the United States and the world, a licensed professional engineer and related scientific bodies are the ONLY qualified Oracles that can be deployed to vet an astonishing variety of Smart Contracts.

Smart Contracts can be written for almost any transaction, but it is inherently an intangible transaction since a “meeting of the minds” is the true nature of the value that they articulate.  The implications of an abundant intangible economy vs. a scarce tangible economy are vast.  Silicon Valley is pumping millions of dollars into virtual currency start-ups like Ripple Labs while companies such as Ethereum  promise to make smart contracts on public ledger block chains as easy to build as dragging and dropping puzzle pieces into a web page.  This is here today – it is not a theory.

Banks, insurance companies, and attorneys will be the first to adopt smart contracts because they stand the most to lose by not doing so.  Meanwhile, engineers in the US and indeed the World are relegated to the contractor sweatshops or smothered under the weight of towering hierarchies. Tragedies such as the Oso landslide and global warming remind us of the absence of engineering oracles advocating for society and our planet.  It is imperative, now, that engineers embrace Block Chain Protocol Technologies and the deployment of Smart Contracts to elevate the profession to the top of the proverbial food chain before there someone else does it for us.       

Correcting HOA Maintenance Dysfunction

HOA Horror stories

Here’s How The Problems Start

The board of directors of a homeowner’s association is entrusted by the residents to hire a contractor to perform a complicated reconstruction project. Unfortunately, condominium board members are not very good at writing contracts or issuing requests for proposal or collecting bids. When a contractor is selected, the scope of work is often poorly established. The expectations between the community and the contractor begin to diverge. Soon, a law firm is engaged my some residents to sue the contractor for damages. After a long battle, a settlement is awarded, but it is not enough to fix the problem after expenses are paid.

A Chain Reaction

Fortunately, the contractor in the suit was insured, but this does not cover the personal, professional, and opportunity hardship of defending against the suit. The insurance company also increases the premium for coverage for condo projects. Most good contractors say, “it’s just not worth the trouble.” As the pool of available contractors dries up and the price for reconstruction increases, many condos are forced into deferring maintenance in a distorted market.

Cascading Failures

After a while, a condominium springs a few leaks in their piping system. Each leak results in a relatively small water damage claim. When the insurance company notices several claims in the same building, they begin to fear that a mainline is about to rupture next, and threaten the condominium with cancellation of their policy unless the community replaces the entire system immediately. Now the insurance industry is in a double jeopardy: they force the contractor out of the market and they force the condo out of the market to basically avoid suing themselves.

The Dysfunction Deepens

Banks will not make construction loans to condominiums that are not insured. Likewise, they will not make mortgage loans to buildings that are not insured. The property values plummet and the owners are sent under water. Soon they begin to default on the mortgages that the banks already hold. More maintenance is deferred as owners move out and renters move in. Buildings fall apart and become unsafe. Banks pull out of the market to avoid defaulting on themselves. The wider community suffers.

Correcting HOA Maintenance Dysfunction

Community Engineering Services, PLLC is currently deploying The Value Game to the condominium reconstruction market with remarkable success. The Value Game is a new class of business methods that alters the incentive structure of a distorted market so that everyone acting in their own best interest is in fact acting in the best interest of the community.

Here Is How The Value Game Is Formed

The first thing is to identify the “shared asset” in whose best interest it is for everyone to preserve. In this case, the shared asset is the physical condominium building where preservation is the context about which a community interacts.

If we look at each of the players individually, we see some consistent patterns.

  • It is obviously in the best interest of the residents to have a safe and well-maintained home.
  • It is in the best interest of the contractors to have a successful and profitable interaction with the building.
  • It is in the best interest for the Insurance industry to reduce the risks that they underwrite.
  • It is in the interest of the financial industry to loan money into a viable, organized, and disciplined community.
  • It is in the best interest of the real estate industry to represent strong values and complete insurability of assets.
  • Finally, the broader neighborhood benefits from the presence of a viable condominium community.

Project Management is Incentives Management

It is actually in everyone’s best interest that the others are successful. Once incentives can be re-aligned, the project can be managed in a manner that reinforces the community instead of tearing it apart.

Social Capital has value:

Taken together, project risk is vastly reduced and social capital is vastly increased with a simple realignment of incentives and the proper communication channels appropriately open to all. Community Engineering Services, PLLC can orchestrate a tight project by managing the schedule, the design, contracts, risk, and quality; and therefore the cost.