Here’s one for the World Marketing Hall of Fame. Well, it’s certainly unique enough. Chicago’s 111 East Chestnut Condominium may very well be the single-most attractive real-estate buy for upscale ne’er-do-wells. By the numbers, 111 appears to be Deadbeat Heaven. Well, surely it’s a haven.
On September 4, some 4 ½ months after the board worked to reelect itself, and 5 months after the due-date as mandated by the association governing documents, the board gingerly released 111 East Chestnut Condominium Association Financial Statements For 2018.
A summary overview was provided by Chicago-area noted condo financial expert, Michael Novak. Preliminarily, he said:
“The Operating Fund’s current assets at the end of 2018 is less than the Fund’s current liabilities. This means the association is insolvent to the point it can’t pay its bills in a timely manner. In fact, that’s why the association has been postponing its monthly reserve contributions, which is a no-no. Your association however, already spent $80K of 2019 assessments in 2018. Consequently, this shortfall and the working capital shortfall must be made up in the 2020 budget unless the board continues to kick the can down the road.”
But the standout story, according to Novak, is just how much the association is writing off past-due assessments as bad debt. It deserves a 111 owner/investor YIKES! Novak noted:
1. As of December 31, 2018, your association had $252K in past due assessments, which means the association’s collection policy is not working and/or assessments are too high. Seems to be an over-abundance of “Deadbeats.” As of December 31, 2018, over $1/4 million in assessments, all for 2018, were past due. That’s about 7% of the 2018 assessment budget.
2. People aren’t paying their assessments.
3. Your board, over the years, created allowances, estimated bad debts, totaling $127K. In other words, at the end of 2018, the board said of the $252K in past due assessments, it estimated that $125K, or less than half of the total, was collectible.
4. During 2018, past due accounts receivable grew by $40K. But the board increased its allowance for bad debts by $35K, resulting in a net increase in net receivables of $5K from 12/31/18 to 12/31/19.
5. Your late fee is $75, which is quite high relative to considering your building’s assessments. For example: $75/$500 is 15% per month, which is at least $180% annualized. That in mind, 111’s usurious late fee might actually be exacerbating the bad debt situation. Bottom line: Your building’s damages are just not $75 per late payment. In fact, it appears that management gets about $50 for each past due notice, which means 111EC’s late fee is significantly more than damages.
6. It appears that roughly a dozen or so owners (3%) are late each month. And some 7% of assessments are past due.
7. Your association in 2017 collected about 184 late fees, or an average of 15.833/month. In 2018, this number dropped to 140 or just under 12/month. The association collected $13,800 and $10,500 in late fees in 2017 and 2018, respectively. That said, it appears Sudler received $9,740 and $7,000 in administrative fees for 2017 and 2018, respectively from 111 EC, largely for “following up” on past due assessments. Bottom line: Your management company may not have an incentive to resolve the situation. It appears Sudler is getting about $50 for each past due account. That may indicate moral hazard.
So who’s to blame? Or, as Novak asked, “Are the board members asleep at the wheel?” That makes perfect sense assuming the board is fully informed. But who knows, especially in light of how the board’s lawyers obfuscate responsibility (read: keep them ignorant). In this instance, responsibility falls squarely on Jane Santogrossi. Now Board President, Jane was Treasurer throughout 2018. During that time she consistently reported that we were in good shape financially.
Hmmmmm. Apparently, it was really great for those deadbeats that got a free ride. Nice job, Jane.
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UPDATE 9/24: Santogrossi just cancelled this month’s board meeting.